Neither John McCain nor Barack Obama offers sound solutions to mammoth deficits in the federal budget and in Social Security. But their tax policies would differ dramatically.
Obama plans to increase taxes on the wealthiest citizens, and to cut taxes for everyone else. McCain would cut taxes for everyone, including corporations, regardless of income.
Under both plans, the federal government still would be awash in red ink for years to come. One impartial analysis calculates that McCain's policies would put the country $5 trillion deeper in debt over the next decade, while Obama would add $3.5 trillion to the national debt. Neither candidate is talking much about the tough fiscal choices this country needs to make.
When the government borrows more money, it tends to drive up interest rates. That increases the cost of big-ticket items ranging from mortgages to car loans. And when the cost of borrowing goes up for businesses, they often end up cutting jobs.
One of the most persistent deceptions in the presidential campaign is McCain's claim in TV ads that Obama proposes "painful tax increases on working American families." Obama would raise income taxes on households earning more than $250,000 per year. The vast majority of households - 81 percent - would receive a tax cut.
The nonpartisan Urban-Brookings Tax Policy Center has calculated that households earning between $37,595 and $66,354 a year would save $1,118 on their taxes annually under Obama's plan. McCain's proposal would save those same families, on average, $325. Obama would provide tax credits to families earning up to $150,000, and eliminate income taxes for seniors who earn less than $50,000.
McCain, who once opposed President Bush's tax cuts as tilted unfairly toward the rich, now wants to extend them for another decade and simplify tax rules. He also pledges to balance the budget by 2013, which would entail monstrous budget cuts that he hasn't detailed. McCain and running mate Sarah Palin vow to cut earmarks, but even eliminating every last pork-barrel spending project in the budget would amount to only a small fraction of the revenue lost from tax cuts.
Obama's tax plans are more realistic about raising revenue from sources that can afford the cost. He wouldn't change the corporate tax rate and would raise the capital gains tax rate from 15 percent to at least 20 percent. McCain, in addition to devoting the biggest chunk of his tax cuts to the wealthiest taxpayers, would cut the corporate tax rate from 35 percent to 25 percent. He would leave the capital gains rate unchanged.
But Obama seemed to backtrack last week when asked whether he would raise any taxes if there was a recession upon taking office.
"I think we've got to take a look and see where the economy is," he said on ABC's This Week. "I mean, the economy is weak right now."
The candidates differ greatly on their ideas for shoring up Social Security.
Today, there are 37 million people age 65 or older. By 2025, there will be about 62 million people in that age group, and relatively fewer workers to pay the Social Security taxes that support those retirees.
By 2030, the gap between promised benefits and dedicated revenue will have risen to $250 billion, growing worse after that. Unless the government takes action, Social Security will devour an ever-increasing share of the federal budget.
In 2005, this Editorial Board laid out a five-point plan for fixing Social Security, including raising the income cap on payroll taxes from the current $102,000 and trimming planned increases in benefits. There's political risk in any move, but the longer Washington waits to address the problem, the more drastic the eventual solution will be.
McCain, who says all options should be on the table, supports Bush's proposal to create private accounts for younger people. But he hasn't clarified whether these accounts would supplement Social Security or - as with Bush's plan - allow workers to divert some of their payroll taxes from the current system. The latter option would blow open a bigger deficit that the government would need to cover to pay current retirees.
At times, McCain has sounded as if he doesn't fully understand how Social Security works. He has decried as an "absolute disgrace" that young workers are paying for current retirees. But that's how Social Security has always worked.
Obama, who opposes private accounts, would raise payroll taxes on the 3 percent of workers who earn more than $250,000 a year. The tax increase would not apply to incomes between $102,000 and $250,000. His plan leans on workers who are better able to afford it, and it would help to extend the life of the system without raising the retirement age or cutting benefits. But this proposal alone still wouldn't cover the whole projected shortfall in the retirement program.
Social Security is on track to go broke by 2041. The retirement security of tens of millions of Americans could depend on which candidate is better able to persuade the nation to enact some difficult choices. In the time left before the election, Americans must hope they hear more about this issue than pigs and lipstick.
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