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Growth vs. Redistribution and Joe the Plumber


joe.jpgOctover 16, 2008
The Heritage Foundation
 During last night's presidential debate in Hempstead, N.Y., Barack Obama said, "I think tax policy is a major difference between Senator McCain and myself. And we both want to cut taxes, the difference is who we want to cut taxes for." Obama is half right here. As Obama adviser Austan Goolsbee admitted this summer, Obama and McCain both want to preserve the vast majority of President Bush's tax cuts . The difference between Obama and McCain on taxes is that where the two do propose minor changes, Obama wants to use the tax code to redistribute wealth while McCain wants to use the tax code to create it.

The Bush tax cuts Obama and McCain want to preserve include lower tax rates for most income brackets, an increase in the child tax credit, and a reduction of the marriage penalty. Both candidates also want to limit but not repeal the Alternative Minimum Tax and both have voiced intentions to lower the death tax. These are all positive developments. Unfortunately, both candidates also propose to further complicate an already hopelessly complicated tax code.

For all their similarities, the two plans have important distinctions. The most important is that McCain's tax proposals emphasize job creation and raising wages. Obama's tax proposals exemplify his view that redistributing income among citizens is more important than increasing their earnings and creating jobs. This view is apparent in his proposal to raise income taxes dramatically on individuals and small businesses earning more than $250,000.

Defending his plan in Toledo, Ohio, on Sunday, Obama said, "My attitude is that if the economy's good for folks from the bottom up, it's gonna be good for everybody. I think when you spread the wealth around, it's good for everybody." Unfortunately, the facts do not back up Obama's claim. Using tax models and tax information from other sources as inputs into Global Insight's U.S. Macroeconomic Model, Heritage's Center for Data Analysis just released a study estimating the side-by-side economic effects of the two plans. According to CDA, by 2018 the economy would be more than $320 billion larger (after inflation), and average household income would be more than $2,600 greater under the McCain plan than under the Obama plan.

Americans understand that redistributing income among citizens impedes income growth and job creation. The same "Joe the Plumber" who questioned Obama in Toledo on Sunday, and was mentioned again in last night's debate, told The New York Times:

[Obama's] answer actually scared me even more. He said he wants to distribute wealth. And I mean, I'm not trying to make statements here, but, I mean, that's kind of a socialist viewpoint. You know, I work for that. You know, it's my discretion who I want to give my money to; it's not for the government decide that I make a little too much and so I need to share it with other people. That's not the American Dream.


                                                 (video added by RSN)
For all the talk from liberals about how the recent financial crisis proves that capitalism is dead, Joe the Plumber proves just how wrong they are. Americans still believe in the American Dream and they instinctively understand that lower taxes enable the economic growth that makes that dream a reality.

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