Today the Wall Street Journal published a letter from Barack Obama economic adviser Jeffrey Liebman responding to an op-ed by McCain advisers Martin Feldstein and John Taylor. Feldstein and Taylor are savvy enough to respond to Liebman’s arguments on their own, but Liebman did materially misrepresent the position of The Heritage Foundation in his letter. Heritage senior analyst Rea Hederman has written to the WSJ:
How ironic that Jeffrey Liebman (“Tax Plan No Help to Middle Class,” Letters, Sept. 4) should charge Martin Feldstein and John Taylor with misrepresenting the candidates’s tax plans just one paragraph after he blatantly represents my work.
According to Liebman, I “praised Sen. Obama’s tax plan as ‘a great step in the right direction’….” In fact, what I characterized as “a great step” was Obama’s climb down from his earlier vow to sharply hike taxes on capital gains and dividends. He now calls for more moderate, albeit still unwise, tax hikes on capital.
Making a bad plan less bad is a step in the right direction. But the Obama tax plan still falls miles short of good economic policy.
UPDATE: Hederman also responds at Greg Mankiw’s Blog:
I saw this morning that you posted a letter by Dr. Liebman on your blog (to which I subscribe). The letter does not accurately reflect my comments on the Obama tax plan. Dr. Liebman has sliced my quotes well out of context. If you read the full article in the NY Sun (August 15) you will see that my quote–‘great step in the right direction’–refers to reductions in the tax rates for capital gains and dividends to 20%, which is far lower than the 25% or 28% that seemed to be contained in Senator Obama’s tax plan at beginning of the summer. Heritage and the Tax Policy Center both started our initial assessments of Senator Obama’s tax plan with the capital gains and dividends tax rate being raised to 25%. I do think it’s a step in the right direction that the Obama campaign has decided not to raise the cost of capital by as much as they planned in the beginning of the summer. But, as I noted later, it would be even better not raise taxes on capital at all.
Dr. Liebman also did not include my comments that Senator Obama is reducing middle class taxes in the wrong way. He complicates the tax code with messy tax credits that will do a host of harm to growth and fairness in the tax code.