11 Days to Go - Dueling Fiscal Policies

While it is tempting to join the finger-pointing Olympics, let's just agree for a moment that there is enough blame to go around for the financial crisis which continues to wreak havoc throughout the world economy. In the context of the fast-approaching presidential election, what fiscal policies can we expect from the new president?

John McCain represents the voice of sanity with a fiscally conservative approach that would attempt to rein in government spending for earmarks as well as ineffective programs, including marginal defense spending. proponents of fiscal stimulation might bear in mind that $700 billion in government funds slated to bail out the financial markets, is going to soak up a lot of spending capacity. Moreover, holding the line on tax increases provides fiscal stimulus. If anything has been learned over the past thirty years it has been the capacity for lower taxes to spur economic growth; or, as some would say, to grow the pie.

McCain's opponent advocates a much different approach. It is difficult, if not impossible, to discern within his rhetorical flourishes, just what he proposes for the fiscal policy. Fortunately, there are analysts skilled in cutting through the smoke screens. The National Taxpayers Union Foundation estimates that Obama would raise spending by $611.5 billion over the next five years, and $1.4 trillion over ten. And these exclude cost estimates for his health care proposals! Read more HERE in an article by Alan Reynolds in this morning's WSJ. And listen very carefully when you hear Obama speak of tax cuts. In his parallel universe, a refundable tax credit, which basically involves the government sending a check TO people, many of whom don't pay taxes in the first place, is called a tax cut.

Stealing a page from Hillary's book, Obama claims he has laid out how he will "pay" for every dime of his proposals. The usual suspects are closing corporate loopholes and tax havens. The fact is, it can't be done. Moreover it can't be done even if they stick it to the top income folks. You can grab each of the top 5% of taxpayers and hold them upside down by the ankles and shake all of the money out of their pockets, and there will still not be enough tax revenue to fund his Utopian proposals. The tax bite will extend significantly lower on the income scale as many successful middle class tax payers begin to learn just what he means when he talks about re-distributing the wealth. Maybe if the economy were booming, we would have some breathing room to take a flyer on some of these ideas. But the stock market, and other economic indicators are projecting very difficult economic times for the next several years. With the government committed to funding the financial bailout, this is no time, if there ever is one, to elect a president committed to full scale socialistic makeover of the American economy.