Tuesday political GUEST post!

My brother, who blogs over at Politics and Soccer, has agreed to do a guest post today for me! (Well, technically yesterday, but I had computer problems until an hour ago.) He recently graduated from the Georgetown School of Foreign Service's Security Studies Program, and he is far more well-informed than I about all aspects of politics. (I spent part of the second debate on instant messaging with him asking, "Was that statement true? What about that one?" and getting some very detailed and complex analysis in reply.)

He asked what he should write about, and I asked for him to give a rundown on the candidates' differences in healthcare plans and tax plans. So, without further ado, and with much delight, I give you my brother's guest post!

Obama and McCain on taxes & healthcare

Obama and McCain have very contrasting views on both taxes and healthcare, so these are two useful areas to compare them. Disclosure: I am a supporter of Obama. All the information comes from the candidates' websites – additional sources are linked.

Taxes

The Tax Policy Center has a nice chart showing side-by-side comparisons of the two candidates' tax proposals (they also have an in-depth paper contrasting both tax plans). Obama and McCain both frame their tax policy in terms of "fairness," although they obviously mean different things. To Obama, fairness means people with higher incomes pay more taxes so that people who are struggling to get by can pay less in taxes, with the idea that they'll then have more money that they spend and inject into the economy, which grows the economy from the bottom up. To McCain, fairness means lowering progressive income tax rates to something closer to a flat tax, in which everyone pays the same percentage of their income. With lower tax rates, taxpayers will have more incentive to work and make money, and with lower corporate tax rates, businesses will have more capital to expand, growing the economy that way. However, this also lowers the ability of the government to incentivize taxpayer behavior through tax credits (which is key to McCain's health care policy).

Overall McCain's fiscal programs are difficult to evaluate because he hasn't said much specific about them. He has a vague promise to balance the budget by overhauling entitlement programs like Social Security via privatization ("John McCain supports supplementing the current Social Security system with personal accounts") and also claims "the McCain administration would reserve all savings from victory in the Iraq and Afghanistan operations in the fight against Islamic extremists for reducing the deficit." Unfortunately, since McCain's plan to win the War on Terror is secret, we can't evaluate the likelihood of there being any "victory savings".

More specific tax policies McCain has promised include phasing out the Alternative Minimum Tax, which started out as a way to tax wealthy people who avoided paying income tax via loopholes, but due to inflation now applies to a larger portion of Americans, and to lower the top tax rate from 39.6% to 35% (currently for people making $350,000 or more). He would lower the corporate tax rate from 35% to 25%, as he claims that this is necessary to keep America a competitive business environment. This is dubious – two thirds of corporations in the US paid zero taxes from 1998-2005 due to loopholes, and the World Economic Forum rated the US as the #1 place to do business from 2008-2009.

The end result of McCain's tax cuts will be either large deficits or large spending cuts. McCain has stated he prefers large spending cuts; however Congress may force him to accept deficits. Both are bad – deficits because it disproportionately increases the tax burden in the future, and spending cuts because infrastructure (think the bridge in Minneapolis) and other needs will go unmet.

Obama's plan is to keep the Bush tax cuts permanent for those making under $250,000 a year, while raising taxes on those making over that amount. He would also give various tax incentives - $4,000 tax credit for college, 10% credit for mortgages, $500 for employed people, expanding the tax credit for children, eliminating capital gains taxes for small businesses and poorer/middle income people, eliminating corporate tax loopholes, tax credits for renewable energy R&D, etc. It's more difficult to analyze Obama's tax plan as a whole because it has a lot of small detailed things that add up to less tax revenue, and he too has been vague about the specific ineffective government programs he'll cut.

The bottom line is that both McCain and Obama's tax plans promise tax cuts, and both candidates have also pledged to restrain government spending, although probably by not as much as the lost tax revenue. McCain's tax cuts favor rich people, and Obama's tax cuts favor low and middle income people. The Tax Policy Center estimates that , between 2009 and 2018 and measured against current policy, McCain's tax plan will result in $615,000,000,000 less tax revenue, while Obama's will result in $261,700,000,000 more tax revenue (although not a big enough increase to cover the deficit).

The giant elephant in the room that isn't mentioned is defense spending. McCain pledges to "cut wasteful defense spending" with no details, and promises free money from "victory" in Iraq and Afghanistan, while Obama says nothing about defense spending, which by some accounts is over a trillion dollars per year. How do you put forward a serious budget proposal without mentioning defense? It is because of the secret Washington rule that money spent on defense doesn't actually count as money.

Health Care

Both candidates agree with common sense proposals like getting health records online to minimize bureaucratic costs, improving chronic disease management, increasing consumer options on health insurance, drug importation, etc. Similar to his tax policy, Obama's health care policy has a general philosophy with a number of smaller changes, while McCain's policy rests on two big ideas.

McCain has two basic health care proposals. First, to give a $5,000 tax credit to every family, or $2,500 to each individual, for health insurance. Any penny over $5,000 will be paid out of pocket by the families or individuals. Since the average yearly premium for a family of four cost $12,100, and the average cost for an individual was $4,400, this would be a net loss for most Americans. McCain argues that the cost of premiums will go down due to his second major health care proposal, allowing Americans to buy health insurance from any company in the country regardless of their location. Theoretically a freer market would lead to lower prices, but practically it would likely lead to a situation in which all major health insurance companies relocate to the states with the fewest consumer protection regulations, just as has happened with credit card companies all moving to Delaware. This means that health insurance companies won't need to pick you up if you have pre-existing conditions, since they'll all be based in whatever state legislature was bribed into letting them create that loophole in state law. Health insurance would probably be a little cheaper but much worse, and with consumers paying much more and companies much less.

In contrast Obama's plan largely focuses on increasing the number of people with health insurance, although without making health insurance mandatory. Individuals and small employers would be able to buy into a federal program similar to Medicare (National Health Insurance Exchange), large employers would be penalized if they did not provide health insurance to their employees, and families would be required to cover children. While this would expand the insurance pool and thus lower costs somewhat, since the program is not mandatory, the risk would not be distributed as much as in a universal health insurance system, and thus health insurance premiums would not be lowered as much as they could. Probably the best part from a cost perspective is penalizing large employers that don't offer health insurance. Some companies like Walmart pocket profits by leaving many of their employees on Medicare, giving taxpayers the health insurance bills that most companies pay themselves – under Obama's plan, they would be penalized. And as Obama has repeatedly stated, if you like your current health insurance, nothing will change other than your rates going down as costs are transferred from the insurance policies to the government (he leaves out the last part). But since Obama's tax plan is much more progressive than current policy, in effect most Americans wouldn't be paying their transferred costs as taxes due to their tax cut, so it really would be a substantial reduction in cost.

In conclusion, I'd say that both candidates tax plans are fairly unrealistic for two reasons – they were (necessarily) written before the recent financial mess, and they both ignore defense spending. That said, McCain's plan is especially unrealistic due to its "victory dividend" and magical savings from unspecified Social Security reform. In contrast, both health care plans seem perfectly possible, but Obama's is clearly superior.