MINNEAPOLIS – Economic advisers from both Barack Obama and John McCain’s campaigns squared off in a panel on tax policy this afternoon, and the consensus among the non-partisan members of the panel was that no matter who wins, Americans should not expect any major changes in tax policy. After both John Taylor and Austan Goolsbee made the case for their candidates’ tax plan to the crowd at the Hubert Humphrey Institute of Public Affairs, University of Michigan economics professor Joel Slemrod presented a power point presentation that concluded neither candidate was offering fundamental tax reform.
According to Slemrod, both candidates retain much of the Bush tax cuts, make research and development tax credits permanent, and limit but do not repeal the Alternative Minimum Tax. The differences, Slemrod said, include: 1) McCain would collect about $100 billion less in taxes per year; 2) Obama would raise more revenues from families making more than $200k; 3) Obama would collect less revenue from the middle class.
Also on the panel, Urban/Brookings Tax Policy Center director Leonard Burman identified three “things that will force action” by Washington on taxes: 1) the Bush taxes are set to expire and both candidates largely want to keep them in place; 2) the most recent AMT fix is also set to expire; 3) unless something fundamentally changes in Medicare we will be spending our entire federal budget on entitlements by 2030. Burman stressed that somehting most be down about the entitlement crisis but that neither candidate had put forward any serious proposals.
Both Leonard and Slemrod also heavily criticized Washington’s new habit of creating new spending programs through the tax code. Burman said, “Our tax system has become a Christmas Tree” and Slemrod claimed that McCain’s record indicated he had a much better chance of ending this deceptive practice. Leonard and Burman. When asked if raising taxes kills jobs both Leonard and Slemrod said they could on the margins, but that a bigger threat to employment were soaring federal deficits (Heritage’s JD Foster recaps the literature on this subject here).
While the panel did issue firm warnings on the dire predicament entitlement spending has put our nation’s economy, this panel largely failed to address the other half of the budget process: spending. When pressed to identify where their candidates would reduce federal spending, both surrogates gave alarmingly similar answers: 1) less money spent on Iraq (Taylor said we could do this now because of the surge); 2) reducing earmarks; 3) ending farm subsidies. But no one on the panel addressed the new spending candidates have proposed. Given that Obama has promised to spend an additional $1.4 trillion over five years, it would have been nice to hear Goolsbee explain how Obama would not send deficits even higher considering the Tax Policy Center estimates Obama will only raise American’s taxes by $181 billion over that same time.