For all the efforts of Senators John McCain and Barack Obama to portray themselves as willing to break with party orthodoxy to get things done, the economic debate that opened their general election campaign this week previews a classic clash. It is a battle between Republican supply-side economics and a Democratic tradition that uses government levers to try to reduce inequality and spur the economy.
Mr. McCain, who once opposed the Bush tax cuts in part because they favored the wealthy, has now made extending those cuts a central plank in his economic plan, which is based largely on the Republican credo that tax reductions stimulate the economy. And he is pushing another strain of fiscal conservatism that has not been much in evidence of late: a call for smaller government and a vow to cut pork-barrel spending.
He often adds a dash of populism, speaking against excessive corporate pay packages on Tuesday, and has pushed for a gasoline-tax reprieve. And while Mr. McCain has portrayed his tax cuts as benefiting the middle class, most of the benefits would go to the wealthy and to corporations, including his calls for the elimination of the alternative minimum tax.
Mr. Obama often speaks of the traditional liberal goal of trying to redistribute the tax burden to reduce economic inequality, and at least in his public pronouncements has not emphasized the market-friendly, deficit-reduction aspects of the economic approach credited to former President Bill Clinton and former Treasury Secretary Robert E. Rubin in the 1990s. Mr. Obama’s plan would raise taxes on those making more than $250,000 by allowing Mr. Bush’s tax cuts on top earners to expire, and he has signaled that he would consider increasing the current cap on income subject to the Social Security payroll tax.
He has also proposed, for instance, more spending on providing access to health care, which critics say would widen the deficit when coupled with tax cuts. While Mr. McCain asserted in a speech in Washington on Tuesday that under Mr. Obama’s tax plan Americans of every background would see their taxes rise, Mr. Obama’s plan calls for cutting taxes on people earning less than $75,000 a year and for eliminating federal income taxes on elderly citizens who make less than $50,000 a year.
Straying little from the party line
Over all, the two candidates’ approaches — which come from one candidate who has been described as a maverick, and another who is often called “post-partisan” — each hew pretty closely to his party’s traditional economic playbook. And that is increasingly forming the basis of their attacks on one another as each links his opponent to unpopular presidencies.
For instance, Mr. Obama and the Democrats have been accusing Mr. McCain of running for Mr. Bush’s third term by giving costly tax breaks to the wealthy. Mr. McCain shot back on Monday, in an interview on NBC News, that Mr. Obama seemed to be running for “Jimmy Carter’s second” term by relying on tax-and-spend policies.
But the debates have been colored by an unpredictable dynamic as the economy has worsened, forcing the two candidates to reconsider or recalibrate some of their positions. As the home mortgage crisis deepened this spring, Mr. McCain decided that more federal intervention was needed to help homeowners keep their homes than he had previously indicated, and on Tuesday, breaking with the Bush administration, he said he would support extending unemployment benefits.
And the faltering economy led Mr. Obama to say in an interview on CNBC this week that he might “possibly defer” some of his tax increases on the wealthy if economic conditions warranted a delay. That prompted Tucker Bounds, a spokesman for the McCain campaign, to say in a statement on Tuesday that “Barack Obama’s admission that his tax increases could harm the economy begs the question as to why he supports them.”
Bridging two philosophies
One of the big questions about Mr. Obama is the degree to which he is going to wed the more traditional liberal Democratic approach to the economy to the Clinton administration’s more centrist approach, which was sometimes called “Rubinomics,” after Mr. Rubin. That approach placed a premium on deficit reduction and free trade, which Mr. Obama often spoke of coolly during the primary campaign as he courted working-class voters, but which he called “a cause I believe in” in his speech on Monday.
Paul Weinstein Jr., the chief operating officer of the Progressive Policy Institute who was an economic adviser to Mr. Clinton, said that so far, compared with Mr. Clinton’s policies, Mr. Obama’s policies have “a little more focus on fairness and growth than Clinton — Clinton was more pure growth.”
Experts say that both the McCain plan and the Obama plan would increase the deficit, and that neither man has adequately explained how his proposals would be paid for. But several analysts have said they believe that Mr. McCain’s plan would increase the deficit more, because of the size of the tax cuts he is seeking.
The economy has emerged as the top concern of voters in the presidential race, supplanting terrorism and the Iraq war as gasoline prices and unemployment have gone up and housing values and stock prices have gone down.
Their differences on the economy are every bit as stark as the difference on the Iraq war, where Mr. Obama favors beginning to withdraw United States troops while Mr. McCain wants to keep them there until they achieve “victory.”
Mr. McCain wants to extend the Bush tax cuts on the wealthy, cut corporate taxes and keep capital-gains taxes low. The tax cuts he promotes as benefiting the middle class include doubling the size of the exemption people can claim for each child. And his call for repealing the alternative minimum tax, while it would still help some middle-class taxpayers, would still largely benefit the wealthy: some 80 percent of the benefit would go to the top 10 percent of earners, according to the Tax Policy Center, a nonpartisan research group in Washington.
Mr. Obama wants to let the Bush tax cuts on the wealthy lapse, and he wants to raise the tax on capital gains and dividends and to tax the windfall profits of oil companies. He also wants to keep the estate tax, which many Republicans deride as the “death tax,” on people with estates valued at more than $3.5 million; Mr. McCain would exempt people with estates valued at up to $10 million and would impose a much lower tax rate. Mr. Obama wants to use some of that money to pay for his middle-class tax cut and for the elimination of income taxes on retirees.
Alan Viard, a resident scholar at the American Enterprise Institute and a former economist for the Federal Reserve Bank who worked in the Council of Economic Advisers during President Bush’s first term, said, “If you compare McCain and Obama’s proposals, one interesting point that people often don’t realize is that both have pretty substantial tax cuts.”
“We know that McCain wants to make all of them permanent,” Mr. Viard said of the Bush tax cuts, “but Senator Obama wants to make a pretty good chunk of them permanent as well.”
As the economy became the first debate of the general election, the only thing the two sides seemed to agree on was that they disagreed. Mr. McCain said Tuesday that “we offer very different choices to the American people” while Mr. Obama said Monday that they had “a fundamentally different vision of where to take the country.”
This story, 2 New-Style Candidates Hit Old Notes on the Economy, originally appeared in The New York Times.