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Friday, March 29
The Indiana Daily Student

Experts: Neither candidate addresses both inequality, cost in economic plans

This Tuesday, voters won’t just be choosing between red and blue – they’ll also have to decide between two different shades of green.

As the economy has come to the forefront of the presidential election, IU experts say neither John McCain nor Barack Obama’s economic plan alone is enough to fix everything.

Bill Witte, associate professor of economics emeritus, said he is still undecided about who he will vote for because it’s hard to tell whose plan will be the most effective. Both address different aspects of the economy, but neither will fix the overall problem, he said.

“It’s sort of like they’re doing these calculations where they have an economic idea, but then on top of it, they layer a justice idea ... and then on top of that, they layer a political idea. What’s going to get us the most votes?” he said.

Tax cuts for the wealthy

The Bush tax cuts for the wealthy would continue under McCain but be taken away under Obama.

Fundamentally, McCain’s plan should work well for the economy, but it neglects the issue of equality, said Andreas Hauskrecht, associate clinical professor of business economics.

“(Obama’s) plan will help around 80 percent of the taxpayers,” Hauskrecht said of Obama’s proposal to give a tax cut to 95 percent of Americans. “And the wealthy people with incomes more than $250,000 a year will carry the additional burden ... So the Obama plan clearly focuses on turning the clock back towards more equality and having a higher burden on the wealthy.”

McCain’s plan gives a tax cut and is often criticized by Obama for favoring “Fortune 500 CEOs” and ignoring the middle class. But in theory, giving the wealthy a tax cut should trickle down and help the economy, Hauskrecht said. By giving them a tax cut, it motivates them to invest more, which is good for the economy, but increases government debt, he said.

“Higher government debt will increase the levels, so it’s bad for economic growth,” Hauskrecht said. “And the net effect is completely open. This is something that you can maybe answer in 10 years. But it is not clear that the McCain plan actually will support economic growth more than the Obama plan.”

But Witte said this government debt exists largely because America has been living beyond its income for 15 to 20 years. Tax cuts don’t necessarily determine how much they would help, but simply whom, he said.

Economists like Witte said they feel presidents aren’t given enough time to let the tax cuts work.

“We never start from scratch. Leaving them where they are might be better than making change upon change,” Witte said. “People never get a chance to adjust to it. How can you make a plan when you don’t know what the situation’s going to be?”

Chip Snively, finance lecturer in the Kelley School of Business, said McCain’s plan should work.

“From a politician standpoint, it makes much more sense to go talk about tax cuts for a bigger piece of the pie,” Snively said of Obama’s plan to aid the middle class. “Those people are going to go vote.”

But to free up more money for the economy, it makes more sense to give a tax cut to those who make more money overall, which is what McCain’s plan addresses, Snively said. The difference is between giving tax cuts to more people who make less money and giving tax cuts to the group of people that will create more spending in the economy, Snively said.

“It’s tough to say that the trickle down effect doesn’t work,” he said. “But you can’t argue with Obama’s idea of poverty increasing and the number of people below the poverty line. There’s no one reason why that’s happening.”

The small business effect

Eliminating tax cuts for businesses making more than $250,000 per year also can hurt small businesses wanting to expand, Witte said. Obama’s plan could hurt the American economy as businesses might decide to outsource parts of the company, he said.

“If a big corporation is thinking about expanding on a tax basis, it’s much more advantageous,” he said of moving the jobs elsewhere.

Snively said when he worked for a large company, part of the decision-making involved in building a new plant was where it would generate the most profit for their shareholders.

“At the end of the day, there was a significant difference between the cost of running a plant in the United States versus the cost of running a plant in Singapore and the government willing to give us tax incentives,” Snively said. “It absolutely does matter. If this is a bad business environment, then companies aren’t going to invest here.”

Snively added the fundamental difference between the two economic plans is simply whom they affect.

“Is it more important to affect the number of people, or is it more important to affect the number of dollars?” he asked. Obama’s plan affects the number of people, while McCain addresses the money aspect, he said.

Witte added Obama’s plan could discourage small businesses from growing because once they reach a cap of $250,000, they will be taxed more.

“And so a business just can’t afford to grow,” he said. “I find that troubling.”

Health care

Health care has two main issues: coverage and cost, Hauskrecht said. Neither Obama nor McCain addresses them both, he said. The McCain plan, which gives $5,000 tax credits, would address the cost but not the coverage, he said.

“(McCain) would abandon the tax relief for corporations that provide health care plans,” Hauskrecht. “This will bring in (money) for the government budget and an additional $200 billion.”

But this doesn’t help address those who are uninsured, Hauskrecht said. In addition, some health care plans can cost up to $12,000, he said.

“Every sixth American is uninsured,” he said. “And the McCain plan will do nothing about that.”

Obama’s plan instead addresses coverage, but not cost, Hauskrecht said.

Obama has promised to mandate that all corporations offer a health care plan to employees. If they don’t, they are penalized and that money goes into a government fund to subsidize insurance for low-income citizens, Hauskrecht said.

“So the bottom line is the Obama plan would significantly reduce the number of the uninsured, but it would significantly increase the cost,” Hauskrecht said. “And he doesn’t say how he will do it.”

Witte added that ironically, McCain’s plan has been one Democrats have favored in the past because it is a way of distributing health care to all levels of income, where right now health care favors those making more money. But it’s a change from the current system that links health care to employment, which Witte said he’s convinced is not always positive.

“McCain is saying we’re going to change what we have now, and it’s easy to say that change will make you worse off,” Witte said.

Hauskrecht said the most important thing for voters to decide is how much they care about equality as well as how much the government should be involved in that decision.

Remember Social Security?

One thing all three economic experts agree on is that both Obama and McCain don’t address Social Security.

“There has been almost no discussion in this campaign of Social Security,” Witte said.

Hauskrecht said he feels it’s not being addressed because it will be more costly to the government and neither candidate wants to discuss it. Americans will have to contribute more money to Social Security, work longer or receive fewer benefits.

“It’s not what you could call a sexy topic,” Hauskrecht said. “So basically, one of the most important topics of your generation is basically excluded.”

As an economist, Witte said he thinks McCain’s plan is better for the economy, but he tends to side with Obama on other issues.

“I’m hoping that Obama in office will move toward the center and be more like (Bill) Clinton,” he said. “I’m not convinced that if you’ve got these big Democratic majorities, that they don’t sort of roll him and take advantage. His predilections will get lost.”

In the end, the freedom of either Obama or McCain is limited, Hauskrecht said. Most of the first term will need to be spent cleaning up the financial mess.

“You can’t make a clear point in saying this one is better than the other,” he said. “Given the financial crisis and all the fiscal burdens for the financial crisis, the degree of freedom for both candidates to really do something is very small.”

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