If you live in a battleground state, you've probably seen the ads: Barack Obama promises to cut taxes for 95 percent of the American people and no family earning less than $250,000 will see their taxes go up by one dime. John McCain, on the other hand, is portrayed as a ruthless tax hiker who wants to tax health benefits for the very first time.
Go to Obama's website and there are "generous tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth." There is a promise to eliminate the capital gains tax for small businesses, cut corporate taxes "for firms that invest and create jobs in the United States," and tax incentives for "investments in innovation."
Listen to the presidential debates and Obama swats away his opponent's big-spender jibes by promising a net reduction in federal spending. In the Oct. 7 debate, Obama declared, "Actually I'm cutting more than I'm spending so that it will be a net spending cut."
Now, Obama's characterization of McCain's health care plan is at best misleading. Many of the tax cuts are in fact subsidies to non-taxpayers. The Joe Plumbers whose taxes would go up aren't all "rich" by any reasonable definition. And as my TAS colleague Philip Klein reported, neither David Axelrod or David Plouffe, Obama's campaign heavyweights, could identify any tax rates that would actually be lowered by their candidate's plan. Independent groups (pdf) say that Obama is promising a net increase, not decrease, in federal spending.
Put all this aside for a moment and let's live dangerously by taking Obama's tax and spending promises at face value. Barack Obama is explicitly promising to reduce federal revenues "to below the levels that prevailed under Ronald Reagan." He claims that his tax cuts will lower revenues more than his tax hikes on the rich will increase them. And he plans to do all this while expanding social programs, delivering universal health coverage, and boosting troop levels in Afghanistan.
If a Republican made such an audaciously hopeful pledge, he would be denounced as fiscally irresponsible. As Dick Armey once quipped, "I thought 'Rosy Scenario' was David Stockman's girlfriend and she was ugly." Respected establishment voices would be decrying the "smoke and mirrors" that went into crafting this bizarre fiscal policy, just as they ridiculed GOP campaign promises to simultaneously cut taxes, balance the budget, and increase defense spending (even when the tax cuts took the form of lower marginal rates with proven dynamic revenue effects).
Yet when Obama says he will cut taxes and increase spending, paying for it all by carefully rooting out those usual suspects waste, fraud, and abuse, the sound you hear is that of crickets chirping.
For decades, liberals have maintained that Reagan's tax cuts bankrupted the country. Since 2001, they have argued that George W. Bush's tax reductions were an attempt to "starve the beast" and defund the federal government. These tax cuts were based in part on supply-side assumptions about faster economic growth and a larger tax base recouping lost revenues over time.
Yet when Obama announces that it is his goal to actually reduce federal revenues -- to less than 18.2 percent of GDP, to be precise -- while launching new domestic programs, crickets chirp again.
Other Democrats have told us that the secret to prosperity in the 1990s was Bill Clinton's tax increases bringing in enough revenue to balance the budget and stimulate the economy through lower long-term interest rates. There were always reasons to doubt this official story, but this was the logic of Rubinomics.
Yet when Obama says he will reduce tax revenues without any talk of balancing the budget, and advocates new spending that the National Taxpayers Union says (pdf) his campaign promises regarding Iraq and the Bush tax cuts won't offset, the Rubinoconomists are silent. There is some continuity between Clinton and Obama on fiscal policy -- both pretended that they were only going to raise taxes on the rich and that expanded subsidies were actually tax cuts -- but Clinton ended up junking his promised middle-class tax cut on deficit-reduction grounds once in office. Obama's policy mix is more consistent with old-school Keynesian economics.
Barack the government-slayer poses problems for some voices on the right as well. How do conservatives who complain that McCain ran as too enthusiastic a tax-cutter explain Obama's decision to position himself as the real tax and spending cutter in the race? There is conflicting data as to how successful this rebranding has been: one poll shows a majority of voters believe McCain is more likely to raise taxes; another shows only 19 percent believe their taxes would go down under Obama, though McCain's numbers are even worse.
Perhaps the problem is not that McCain is too fervent a supply-sider (though his tax proposals could certainly be more weighted toward the middle class), but that an opponent of the Bush tax cuts who ran to the left of his party on taxes in 2000 is not an ideal tax-cut messenger. How else to explain why some voters think their taxes are more likely to go down if they elect one of the most liberal senators rather than the Republican presidential nominee?
Obama's tax and spending plans could be said to rely on "fuzzy math." But they do show us that much of what passes for conventional wisdom inside the Beltway doesn't add up either.
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