It’s the economy (again), stupid

Sixteen years after Bill Clinton’s chief election strategist, James Carville (nicknamed the ‘Ragin Cajun’), coined the phrase that defined the 1992 election, the 2008 contest promises to be dominated by debate about which candidate can most positively impact on voters’ pockets

Observer business reports:

With just over nine weeks until the presidential election, the crisis gripping America’s economy has emerged as the most important issue on voters’ minds. Some 61 per cent of the electorate cite economic concerns as the biggest problem facing the nation - almost double the 34 per cent recorded in January, according to the Pew Research Centre. Only 17 per cent cite Iraq as their greatest worry.

For all the bluster about hope, renewal, wartime heroism and leadership, the policy battle is shaping up to be a classic confrontation of liberal versus conservative ideology. While Obama wants to tax the rich and channel aid to the poor, John McCain is explicitly pledging smaller government, balanced budgets and an extension of the Bush era of low taxation. It is a bottom-up philosophy against a trickle-down approach.

While past presidential candidates have had the luxury of theorising over future policies, Obama and McCain face a crucial issue they can’t duck: what to do about Bush’s $2 trillion in temporary tax cuts, skewed towards the wealthy, which expire in 2010. While Obama would partially roll them back, McCain intends to make them permanent. ‘The choice is stark and simple,’ McCain told a recent town hall meeting in Colorado. ‘Senator Obama will raise your taxes. I won’t. I will cut them where I can.’

Obama intends to increase rates for those with incomes over $250,000 - a mere 3 per cent of the population, his team says - to raise perhaps $700bn over a decade. McCain, meanwhile, presents himself as a paragon of fiscal virtue who will balance the budget by 2013.

Critics, however, question whether either candidate is being sufficiently frank. A neutral body, the Tax Policy Centre, has been trying to divine the cost of the promises made by each side. It reckons that Obama’s tax-and-spend plans will add $3.5 trillion to national debt by 2018, while McCain’s tax-cutting proposals amount to $5 trillion.

In true populist tradition, both campaigns have been only too willing to promise extra spending. But neither side has outlined any cuts, with the exception of a pledge by McCain to stamp out pork barrel-style Congressional ‘earmarks’ for local projects - the most famous of which was $230m in 2004 to fund a so-called ‘bridge to nowhere’ between two islands in a remote part of Alaska.

Roberton Williams, principal research associate at the Tax Policy Centre, says the difference is clear: ‘McCain is saying, “Let’s cut taxes for everybody and help the economy grow,” on the basis that a rising tide lifts all boats. Obama is arguing that the rich have got very rich and can afford to pay a little more because the people at the bottom are struggling.’

Key economic policies

Obama
• A fresh stimulus to the economy of $50bn, including sending out $20bn of tax rebate cheques and creating a $10bn fund to prevent home foreclosures
•Rolling back Bush’s tax cuts for wealthier Americans by increasing taxes on those earning more than $250,000
•A windfall tax on oil and gas companies to fund ‘emergency energy rebates’ of up to $1,000 for low- and middle-income families
•The creation of a national infrastructure reinvestment bank to build roads, bridges and other transport links, comprising $60bn of federal money over a decade
•A five-star risk rating system and a bill of rights to crack down on predatory tactics by credit card companies
•Tackling the Nafta free trade pact so that it benefits American workers

McCain
•Keeping and extending the Bush administration’s sweeping tax cuts
•A fuel tax ‘holiday’ for motorists by suspending levies on petrol for a period of up to three months
•A ‘home plan’ to tackle the sub-prime crisis that would help 200,000-400,000 people by providing new 30-year fixed-rate mortgages to replace burdensome delinquent loans
•Giving families a fiscal break by doubling the annual tax allowance per child from $3,500 to $7,000
•Building 45 nuclear power stations, creating up to 700,000 jobs
•Defending Nafta and pushing for more free-trade treaties with other nations
•Ending all farm subsidies that are not based on ‘clear need’