One Last Time For Those Who Still Don’t Get It

by McQ | November 2, 2008 8:13 pm

While I prefer Bob Barr’s tax plan (cut ’em and the size of government too), I don’t think the difference between the Obama tax plan and the McCain tax plan can be better summarized than the following two paragraphs and the accompanying chart. [Full disclosure – the IRET is a pro-McCain group of economists, but they have supported their work rather well (read the whole study/analysis[1])]:

When fully phased in, and all economic adjustments are made, the McCain tax plan would increase the private sector portion of GDP relative to the baseline by about 2.7 percent, and the Obama tax plan would reduce private sector GDP by about 3.5 percent, a significant 6.2 percent difference in output and income between the two plans. (See Chart 1.) The difference in private sector capital accumulation would be 15.8 percent or $4.1 trillion in favor of McCain. Hourly wages before-tax would be up 2.2 percent under McCain, down 2.6 percent under Obama, a 4.8 percent difference. Hours worked would be 0.5 percent higher under McCain, and 1 percent lower under Obama.

The dynamic economic response to the McCain proposals would fully offset the cost of his four major tax elements: the lower corporate and estate tax rates, partial expensing, and the rise in the dependents exemption, for a net revenue gain of about $16 billion. The dynamic economic response to the Obama plan would be to reduce tax revenues and make the plan more expensive than it appears at first glance. His business tax increases (“loophole” closings) would result in higher corporate tax revenues, but not as much as the static revenue forecast. His increases in the two top marginal income tax rates, the tax rates on capital gains and dividends, and other marginal work disincentives would depress personal income tax and payroll tax receipts, and trim other revenues, resulting in a net revenue loss of about $53 billion a year.

A private sector capital accumulation difference (that’s where investment and jobs will come from ) of 4.3 trillion in McCain’s favor? A net loss of hourly wages before-taxes of 2.6% under Obama while McCain’s plan nets a positive 2.2%?

The chart referenced in the analysis is below and graphically illustrates those differences:

If this isn’t a clear enough empirical reason, apart from all the character questions, to reject both Obama and his plan, I’m pretty sure that the proverbial live boy or dead girl wouldn’t make any difference either.

[Crossposted at QandO[2]]

  1. read the whole study/analysis:
  2. QandO:

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