The plan. Among McCain's other economic initiatives: leaving income and investment tax rates at current levels, doubling the personal exemption for dependents, expanding domestic oil drilling to help bring down energy costs, and offering a $300 million innovation prize for developing advanced battery technology.
With the economy weak and unemployment rising, the Obama campaign has subtly switched its focus from reducing income inequality—by raising income taxes on wealthier Americans and giving a $1,000 tax credit for middle-class families—to growing the economic pie. (Probably smart politics. A new Gallup Poll shows that no matter what their income or political affiliation, an overwhelming majority of Americans prefer economic growth over income redistribution as the best way to fix the economy.) Top Obama economic adviser Jason Furman says Obamanomics focuses mainly on one thing. "Creating jobs is at the center of almost every one of Barack Obama's economic policies," Furman says. "[For example], his energy plan would help to create up to 5 million green jobs through investments designed to help make sure that the next set of green industries that we know are coming happen right here in the United States."
That both campaigns are pushing the same basic message—More jobs! Higher incomes! A stronger economy!—during troubled economic times isn't so surprising. Beneath those slogans, however, you'll find key ideological differences. Whereas McCain wants to fix the economy by freeing up the private sector through lower taxes, Obama thinks it's time Uncle Sam opened his wallet to boost job creation and incomes. He wants to invest $150 billion over 10 years to advance clean energy technology, as well as $10 billion per year for five years in a government-run, energy-themed venture capital fund. Obama also wants to spend $60 billion over the next decade on infrastructure upgrades. All this, Team Obama claims, would generate high-paying jobs for middle-class workers and "bottom up" economic growth that would help reverse the perceived inequality of the past decade. "Our current problems are rooted in the squeeze on ordinary Americans," says Obama adviser Austan Goolsbee.
So would Obamanomics or McCainomics help your personal economics? Well, if you're talking 2009, probably not so much, if for no other reason than timing. The year would be more than half over before any major bill passed. Plus, current events are overtaking some campaign proposals. Obama is pushing a $50 billion stimulus plan—a combination of rebates, expanded unemployment insurance, and aid to states—but so are Democrats in Congress right now. Likewise, both McCain and Obama have plans to deal with the housing crisis. But these are really just tweaked versions of the bailout bill currently moving through Congress—the government would refinance mortgages for selected homeowners—and likely to be signed soon by President Bush. Also consider that the best cure for the housing crisis is probably time rather than new housing policy. "There is just a glut of homes," says economist Patrick Newport of Global Insight. "No matter what Washington does, prices have to fall and builders have to cut back."
Future improvement. Instead, voters should focus on whether what McCain and Obama are proposing would help create jobs and raise the U.S. standard of living beyond 2009. Len Burman of the centrist Tax Policy Center thinks the high corporate tax "probably could be lower" to increase U.S. corporate competitiveness. So score 1 for McCain. At the same time, government spending on improving U.S. infrastructure—it needs about $1.6 trillion worth of upgrades, according to the American Society of Civil Engineers—might create a better business climate and thus more jobs down the road. Score 1 for Obama.
But neither plan might work as well as hoped if it increases the deficit, because excess spending now will need to be paid back later with higher taxes, most economists say. Indeed, a recent University of California-Berkeley study found that simultaneously reducing the federal budget deficit makes tax cuts more effective and tax hikes less harmful. And Burman has doubts whether either McCain's or Obama's economic proposals, which are chock-full of vague spending cuts, would ever put the budget on a path to being balanced. "Some of the proposals just really aren't fleshed out," he says. But based on a straight accounting analysis, which does not consider any impact on economic growth, the Tax Policy Center finds that McCain's plans would increase the national debt by $4 trillion vs. $3 trillion for Obama by the end of 2018 if they are not offset by massive spending reductions.