It’s the economy, stupid (or the lipstick, or the sex education, or the flag pins, or….)

By: Brian Bohnert

As Democratic strategist James Carville took the reigns of the Clinton campaign in 1992, he coaxed his team to stay on message with three themes he thought could beat George H.W. Bush – the economy, change and health care. The first theme became a rallying cry for the Democrats as they tried to take down a popular war time president and inadvertently gave rise to an American colloquialism. “Its the economy, stupid” seems as applicable today as ever with the news of two more mortgage giants folding and sending the market into the worst free fall since September 11, 2001 (see depressing chart here). Unemployment numbers are up, the strength of the dollar is down, and the American people seem to be on a hair trigger concerning the economy if the immediate response to John Mccain’s gaffe Monday about the “fundamentals” of the American economy is any indication. This response should not come as a huge surprise as currently, 56% of likely voters

Vote with your wallet

Vote with your wallet

indicatate that the economy is the number one issue facing America – a huge shift from 23% one year ago. Furthermore, most political observers agree that when the economy is good the party in power tends to stay there and if not, the challenger typically wins (google: Herbert Hoover+1932+great depression+worst response ever). While the bad economic numbers seem to work in Obama’s favor, the other key economic component to winning in November is taxes, (google: read my lips+taxes+Bush+actually, I hope you can’t read my lips, because I am going to raises taxes+1992 election) something the Democrats have not been able to overcome during the last two presidential elections. A quick study of the tax plans put forth by the Obama and McCain camps reveals a fairly typical liberal (demand side) and conservative (supply side) approach to economic policy, but a closer look is necessary as both Mccain and Obama have inched towards the center when you compare their plans to their respective historical counterparts – Reagan and Franklin D. Roosevelt. First, it is helpful to cut through some of the political and media spin which this article does quite nicely. The McCain folks would have you believe that Obama is scheming to tax anything that moves (or doesn’t in the case of your dead uncle Jerry who just left you his 3 million dollar estate) and claim that the Democrats would implement the largest tax increase since WWII. This simply is not true, nor is the false Republican claim that Obama will raise taxes on the middle class – something that Fox News (believe it or not) was sure to point out yesterday. A further analysis of the the plans reveals that in fact, Obama’s plan would tax individuals making over $250K/year with the highest tax burden shouldered by Bill Gates (not him personally, but his type). While Obama would extend Bush’s tax cuts for the middle class, he would expand the tax cuts for the lowest income earners. Predictably, McCain wants to extend Bush’s tax cuts for the wealthiest Americans and reduce the capital gains tax. If you don’t know what capital gains are, it probably means this won’t affect you since normally this only hits the investments of wealthy Americans (probably not most students at The University of Colorado At Denver). Moreover, Corporations will see a reduction in taxation under the McCain plan which according to classic conservative fiscal thinking will increase competition within the free market, allow access to more capital to create jobs and eventually everyone benefits. Regardless of the plan you prefer, you will most likely see a reduction in your overall tax bill which come April 15, might leave a few extra dollars in your pocket for malted hops and barley. While this will be great for a one time celebration of your good fortune, what the American voter needs to consider is some of the hidden costs of living in a faltering economy and the plain humanity of our society. As gas prices continue to soar, the costs of health care increase and tax payer money continues to bail out wall street mistakes, a supply side philosophy seems woefully out of touch with the majority of Americans. If you think that government can be a force for good and help those that might need an extra boost into the next income bracket (as economist Paul Krugman does) then it might be time to consider a change in our economic plan. If, on the other hand, you view those people who struggle to make ends meet as “whiners” (as McCain economic adviser Phil Gramm does) more of the same might be your style. Moving forward, as wall street tries to deal with the implications of the most recent collapse, look for the economy to take center stage and the talk of lipstick and sex for kindergarteners to fade away. This rough and tumble game of politics has real world economic consequences – it is just unfortunate that it takes an economic collapse on wall street and a hit in our wallets to remind us of that.

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5 Comments

Filed under McCain, Obama, Uncategorized

5 responses to “It’s the economy, stupid (or the lipstick, or the sex education, or the flag pins, or….)

  1. Steven Dell

    Generally speaking, most economists look at taxes as a punishment. If you do a behavior and I tax it then you will discontinue that behavior. Those that have the wealth to create jobs, growth, and overall good living conditions through the economy will invest there money elsewhere if they are taxed for their behavior here.
    That being said even the most conservative in Great Brittan would not do away with their socialized health care, reform it yes but not do away with it. I guess you can’t have it both ways.
    Both sides have accused the current power holders, the president or congress, for the current market meltdown. When all of the evidence actually points to business executives and their unbridled lust for profits. The bright side is that oil is at just over $90 a barrel
    Also, Fox news has the lock down on hot anchors, maybe that’s why I watch it more.

  2. joglesby

    The capital gains tax does not currently affect many students, but that’s because a large percentage of those on campus do not yet have retirement funds. Everyone who has a retirement fund, regardless of their standing as a student, is affected because the growth of income in a given account is not based simply on the interest rates. These accounts buy and sell mutual funds, bonds, and stocks. The above are exactly what are affected by the capital gains tax, so it affects many more than the executives on Wall Street.
    The recent falls on Wall Street have not hit our pockets yet. Gas is comparatively low, the interest rate is unchanged, and the government has so far prevented losses of billions of dollars in various financial accounts. With all the recent government bailouts, and now potentially another in WaMu, taxes can not be cut regardless of who is in office. If taxes are cut then the problem is not being addressed. Within the past month the government has bailed out multiple companies bringing the bill to over 300 billion dollars. If the government does not raise taxes then the solutions will be to either print more money and increase inflation or borrow and further increase our national debt.

  3. Tony Robinson

    Regarding Joe’s comment: With government bills mounting due to the bailouts, there is yet another option beyond raising taxes to pay for the bailouts. George Bush I once called it “voodoo economics.” Cut taxes, but experience a dramatic rise in government revenues as the economy expands due to the tax cuts and therefore there is more to tax. Remember the old Laffer curve from a previous class? Anyway, I’ve heard several GOPers on TV news trotting out the Laffer curve orthodoxy that the way to raise enough government money to pay for all the bailouts is to cut taxes. I am a bit suprised to learn that Joe Oglesby is not that kind of supply-sider…

    As for Brian’s post–nice work! I learned a lot from it, and its various links to further research. Love the insertion of some interesting charts and educational videos on economic policy and theory! the post is very dense and would be easier to digest with more frequent paragraph breaks, or insertion of some tiny images or subsection headers, or something to relieve the long sections of analysis without relief.

  4. bbohnert

    In regards to Joe’s capital gains and its effects. The VAST majority of retirement accounts (IRAs, Roths, 401Ks, 403Bs) all grow TAX DEFERRED. What that means is that assuming you contribute to a 401 or will in the future, your money will be in a tax sheltered annuity until you are eligible to withdraw those funds (when you retire). At that point, those funds have grown (assuming you didn’t invest in Enron or Pets.com) and when they are withdrawn, they will be taxed at the normal income tax rate NOT the capital gains rate. A capital gain by definition is the difference between when you bought something and when you sold it. This tax break is overwhelmingly aimed at the rich who have the capital to buy and sell stocks on a daily basis, not the students, workers and low income members of society who invest in a retirement plan. Lowering the capital gains tax makes sense from a supply side perspective, I just don’t agree with that perspective due to what it does to the income gap and members of our society who can’t seem to find the straps to pull up their boots because the government has cut them off.

  5. Stephen Noriega

    Thanks, especially of the CNN video of how each tax policy will affect various income groups. This helped spell some specifics of each plan and what ideology they come from.

    I believe that capital gains taxes will also be capped at 250K per individual. This will help protect the smaller investor and people who are self employed.

    With all of this economic turmoil, I certainly hope that all of the lipstick drama will defer to reality. Taxation is a real issue with valid, differing schools of thought on how to implement them. Perhaps we can talk about issues for awhile instead of pigs!

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