Sarah Palin’s ar­gu­ment on taxes the most con­vinc­ing

The Washington Times Weekly - - Commentary -

The bank­ruptcy of Lehman Broth­ers, the sale of Mer­rill Lynch to Bank of Amer­ica, the 500-point plunge of the Dow, the gov­ern­ment takeover of AIG — all th­ese have got the pres­i­den­tial candidates talk­ing about the econ­omy. But both Barack Obama and John McCain have been vague about their so­lu­tions. And for good rea­son.

Our eco­nomic prob­lems are con­cen­trated in the fi­nance sec­tor, and that’s the part of the econ­omy the av­er­age voter knows least about.

More­over, the po­lit­i­cal blame is widely dis­persed. Ge­orge W. Bush and Bill Clin­ton and Democrats and Repub­li­cans in Congress have all pushed poli­cies to in­crease home own­er­ship. The prob­lem is that many mar­ginal home-buy­ers were un­able to pay their mortgages when house prices fell. An­other prob­lem: Un­der a long­stand­ing reg­u­la­tory regime, the firms that rated pack­ages of se­cu­ri­tized mortgages were paid by the sell­ers rather than the buy­ers. Some of those mort­gage se­cu­ri­ties turned out to be worth less than buy­ers thought.

And strong ar­gu­ments were made that the big­gest dealers of se­cu­ri­tized mortgages, the gov­ern­ment-spon­sored en­ter­prises Fan­nie Mae and Fred­die Mac, were over­lever­aged. The Bush ad­min­is­tra­tion and some Repub­li­cans in Congress tried to place lim­its on the GSEs’ in­vest­ments, but this was suc­cess­fully re­sisted by most Democrats and some Repub­li­cans. Strong lob­by­ing pre­vailed over strong ar­gu­ments, and Fan and Fred are now in fed­eral con­ser­va­tor­ship.

It’s hard to make a 30-sec­ond spot about all this. It’s easy to call for more reg­u­la­tion, but this is a tricky busi­ness, and there’s a risk of sti­fling in­no­va­tion, which has on bal­ance vastly en­riched us over the past 25 years. In any case, vot­ers are not very good at an­a­lyz­ing reg­u­la­tory changes.

So the eco­nomic ar­gu­ment may fo­cus on some­thing vot­ers do un­der­stand — taxes. Here, Barack Obama can ar­gue that he rep­re­sents change. He wants higher taxes on high earn­ers and prom­ises “tax cuts” to 95 per­cent of tax­pay­ers. Ac­tu­ally, they’re re­fund­able tax cred­its, which means cash pay­ments to the 40 per­cent or so of house­holds that don’t pay in­come tax.

But those re­fund­able tax cred­its are phased out as in­comes rise, so his pro­posal amounts to, as my Amer­i­can En­ter­prise In­sti­tute col­leagues Alex Brill and Alan Viard have writ­ten, “mar­ginal rate hikes in dis­guise” on those with in­comes as low as $27,000.

The best ar­gu­ment against higher rates on high earn­ers has come from Sarah Palin in her ac­cep­tance speech, in a line obvi- ously not writ­ten by her speech­writer.

“My sis­ter Heather and her hus­band have just built a ser­vice sta­tion that’s now opened for busi­ness — like mil­lions of oth­ers who run small busi­nesses. How are they go­ing to be any bet­ter off if taxes go up?” Note that she doesn’t say that Heather and her hus­band will be pay­ing higher taxes them­selves. She’s ar­gu­ing that higher taxes will hurt the econ­omy and will hurt the lit­tle gal and guy.

That ar­gu­ment may be gain­ing some trac­tion. The re­cent Quin­nip­iac poll in New Jer­sey, which showed Barack Obama lead­ing John McCain by only 3 per­cent­age points in a high-in­come state car­ried eas­ily by John Kerry and Al Gore, found that 54 per­cent of likely vot­ers be­lieve their taxes will go up if Mr. Obama is elected. When asked whether they be­lieve Mr. Obama when he says that he’ll cut taxes for 95 per­cent of work­ing fam­i­lies, or Mr. McCain when he says Mr. Obama will raise taxes on most fam­i­lies, 44 per­cent say they be­lieve Mr. McCain, and 40 per­cent say they be­lieve Mr. Obama.

In­ter­est­ingly, post-con­ven­tion polls show Mr. McCain run­ning at least as well as Bush in 2004 in Michi­gan and Ohio, where re­cent state tax in­creases have sig­nally failed to bol­ster ail­ing economies. Gallup shows Democrats with only a 3 per­cent­age-point edge in the generic House vote; it used to be dou­ble dig­its. And the Ras­mussen poll shows Democrats ahead only 5 per­cent­age points in party iden­ti­fi­ca­tion.

The old rule that eco­nomic dis­tress moves vot­ers to­ward Democrats doesn’t seem to be op­er­at­ing.

Michael Barone is a na­tion­ally syndicated colum­nist.

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