This is the second article in our “issues week” series being written in conjunction with Dave Schuler’s series at The Glittering Eye. The first article in the series, on Foreign Affairs, can be found here.

Image Credit: Michael Connors

With the recent federal bailout of collapsing financial markets, the fiscal policies of the next President have dramatically increased in importance. Unfortunately, neither politician offers a clear picture of their fiscal policy. They both promise to cut taxes, balance the budget, end unnecessary spending, and provide every American with three wishes.

There are some differences in their proposed policies:

Taxes

I described in a previous article, and not much has changed about McCain and Obama’s plans since then. So here they are:

Both men promise to cut taxes (of course). Under Obama’s plan, there would be a tax decrease of 11.5% for earners over $2.87 million per year (not my bracket) and an increase of 8.7% on earners over $600,000 (still not me). On the other hand, 60% of Americans would receive a tax cut, with the largest reductions going to those in the middle class.

McCain’s plan continues the Bush policy of tax cuts for the wealthy, while providing no relief for the middle class. Earners over $2.87 million a year would get a reduction of 4.4%, while the 60% of Americans earning between $19,000 and $66,000 would get almost no reduction at all.

McCain and Obama’s tax policies can be easily visualized in this chart:

McCain’s plan would also keep a 15% rate on dividends and capital gains, phase-out the Alternative Minimum Tax, cut the corporate tax rate from 35% to 25%, and give a tax break for research and development. He also would increase the exemption on the Estate tax to $10 million, and lower that rate to 15%.

Obama’s plan taxes capital gains and dividends at up to 20%. He would set the exemption for the Estate Tax at $7 million, but tax those above at 45%.

Neither candidate has acknowledged the need to raise taxes in light of the events on Wall Street in the last weeks. Both candidates promise to reduce spending, but to my knowledge neither one has listed a significant program that would be cut. It is likely that whoever is elected President will be forced to raise taxes to fund the bailout and prevent an economic collapse. When that happens, all of the charts and percentages that were debated in the campaign will be thrown out, and the new leader will have to decide where to find more money.

Which brings us to:

Balancing the Budget

Both candidates promise to balance the budget. Neither one has a plan with a good chance of doing it.

Obama plans to instate PAYGO budgeting rules, which require every increase in spending to be offset by a spending reduction or an increase in revenue. He plans to boost federal revenues by repealing the Bush tax cuts for the rich, and by reducing “government waste”.

McCain also plans to balance the budget based on three main ideas: economic growth, reduced spending, and bi-partisan budget controls.

The problem with both of these plans is that the economy is not growing right now. Instead, it is trying as hard as it can to collapse. This makes any projected revenues and spending cuts completely unreliable. Everyone seems to want to balance the budget, but it will take more than a small tax increase and a few spending cuts to do it.

Pork

Surprise! Both candidates plan to eliminate earmarks and wasteful government spending. I think this promise has been made by every Presidential candidate ever, and enacted by few or none. A few quotes from the candidate’s websites will suffice.

McCain:

Stop Earmarks, Pork-Barrel Spending, And Waste: John McCain will veto every pork-laden spending bill and make their authors famous. As President, he will seek the line-item veto to reduce waste and eliminate earmarks that have led to corruption.

Obama:

Cut Pork Barrel Spending: Obama and Biden will slash earmarks to no greater than year 1994 levels and ensure all spending decisions are open to the public.

End Wasteful Government Spending: Obama and Biden will stop funding wasteful, obsolete federal government programs that make no financial sense.

Conclusion

So there you have it. Both candidates, like genies from inside a magic economic lamp, will simultaneously cut taxes, promote economic growth, balance the budget, and eliminate federal waste. Even in good economic times, it is difficult to tell who has the better economic plan given the lavish promises that both sides make. One thing to recommend Obama’s plan is that his tax cuts fall to the middle class, where the majority of Americans reside, while McCain’s go to the rich, which doesn’t include me or anyone I know.

Of course, the giant stopper in the magic lamp is the current state of the economy. It is doubtful that either candidate will be able to implement anything close to their original plans. That leaves three methods for determining who will do a better job with the budget.

First, one can examine the historical records of the parties. The stereotype of Democrats as tax-and-spend liberals and Republicans as fiscally responsible has not been true in many years, and especially not under Clinton or Bush. Lyndon Johnson was a tax-and-spend liberal; his term ended in 1968. Dwight Eisenhower was a fiscally conservative Republican. His term ended in 1960. If you compare the recent records of the two parties, the Democrats under Clinton have performed much better than the Republicans under Bush. Obama favors many of Clinton’s policies, and McCain favors Bush’s. By this logic, Obama would be the better choice.

Second, one can try to judge how each candidate will handle difficult decisions based on the way they have handled their campaigns. John McCain has made two notably impetuous decisions: nominating Sarah Palin as VP without carefully vetting her, and ’suspending’ his campaign to rush to Washington to assist with the bailout, then ‘unsuspending’ it to attend the debate. On the other hand, Obama’s campaign has been smoothly controlled and coolly deliberative. They have refrained from sudden moves, and shown quiet confidence in their plan of action. Granted, it is hard to tell the leader from the campaign, but this method also favors Obama.

The third method is to go with experience. Obama has not been part of the battles over fiscal policy in the last 20 years; McCain has. If anyone can understand the ins and outs of the federal budget, it would be a Senator who has served for 26 years. This method favors McCain. Of course, such experience isn’t always a good predictor of how a candidate will behave as President.

Given the vagueness of the economic plans, and the recent disruptions in the market, it is very difficult to assign a strong advantage to either candidate when it comes to fiscal policy and the federal budget. To be clear of bias, I support Obama, but I do so primarily because of his positions on foreign policy, energy, and the ability to give incredible speeches. With respect to the economy, I certainly hope and believe that Obama will do a better job, but I can’t prove it from looking at vague plans written before a financial crisis.