Jackson Free Press

Class warfare began anew outside Toledo, Ohio, one recent Sunday. Samuel Joseph Wurzelbacher, a self-professed plumber looking to own a business, asked Democratic presidential nominee Sen. Barack Obama if he believed in the American dream.

"I'm getting ready to buy a company that makes $250,000 to $280,000 in a year. Your new tax plan is going to tax me more, isn't it?" he asked.

Obama responded, essentially, with a yes, that he wanted to extend a tax cut "to bus drivers, teachers, auto workers who make less than $250,000," but let expire a temporary tax cut on people making over that amount.

"... I've worked hard. I'm a plumber. I work 10 to 12 hours a day, and I'm buying this company, and I'm going to continue working that way. I'm getting taxed more and more while fulfilling the American dream," Wurzelbacher said.

Obama appeared perplexed as to why the plumber would not endorse a tax increase on those making more than $250,000 in net profits, which likely wouldn't include him.

"My attitude," Obama argued, "is that if the economy's good for folks from the bottom up, it's going to be good for everybody. If you've got a plumbing business, you're going to be better off if you've got a whole bunch of customers who can afford to hire you, and right now everybody's so pinched that business is bad for everybody, and I think when you spread the wealth around, it's good for everybody."

The Impact of Bad Policy
The American economy looked dim last week, even as Republican Arizona Sen. John McCain catapulted "Joe the Plumber" into the media spotlight.

An opening stock-market rally bottomed out in the doldrums Oct. 16, with the Dow Jones roller coaster jumping up to a 150-point advance before veering into a misbegotten 400-point plummet by noon. The numbers matched industry reports acknowledging a woeful drop in consumer spending.

The news got worse from there: The Federal Reserve reported that factory production across the nation had dropped almost 3 percent in September—worse than expected, and possibly a consequence of poor September sales, as reported by the U.S. Department of Commerce. It did not seem to matter that September was supposed to be the month for the flurry of back-to-school shopping.

The slump caught on in Mississippi as well, with the Associated Press reporting more than 2,100 manufacturing jobs lost in the state since July 1, including more than 400 eliminated by manufacturers Ashley Furniture Industries and Leggett & Platt. State officials predicted more losses.

Investment firms were feeling the pinch first, so their rotten numbers are understandably the most advanced, with Citigroup reporting a $2.8 billion loss in the third quarter this year—the fourth consecutive period that the international banking behemoth was swamped by write-downs on investments and loan losses.

The hit to lending agencies means problems for consumers needing loans for home repairs, house purchases or cars.

Carl Davis, an auto salesman with Paul Moak Pontiac of Ridgeland, warned that credit-lending agencies are putting the freeze on spending, which is leaving his personal pocketbook screaming. "Yeah, it's pretty bad these past few weeks. Regions (Bank) has put a lock on loans, and the problems with (getting) GMAC (loans)," Davis told the Jackson Free Press. "We can't go on like this much longer. We can't sustain ourselves."

The McCain Plan
McCain is sitting on the bad end of this tottering economy. The president he voted with "90 percent of the time, "George W. Bush, had the misfortune of overseeing the recent downfall of the American economy and subsequent failings of economies worldwide as America's recent and most significant export—market failure—left for foreign beaches this month.

McCain's Republican Party has also been in charge of Congress for more than 12 years. Some conservative pundits eagerly point out that Republicans lost the majority in Congress in 2006, so it couldn't possibly be all the Republicans' fault, though opinion polls show voters don't seem to see it that way. Bush's approval rating fell to a low of 23 percent last week, beating that of Republican Richard Nixon (who resigned before Congress could impeach him in 1974), and tying that of Democrat Harry S. Truman.

McCain is working hard to pull away from the damning Bush label, even going so far as to inform Obama during the Oct. 15 presidential debate that he was "not George Bush," and that if Obama had wanted to run against Bush he should have done so in 2004.

He insists he is taking a different path than the failed president, particularly regarding his push for the government to adopt his $300 billion proposal to buy bad mortgages at face value. The Arizona senator had switched from opposing a mortgage bailout in March to criticizing the federal government for not adopting some version of his idea as a follow-up to the recent $700 billion Wall Street bailout package.

"We've got to put the homeowners first," McCain said. "I am disappointed that Secretary Paulson and others have not made that their first priority."

McCain said his plan would give qualified homeowners government-guaranteed, low-interest mortgages based on their homes' reduced value. But he hasn't worked out the details. Initially, he said lenders would pay that difference; days later his campaign seemed to think taxpayers would foot the bill.

Obama acknowledged the need for some homeowner relief during the October debate, but estimated McCain's measure to be "a giveaway to banks."

The proposal drew criticism from some local politicians, as well.

Financial adviser and Democratic state Rep. Cecil Brown of Jackson said he was nervous about the mortgage bailout aspect of McCain's plan.

"I think it would encourage bad behavior," Brown said, adding that borrowers and lenders would be willing to take less sober risks with the eradication of financial consequences. "I just don't think that would be a good idea. Not a good idea at all."

McCain's housing plan comes on the heels of a U.S. Department of Commerce report showing the nation's construction industry building the fewest homes since the end of World War II. Construction of new homes and apartments dropped by 6.3 percent last month. Applications for building permits, an indicator of future activity, also fell sharply in September, dropping by 8.3 percent, its weakest showing since 1981.

The Republican nominee's financial adviser, Douglas Holtz-Eakin, told reporters last week that the senator is also looking to change the rules on Internal Revenue Service deductions for stock losses. Currently the IRS allows Americans to deduct $3,000 in stock losses in any given year. McCain would expand that deduction to $15,000 a year for the tax years 2008 and 2009.

"These are not normal times," Holtz-Eakin said. "It has to be someone who was in such duress that they had to sell it at a huge loss. We think that's a good target, to give them that relief."

McCain is also looking to appeal to the older voter crowd—which favored him by the widest margins earlier in his campaign, but is dropping off—by lowering the tax rate on Individual Retirement Accounts and 401(k) plan withdrawals to 10 percent on the first $50,000 withdrawn during 2008 and 2009. That plan would ultimately cost the country about $36 billion in revenue losses, though in 20 years the new national bill likely won't be Grandma's problem.

The Arizona senator estimated the move would affect almost 10 million Americans over age 60, though some economists said the biggest benefit would go to seniors with the highest incomes.

McCain would also order the Treasury Department to guarantee 100 percent of all savings for six months. The current guarantee sits at $250,000, but the extended coverage, McCain said, would ease consumer fears of bank failures and restore "rational judgment" to the market's choices.

The senator's campaign argued that more than 3.6 million Americans receive unemployment benefits, and he is willing to cut a deal with all of them. The government currently taxes those benefits, but McCain reasoned that without those taxes, recipients would see a wage increase of about 10 percent on average.

One of McCain's most notable economic propositions is his call for cutting the tax rate on capital gains in half, down to 7.5 percent for two years. "This vital measure," McCain said, "will promote buying, raise asset values, help companies and shore up the pension plans for workers and retirees."

Bush signed a tax cut law in 2003 that reduced the top income tax rate for capital gains from 20 percent to 15 percent. This tax cut is set to expire in 2010 unless the new president agrees to make it permanent.

McCain argues for the extension of the capital gains cuts because "100 million people have investments" in the stock market. He does not mention that the majority of stock owned by middle-income people is often in the form 401(k) plans or IRAs, which don't fall under the influence of the capital gains tax. Owners instead pay taxes on these plans as ordinary income when they withdraw the funds after age 59 1/2.

More of the Same?
The Democratic nominee wants to return the capital gains tax to the level under the administration of former Democratic President Bill Clinton.

Obama has told reporters that he would accept a top rate of 28 percent, saying in a CNBC interview that he "would not go above what existed under Bill Clinton." More recently, he has advocated increasing the current 15 percent rate to 20 percent.

The current McCain and Obama plans are not a far jump from their earlier versions, before the U.S. housing and the stock market took a dive. A June 20 Tax Policy Center report, "A Preliminary Analysis of the 2008 Presidential Candidates' Tax Plans," pointed out that the two candidates' plans would have sharply different distributional effects.

The report claims McCain's impact on the tax code would be similar to that of the current administration. While McCain's reduced individual and corporate rates could improve economic efficiency and increase domestic investment, the larger future deficits that would result would reduce and possibly offset any positive effect.

The same report said Obama's proposed tax credits could encourage desirable behavior, particularly if the childless credit and payroll tax rebate encouraged additional labor supply among childless low-income individuals, but warned that the Obama plan would also direct new subsidies to groups that already had them.

Obama's campaign quickly characterized McCain as a Bush clone, and criticized his plan as favoring the wealthy: "Sen. McCain ... shows how little he understands the economy by offering lower capital gains rates in a year in which people don't have an awful lot of capital gains," Obama campaign spokesman Bill Burton quoted on the campaign's Web site.

Burton also added that the McCain plan provides "no tax relief at all to 101 million hardworking families," and argued that for all of McCain's priority for senior citizens his focus on the top 10 percent of wage-earners excluded the needs of "97 percent of senior citizens," and did nothing to cut taxes for small businesses or give them access to credit.

Jackson investor David Watkins, one of the personalities behind the redevelopment of the King Edward Hotel, the Standard Life Building and the Farish Street Entertainment District, said loosening up tight credit needs to be a priority for any administration entering the White House.

"The banks are looking very closely at loaning money to anybody right now. Period. Long-standing customers with a good rating who don't really need a loan, perhaps to maintain their long-term liquidity, will have no problem, but I have been told by financial institutions that if you're seeking a loan of a couple of million bucks you'd better make sure you already have that amount in cash or they will consider you to be high risk," Watkins said.

The Obama Plan
Obama was actually a day ahead of McCain in announcing a $60 billion economic repair plan.

Media began reporting that McCain was gearing up to unleash his economic plan on Saturday, Oct. 11, but on Sunday, The New York Times offered the self-explanatory headline: "No New Economic Proposal Expected from McCain."

Obama filled the resulting void by announcing his own plan last Monday, the day before McCain's Tuesday turnaround. Like McCain, Obama's plan called for the suspension of the tax on unemployment benefits as well as extending those benefits. Obama was not ready to undermine his own argument against McCain's government buyout of mortgages, but did call for a 90-day moratorium on home foreclosures at some banks, as well as a two-year tax credit for businesses based on how many new jobs they create. The credit amounts to $3,000 for each additional full-time job the business creates.

An Oct. 13 editorial from Investor's Business Daily described the tax credit as "an obvious anti-outsourcing incentive likely to increase business costs, of which we can expect plenty more—of a directly punitive nature—in an Obama administration."

Obama's plan also allows people to withdraw 15 percent—up to $10,000—from their retirement accounts without any penalty in 2008 and 2009. Owners currently risk losing up to half of their plan if they pull it out prematurely, but Obama argued that the money may be needed now more than later.

McCain's camp heckled the suggestion, calling the penalty suspension "an invitation to capital flight," warning that the result could be a massive emptying of IRA accounts.

Obama also proposes to freeze exemptions for estate taxes to their 2009 levels of 45 percent. The exemption removes estates worth between $3.5 million to $7 million from the taxable chart—even though the Congressional Budget Office reports the exemption will cost the nation $29 billion in 2012. McCain proposed to increase the same exemption to estates worth between $5 million and $10 million, at a rate of just 15 percent. McCain's own version of the estate tax repeal would cost the nation $60 billion in 2012, according to the CBO.

One of the more fiery aspects of Obama's plan, according to the McCain camp, is Obama's decision to raise the capital gains tax and aim tax cuts at workers making less than $250,000.

'Redistribution' Games
It was a notable moment during the third presidential debate.

"Joe wants to buy the business that he has been in for all of these years, worked 10, 12 hours a day, and he wanted to buy the business, but he looked at your tax plan, and he saw that he was going to pay much higher taxes," McCain told Obama.

McCain seized upon the plumber's concern, turned to the camera and said: "Joe, I want to tell you, I'll not only help you buy that business that you worked your whole life for, I'll keep your taxes low, and I'll provide available and affordable health care for you and your employees."

Wurzelbacher later turned out to be a registered Republican who had actually dodged paying some taxes, according to Ohio records, but Obama still defended his plan against the charge during the debate, saying his tax plan would cut taxes for 95 percent of working Americans and 98 percent of small businesses, including Joe's.

Obama's plan actually calls for Bush's 2003 tax cuts to sunset on business owners making more than $250,000 in net income. Had Obama pursued a point of clarification, he might have explained that Wurzelbacher's metaphoric business would have to make him more than $250,000—after disbursements to general overhead: employee wages, insurance payments and hardware purchases. Obama did not argue that point, however, and instead inexplicably made himself a champion for the bogeyman of socialism.

McCain seized on the "wealth redistribution" quip during a Florida campaign stop last Friday, with quotes such as "His plan gives your tax dollars to people who don't pay taxes," and "When politicians say they want to spread the wealth, you'd better hold onto your wallet."

Obama's no-tax-below-$250,000 mantra grates on business advocates who claim those who make above that generally keep investment cranking by using all that extra income to finance new business ventures.

Wall Street Journal columnist Peter Brown wrote in August that Obama was trying to use a "Robin Hood" perception to win voters during a time of hard economic realities.

An Economic Policy Institute report, "State of Working America 2008/2009," claims wealth distribution under the current system is dramatically unequal, more so than the distribution of wages or of incomes—which it also characterizes as unequal. The report, with figures drawn from a survey of consumer finances conducted by the U.S. Treasury Department and the Federal Reserve Board, indicates that in 2004 the wealthiest 1 percent of Americans owned 34.3 percent of all the wealth in the country.

The report revealed wealth distribution to be even more unequal when considering wealth that provides direct financial returns, or financial assets. In term of financial assets, the bottom 90 percent held only 19.1 percent. The top 10 percent of earners took in 42.5 percent of all household income, 71.2 percent of the nation's net worth and it held an unbelievable 80.9 percent of the nation's net financial assets.

The amount of wealth has clearly been congregating with the top 10 percent over the last few decades. The average wealth of the top 1 percent, according to treasury figures, was 125 times the wealth of the median household in 1962. That figure, however remarkable, increased during the 1980s and between the years of 2001 and 2004, when the top 1 percent's wealth ballooned to 190 times that of median households.

For those who haven't made the connection: These were the years dominated by Republican presidencies—Ronald Reagan during the 1980s and George W. Bush between 2001 and 2004.

It is no coincidence that the average wealth of the Forbes 400, which ranks America's wealthiest people by net worth, increased 681 percent between 1982 and 2007, from $493 million to $3.8 billion. In fact, the price of admission into the Forbes 400 list is now $1.3 billion, up 716 percent from 1982.

The argument for wealth redistribution is resonating positively with more and more Americans. An August report by The Drum Major Institute for Public Policy stated that most Americans actually agree with the kind of issues requiring more taxes.

Middle-class Americans, while critical of Congress and generally unsure where their local representative stands on many issues, "display broad consensus on a range of public policies aimed at easing their economic squeeze," the report says. "They support a universal national health insurance plan."

The report also showed that a majority of middle-class adults believed progressive policies were good for the country, whether they supported Obama or McCain.

"I'm a business owner whose business does better some years than others," said Jackson rapper and Jackson Free Press columnist Brad "Kamikaze" Franklin. "Some years I make really good money, some years not so much, but if my taxes go to incentives that will help other people come to me and buy from me, then I don't see how that can hurt me in the short-term."

Brown agreed, though "only if the central government is willing to sit down and spend the money wisely."

An Assessment
When the two candidates argue over the $250,000 question, what they're really fighting over is the extension of the much-debated Bush tax credits. In fact, the two candidate's tax plans resemble one another in their nearly universal embrace of the tax cut—soon to expire in 2010 but igniting fire in Congress regarding a possible extension. The cuts do great things for the nation's top .01 percent of earners, who enjoy considerably lower income tax rates and low rates on investment income, including capital gains and stock dividends.

McCain's move to make the cuts permanent for 100 percent of Americans would amount to 48 percent of the benefits going to the nation's richest 5 percent. The cost, according to the Citizens for Tax Justice, would amount to a total of $216 billion in 2012. Obama's plan, which extends the tax cuts to all but the very rich, sends 23 percent of the benefits into the arms of the richest five percent—at a cost of $146 billion by 2012.

Obama will extend the tax cuts to everyone with an adjusted gross income of under $250,000, cutting out the 2.6 percent of the American population making more than that.

The differences in the two plans are obvious in the numbers. The lowest 20 percent of earners (averaging $8,477 in annual income) would enjoy a $236 reduction in taxes under McCain, but get a $518 reduction under Obama. The next bracket up (making an average of $21,597 annually) would get $826 from McCain, but $1,040 under Obama. The middle 20 percent (who make an average $38,857) get a $1,405 cut from McCain and a $1,575 cut from Obama. The numbers start switching their greater-than or less-than sides at the next income bracket, (containing those making around $67,869), with McCain giving a slightly more generous $2,698 cut compared to the $2,375 cut from Obama's plan in 2012.

The top 1 percent (who make an average $1,367,765 per year) would see the greatest variance between the two, with McCain's plan handing over a $202,830 tax cut, compared to Obama's meager tax cut of only $4,620. This includes the top 0.1 percent bracket (those who make about $6 million): who enjoyed an annual tax cut of $266,151 under president Bush's 2001 tax cuts.

Advocates for the wealthy will clearly have plenty oppose, but other critics point out that each and every tax bracket has one thing in common—they're all still cuts.

Bob McIntyre, director of Citizens for Tax Justice, said neither one of the nominees' tax plans are ultimately sustainable, just as the U.S. budget has been unable to sustain the current Bush tax and has cultivated a frightening deficit as a result. The center added that the combination of cuts in income taxes, corporate taxes and estate taxes, and estimated the McCain plan to ultimately cost the country $489 billion in 2012, versus the $348 billion cost of the Obama plan.

"In all seriousness, neither one of their tax cut plans are affordable. That's a big unreality about both of them," McIntyre said.

Both of the candidates would likely be hit in the face as soon as they walk through the door by the economic reality of a bleaching budget deficit resulting from an international war, the toll of past tax cuts and massive bailout measures. Both will likely have to abandon the notion of further tax cuts.

"It's not their fault, really," McIntyre says. "The voting public keeps insisting that they make these ridiculous promises. That's American politics.

"Sometimes I think this is the worst form of government invented, except for the alternatives," McIntyre continued. "It's a sad thing. The last time a presidential candidate was honest about taxes and the economy, he didn't win. That was Walter Mondale, if you recall.

Senate Candidates On The Economy