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McCain and Obama Trade Jabs Over Economic Strategies

June 10, 2008 at 6:10 PM EDT
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Presumptive presidential candidates Sens. Barack Obama and John McCain offered contrasting approaches to mend a sluggish economy this week, with Obama emphasizing an active government role in providing assistance and McCain calling for lower taxes and spending cuts.
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JUDY WOODRUFF: The presumptive nominees for president make their case for how to help the struggling economy. Gwen Ifill has our coverage.

GWEN IFILL: Setting the stage for a battle sure to continue into the fall election, John McCain and Barack Obama are trading blows over how to address what voters say is their number-one concern: the state of the faltering economy.

Speaking before a small business group in Washington today, McCain said Obama would raise taxes and drive the economy even further into the ground.

SEN. JOHN MCCAIN (R), Arizona: No matter which of us wins in November, there will be change in Washington. The question is: What kind of change? Will we go back to the policies of the ’60s and ’70s that failed? Or will we go forward?

Will we enact the largest single tax increase since the Second World War, as my opponent proposes, or will we keep taxes low — low — for families and employers?

Under Senator Obama’s tax plan, Americans of every background would see their taxes rise: seniors, parents, small business owners, and just about everyone who has even a modest investment in the market.

He proposes to eliminate or drastically increase the Social Security’s earnings cap, the Social Security earnings cap small business people in this room are very familiar with. And that would dramatically increases the taxes on you and employers.

He proposes to eliminate the secret ballot for union votes and to raise the minimum wage and then index it, which is a sure way to add to your costs and to slow the creation of new jobs.

GWEN IFILL: McCain has proposed extending President Bush’s tax cuts, lowering the corporate tax rate from 35 percent to 25 percent, and allowing companies to write off some new investments.

Obama, who has proposed tax cuts for the middle class, but tax hikes on capital gains and for wealthier Americans, spent the morning at a hospital in St. Louis. He told reporters afterward McCain is misinterpreting his economic plan.

SEN. BARACK OBAMA (D), Illinois: Let me be clear. My tax reform plan would cut taxes for 95 percent of workers.

I’ll repeat that: My tax plan will cut taxes for 95 percent of workers, because we need to put money back into the pockets of struggling middle-class families and close the egregious tax loopholes that have exploded over the last eight years.

My plan eliminates capital gains taxes entirely for the small businesses and start-ups that are the backbone of our economy, as opposed to John McCain’s plan, which would tax these businesses.

Now, I’ve said that John McCain is running to serve out a third Bush term. But the truth is, when it comes to taxes, that’s not being fair to George Bush.

Senator McCain wants to add $300 billion more in tax breaks and loopholes for big corporations and the wealthiest Americans, and he hasn’t even explained how to pay for it. He hasn’t come remotely close to figuring out how he would pay for it.

GWEN IFILL: McCain has said he would pay for it by cutting spending, an approach Obama says would still fall short of the money needed to make up for the tax cuts.

Who’s right? We ask representatives from both campaigns. Here for John McCain is policy adviser Nancy Pfotenhauer. She is the former president of the Independent Women’s Forum.

And here for Barack Obama is Jared Bernstein. He is a senior economist at the Economic Policy Institute.

Oil windfall profits tax

Jared Bernstein
Obama Campaign Adviser
What's out of balance here is that you have a set of firms making windfall profits, $500 billion over this business cycle, meanwhile getting big subsidies and tax breaks at a time when middle-income families are really pinched.

GWEN IFILL: I want to start today by talking about today's vote in the Senate to block an oil windfall tax. Is that something that Barack Obama agrees with?

JARED BERNSTEIN, Adviser, Barack Obama Campaign: Obama supports a windfall profits tax on the oil companies. And I think to really understand where he's coming from, you have to look at a couple of basic facts regarding oil and how well those folks have done over the past business cycle.

First of all, if you go back to 2004-2005, the Republican Congress gave the oil companies $17 billion in tax subsidies and tax breaks. These same companies are failing to pay royalties when they're drilling on public land; that's another loophole.

Meanwhile, the top five oil companies netted about $500 billion in profit over this business cycle. And this is a business cycle -- this is a key theme in the Obama campaign -- this is a business cycle wherein middle-class families have stagnated in terms of their income. And they're really pinched by this gas story.

I think what's really out of balance here -- and this is where Obama is trying to come down on this -- what's out of balance here is that you have a set of firms making windfall profits, $500 billion over this business cycle, meanwhile getting big subsidies and tax breaks at a time when middle-income families are really pinched.

GWEN IFILL: Windfall profits tax, good idea?

NANCY PFOTENHAUER, Adviser, John McCain Campaign: It was a dismal failure. We've already been down this road. And this is the irony here, because Senator Obama is advocating, if you will, going back to the '70s policies that clearly failed.

We tried it. Domestic oil production fell to its lowest level in two decades. Prices rose. It is economic masochism, because what it does is it punishes domestic production, doesn't affect our foreign suppliers.

And one of the huge issues here that we need to focus on is how prices are rising across the board because of energy prices, not just oil. And Senator Obama has proposed not just a windfall profits tax. He's also proposed a tax on coal and natural gas.

This is absolutely lunacy, when you look at where we need to go as an economy. When you couple it with the taxes that he's talking about raising in a soft economy, as we go into what many believe to be a recession, you're talking about what Herbert Hoover did, what Jimmy Carter did. It doesn't work.

You end up with much more significant unemployment numbers. You end up with economic growth that is much lower than it should be. And that's the type of policy that's in place, for example, in Germany, where you have GDP growth rates that are significantly below even the average of George Bush.

And so higher unemployment -- high taxes, no country has ever taxed its way to prosperity.

Taxes

Nancy Pfotenhauer
McCain Campaign Adviser
Senator Obama gives lip service to caring about whether companies stay in this country or whether jobs are being shipped overseas, and he doesn't want to lower the corporate tax rate, which makes us -- puts us at a distinct competitive disadvantage.

GWEN IFILL: Let me ask you about that, Jared Bernstein, the allusion to highest taxes since World War II. And Barack Obama himself has admitted that, as a net factor, he would probably end up raising taxes.

JARED BERNSTEIN: Absolutely, although not on net. He has tax increases, but they're quite targeted.

What he said in that introduction was absolutely correct. And I think both Nancy and McCain, in particular, are really misrepresenting his view.

Obama is talking about cutting taxes. On net, he is a tax cutter. But the difference between Obama and McCain is that Obama is raising some taxes on families, for example, with incomes over $250,000.

Now, that amounts to about 2 percent, the richest 2 percent of American households. And even with those tax changes, even with all of the tax changes Obama's talking about, taxes will be lower under Obama than they were under the Clinton years.

Now, here's the point. You heard Nancy talk about McCain's tax-cutting policy. McCain wants to give Exxon -- by cutting corporate tax rates from 35 percent to 25 percent -- wants to give Exxon a $1 billion tax break. Score that over 10 years.

That goes -- let me finish -- that goes exactly the opposite way of where we need to go in a country where economic growth has flowed almost exclusively to the top of the scale. What he's trying to do here...

NANCY PFOTENHAUER: Equal time.

GWEN IFILL: You'll get equal time.

JARED BERNSTEIN: What he's trying to do here is to rebalance the excesses that we've seen over the past eight years and -- let me just have one other point -- and to do so while balancing spending and revenue-raising priorities, something McCain is way off the reservation on.

NANCY PFOTENHAUER: You're absolutely wrong in that, we will balance the budget by 2013...

JARED BERNSTEIN: That I want to hear about.

NANCY PFOTENHAUER: ... and that's fine. But let's talk about corporate tax rates. Our corporate tax rate right now, we are the second worst in the world. We are, I say, tied for last, because we're only 0.1 percent above Japan.

Senator Obama gives lip service to caring about whether companies stay in this country or whether jobs are being shipped overseas, and he doesn't want to lower the corporate tax rate, which makes us -- puts us at a distinct competitive disadvantage.

He's also not just high taxes, but he's a protectionist. This is absurd. This is absurd. Ninety-five percent of our customers live in other countries. Exports have driven this economy. Since 2002, exports have been increasing 65 percent.

It's crazy to be rattling sabers about Canada and Mexico -- who, by the way, are the friendly guys who supply us with 33 percent of our oil, rather than the bad guys who supply us with 22 percent. So...

JARED BERNSTEIN: A couple of things. A couple of points, Gwen.

Bush tax cuts

Jared Bernstein
Obama Campaign Adviser
If you look at Bush-onomics, really the sole policy tool there was tax-cutting, particularly tax cuts targeted at wealthy people. If you look at what Senator McCain is talking about, it's really a very pumped-up version.

GWEN IFILL: Actually, let me ask the questions. Here's another thing which is going on here, which is Barack Obama has said repeatedly that this would be a third Bush term. And, in fact, Doug Holtz-Eakin, your own adviser, economic adviser, told my colleague, Judy Woodruff, last week that the entire -- that McCain actually rejects the entire Bush legacy of out-of-control spending.

NANCY PFOTENHAUER: He does.

GWEN IFILL: Which legacy is that? Which -- give me examples of out-of-control spending.

NANCY PFOTENHAUER: I'll give you examples, the energy bill, the highway bill, both of which Senator Obama supported and John McCain opposed. So when you're complaining about tax breaks for energy companies, you should remember that.

So there's roughly $60 billion worth of pork-barrel spending, apart from those huge bills that I just talked about, where you have hundreds of billions of dollars of pork that's being -- money that's taken from taxpayers and redistributed to special interests.

He's going to declare Washington, D.C., a no-earmark zone, which I'm thankful I've lived long enough to hopefully see, which means that, unless the spending is authorized, it will not go through. He will veto those bills. He's going to hold the line on spending.

He wants to do -- in addition to a no-earmark zone, he's going to have a freeze of non-defense discretionary spending for one year, where there's a total top-to-bottom review of the federal government. And he's made it clear that he expects that review to result in not just pulling certain programs together that maybe duplicitous, but elimination of programs.

GWEN IFILL: And when Senator Obama talks about a third Bush term, what's he talking about, specifically, on economics?

JARED BERNSTEIN: Absolutely. It's really quite simple, and I think it comes down to this. If you look at Bush-onomics, really the sole policy tool there was tax-cutting, particularly tax cuts targeted at wealthy people.

If you look at what Senator McCain is talking about, it's really a very pumped-up version. It's Bush-onomics on steroids. He's talking about extending the Bush tax cuts, but that amounts to less than one-third of the McCain tax cuts. McCain's tax cuts scored over a 10-year budget window amount to $5.7 trillion, according to the nonpartisan Tax Policy Center.

Now, I heard Nancy and others talk about how he's going to pay for it. But when you talk about earmarks and a freeze on discretionary spending, you're talking about bringing a thimble full of water to fill a vast ocean of debt.

So much like Bush, the idea is really trickle-down, supply-side economics: cut taxes on rich people, hope that that generates the kind of investment in economic activity that's going to reach the middle class.

We've tried it, Gwen, and it really hasn't worked.

NANCY PFOTENHAUER: Look, we tried your approach and it brought a severe recession.

Gas prices

Nancy Pfotenhauer
McCain Campaign Adviser
The most important thing you could do for workers who are facing this market is to embrace policies that have been proven to bring economic growth.... Low taxes and low spending works.

GWEN IFILL: Let me bring this down to something very specific for people, gas prices. Senator McCain suggested a gas tax holiday; Senator Obama has said it's a gimmick.

But I'm really curious about this. Senator Obama has also proposed a short-term -- a second stimulus rebate, basically, as a way of stimulating the economy. Isn't that just a short-term fix, as well?

JARED BERNSTEIN: It is a short-term fix. And when you're in a downturn -- it hasn't been officially labeled a recession yet -- a short-term fix is actually what's called for. For example, one of the things that Senator Obama...

GWEN IFILL: How is that different from a gas tax holiday?

JARED BERNSTEIN: Well, because a gas tax holiday won't work. What Obama is talking about right now, very specifically in terms of stimulus -- and I'd like to hear where Nancy and McCain are at on this -- is an extension of unemployment insurance benefits.

Now, this has very positive multiplier effects. It's been shown that a dollar spent on unemployment insurance benefits yields $1.70 in economic growth.

We are in a labor market recession. We've had unemployment spike up. We have a large share of people stuck on the unemployment rolls. They're exhausting their unemployment insurance benefits. That's pure anti-recessionary stimulus.

GWEN IFILL: Let's see what she has to say about it.

NANCY PFOTENHAUER: He needs to worry about extending unemployment insurance because his plan is a job-killer. When you hear my colleague here talk about raising taxes on the wealthiest, what he failed to mention is the fact that 55 percent of the people who are -- 55 percent of small businesses file in that bracket.

It's a job-killer, particularly for small businesses who create 70 percent of the new jobs. When you look at that, when you look at the fact that he's going to raise the amount of wages subject to the payroll tax, that alone has been determined by experts to give the United States one of the highest marginal tax rates in the industrialized world, in the industrialized world.

So you take that, and so you combine those two things, and then you add in the health care mandate he's going to mandate on small business, and you've got a job-killer.

GWEN IFILL: You've been talking about jobs. The House is debating a proposal to extend unemployment benefits for another 13 weeks. Is that something that John McCain would support?

NANCY PFOTENHAUER: I honestly have not talked to him about it, but I will find out.

GWEN IFILL: Is that something Senator Obama would support?

JARED BERNSTEIN: He's been a very vocal supporter of that. And I'd be very interested to see where McCain comes down on it.

Bush has been opposed to it. And I think, if McCain votes against this unemployment insurance extension, I think it will be a pretty powerful symbol about where his depth of concern regarding workers who are facing this recessionary labor market.

NANCY PFOTENHAUER: The most important thing you could do for workers who are facing this market is to embrace policies that have been proven to bring economic growth.

And I'm not talking about policies that we -- these approaches have been tried before. Low taxes and low spending works, whether it's in the United States or in Ireland or in New Zealand. High taxes, high spending, and protectionist policies don't work, whether it's here or in Germany or in France.

GWEN IFILL: That's going to have to be the last word.

JARED BERNSTEIN: Thank you.

GWEN IFILL: Nancy Pfotenhauer, Jared Bernstein, thank you both very much.

NANCY PFOTENHAUER: Thank you. It's a pleasure.