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Will the real tax-and-spender please 'fess up?

Sen. John McCain has stepped up efforts to paint Sen. Barack Obama as what he calls a traditional Democratic tax-and-spend liberal. Economists, however, view this assessment as exaggerated.
/ Source: The New York Times

With the general election in full gear, Senator John McCain has stepped up efforts to paint his rival, Senator Barack Obama, as what he calls a traditional Democratic tax-and-spend liberal. On Tuesday, for instance, Mr. McCain, addressing a business gathering, accused Mr. Obama of wanting to enact “the largest single tax increase since World War II.”

Mr. McCain, the expected Republican nominee, also said that “under Senator Obama’s tax plan, Americans of every background would see their taxes rise — seniors, parents, small-business owners and just about everyone who has even a modest investment in the market.” He used much the same language in an April 15 speech in which he warned that Democrats “are going to raise your taxes by thousands of dollars per year,” adding up to “a trillion dollars in new taxes over the next decade.”

Economists of various ideological persuasions, however, view Mr. McCain’s assessment as inaccurate or exaggerated. Some question whether Mr. Obama’s tax plan can even be characterized as an increase. Some also argue that contrary to Mr. McCain’s assertions, the Democrat’s proposals, if enacted, would actually reduce taxes for the middle class — the voters both candidates see as the key to victory.

In a study of the candidates’ plans made public Wednesday, the nonpartisan Tax Policy Center concluded that in contrast to Mr. McCain, “Senator Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers.”

The study said, “The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution,” whereas “Senator McCain’s tax cuts would primarily benefit those with very high incomes.”

Other groups that focus on tax and economic policy are preparing similar analyses, but say they regard the Tax Policy Center’s assessment as highly reliable, based on its work in the past.

Both candidates 'overoptimistic'?
The study did question some of Mr. Obama’s calculations, noting, for example, that “both candidates may be overoptimistic in their revenue targets for closing tax loopholes, Obama probably more than McCain.”

According to the group’s computations, under Mr. Obama’s plan, the middle of the middle class, or those earning $37,595 to $66,354, would see taxes cut by $1,042 a year. Under Mr. McCain’s plan, taxes for people in that category would also fall, but by $319; the largest chunk of the benefits would go to those making $2.8 million a year or more.

“When you hear this talk on the TV about how Obama’s a tax-and-spend liberal and he’s going to destroy businesses, it’s just not true,” Mr. Obama said Thursday in Kaukauna, Wis. The reality, he said, is that “the typical middle-class family will get three times more from my cut than the one John McCain has proposed.”

In a conference call with reporters Thursday, Douglas Holtz-Eakin, Mr. McCain’s senior economic adviser, complained about what he described as flaws in the Tax Policy Center study. He called it “an incomplete analysis” that made “some fundamentally unrealistic assumptions” about Mr. Obama’s plan, specifically in the area of taxes on small businesses, and accepted spending projections for the Democrat “that also don’t add up.”

There is “a real difference here” between Mr. McCain and Mr. Obama, Mr. Holtz-Eakin added. “The Tax Policy Center didn’t capture that,” he said.

Part of the disagreement between the candidates has to do with the semantics of what constitutes a tax increase. When Congress approved cuts in 2001 and 2003, it did so with the understanding that those benefits, which largely favor the wealthy, would expire at the end of 2010. While Mr. McCain wants to extend virtually all of the cuts permanently, Mr. Obama favors retaining those that primarily benefit people whose income is less than $250,000 a year.

“The way the Congressional Budget Office scores it, that would not be a tax increase, because their baseline assumes the increase is going to happen as part of current law,” said Chris Edwards, a tax analyst at the libertarian Cato Institute. “Bush and the Republicans would have liked the cuts to be permanent, but you need 60 votes in the Senate to make cuts permanent.”

Mr. McCain is correct when he says that Mr. Obama intends to increase the maximum tax rate on capital gains, the bulk of which fall on the wealthiest segment of the population, and that he would be less generous in offering breaks on the estate tax. But he tends to play down or ignore Mr. Obama’s proposals to eliminate taxes for retirees earning less than $50,000 a year and to give tax breaks to workers earning less than $75,000 annually.

“McCain is picking the areas where rates go up and ignoring the areas where Obama is trying to rebalance the tax code so that taxpayers would save,” said John Irons, research and policy director at the Economic Policy Institute, which is generally viewed as sympathetic to working families. Mr. Irons said that “the important thing is to look at overall impact on people” and that on this score, “the vast majority of the population, almost the entirety of the middle class, would see more from Obama than McCain.”

Economists have also criticized the methodology behind Mr. McCain’s assertion that Americans from all kinds of backgrounds could end up paying thousands of dollars more in taxes if Mr. Obama got his way. Several criticized him as apparently basing his claim on an average figure in which, as Mr. Irons said, “Bill Gates is mixed with you and me, and everything gets skewed.”

Julie Bosman contributed reporting from Kaukauna, Wis.

This report, Will the Real Tax-and-Spender Please ’Fess Up?, originally appeared in The New York Times.