Obama and McCain Differ Sharply on Economic Policy

THE ELECTION IS shaping up as a contest between two sharply different economic approaches. More than in Clinton-Bush or Clinton-Dole — more even than in Bush-Kerry — this election will offer a stark choice. Do you favor a continuation of low-taxation policies and a limited role for the government? Or do you think Washington should actively try to rebuild infrastructure, develop alternative-energy supplies and lessen wage inequality? On these economic issues and more, John McCain and Barack Obama are miles apart.

Commentary in the press has focused on the extent to which either candidate would reverse the Bush tax cuts. But while McCain and Obama differ on taxes, something far more fundamental is at stake: not just the policies that have held sway over the past eight years but those of an entire generation. Ever since the Reagan era, both parties have drifted rightward. Bill Clinton articulated this truth with his famous dictum, "The era of big government is over."

While Republicans have pushed tax cuts, Democrats have played defense: Try to balance the budget; create a market incentive here, a social policy there. Neither party has challenged the basic primacy of markets. McCain would continue this noninterventionist approach. He has little truck with public-sector economic initiatives, although his proposal to cap and trade carbon dioxide emissions is an exception. In general, the Arizonan clearly wants to restrain government spending.

Last month's column warned against trying to read too much from campaign tea leaves. Presidents often fail to live up to their platforms; Obama or McCain could surprise us. Moreover, presidents are always more than the sum of their platforms; character also counts. Still, there is good reason to think that Obama, backed by a Democratic Congress, would enact much of what he is promising. Democrats were afraid to challenge the laissez-faire approach when it was delivering results. But they aren't afraid now. Thanks to Hurricane Katrina, $140-a-barrel oil and the mortgage collapse, the notion that markets can solve every economic problem is no longer tenable. And the country's growth has been grossly uneven. For all the magic that markets work, they have not been able to get lower- and middle-income wages moving again.

So what is Obama proposing? Start with $60 billion in "infrastructure" development. This would include high-speed rail and rebuilding the energy grid. Tack on $15 billion a year for energy technology. He would also double spending on basic research, subsidize high-speed Internet hookups and make more funds available for education and a new health care regime. The gangly Illinoisan's guiding premise: Government should be more than a cop keeping markets efficient and fair; it should also be a force for "good." Like it or not, this is a radical departure.

Even McCain, if elected, is likely to be more centrist than Bush. McCain has a simple and, to my mind, sensible program for a universal health care subsidy. And he (like Obama) favors an increased and necessary dose of reregulation for financial markets. But McCain's tax policy is anything but centrist. He would extend the Bush tax cuts on (mostly rich) individuals. He also would cut the corporate rate — a good idea, since corporate investment accomplishes more for society than does personal investment in mansions and yachts. According to the Tax Policy Center, McCain's tax cuts would add $4.3 trillion to the national debt over 10 years.

Obama would also extend the Bush tax cuts — but only for people making less than $250,000. Unlike McCain, he would raise the capital gains tax and certain corporate taxes. Obama also would cut taxes for a motley assortment of interest groups — students, seniors, mortgage owners, low-income workers and savers. All but the last two are of dubious merit (seniors are already a favored group).

Obama's tax policy would add $3.3 trillion to the debt. That is $1 trillion less than McCain's. However, Obama's assumptions about how much new revenue he could raise are aggressive. And the tax center's calculations do not include the effects of either candidate's new spending proposals. Since Obama would spend more, neither he nor McCain can claim to be a budget balancer or even close.

The contrast in how they apportion the tax burden is striking. Under McCain, people earning more than $1 million would pay $58,000 less in taxes than now; under Obama, $247,000 more. Also under Obama, after-tax income of the lowest half of the country would rise by 2 to 5 percent; under McCain, it would be virtually unchanged.

Where do I come out? Taxes were higher in the '90s, when the economy and the market hummed along, so a tax hike wouldn't scare me. But a heavy government hand might. Obama must show that federal projects need not turn into boondoggles and that backing worthy causes won't devolve into anointing political favorites. McCain must show that with policies similar to Bush's, he can get better results. It's a debate worth having.