Ramesh Ponnuru on McCain's tax cut

In a New York Times op-ed today, Ramesh Ponnuru claims that "Mr. McCain’s plans would have cut taxes more than Mr. Obama’s for a lot of middle-class families, but Republicans rarely bothered to point that out." However, the Tax Policy Center found that Obama would have cut taxes more than McCain for the second, third, and fourth quintiles of the income distribution (PDF):

It is true that McCain would cut taxes more than Obama for the 80th to 90th percentile ($111,645-$160,972), which in certain high-income areas like Manhattan might be considered "middle class." However, in terms of the national income distribution, those people are very well-off. Ponnuru's statement is misleading as a general description of reality.

Update 11/8 3:55 PM: Ponnuru responded yesterday on The Corner, National Review Online's group blog (see also the comment by AEI's Andrew Biggs):

I'm not sure, though, that [the Tax Policy Center] counted McCain's refundable health-care tax credit, which was pretty progressive, for the purpose of that computation. Based on the discussion in that section of the report, it sounds as though it didn't. Also, as Rich Lowry pointed out, the New York Times gave many examples of middle-class families who would fare better under the McCain plan. Not all, by any means: Families with kids in college would often have done better under the Obama plan. But enough to make my claim neither untrue nor misleading.

If you read Ponnuru's statement in context, however, his wording suggests that he was treating tax policy and health care policy as separate issues (my criticism above was based on that interpretation):

Yes, Mr. McCain’s plans would have cut taxes more than Mr. Obama’s for a lot of middle-class families, but Republicans rarely bothered to point that out. Mr. McCain’s campaign smartly promised to double the tax exemption for children, but the candidate seemed unfamiliar with the idea, repeatedly describing it incorrectly. Likewise, he had an innovative health care plan, but he rarely explained how it would help the average voter.

Is Ponnuru right about the combined distributional effects? He doesn't mention that McCain's tax credit is offset for many families by removing the tax deduction for employer-provided health insurance. Still, if we consider the same Tax Policy Center analysis that I cited above and combine the distributional estimates for the candidates' tax and health care plans (which includes direct subsidies under Obama's plan), the percentage change in 2009 after-tax income appears to favor Obama for the lowest two quintiles and McCain for the highest three. The key point, though, is that McCain's plan would have shifted millions of people into the individual insurance market -- something most health care experts find highly problematic. Also, the value of McCain's tax credit is not indexed to inflation and would therefore decline in value over time.

Comments

[Rob]

I love it! According to Brendan, except in "certain high income areas like Manhattan," families earning over $112,000 aren't middle class. All you hoity-toity upper-class moneybags earning $112,000, have your butlers assemble the staff and give them the news.

[David]

Comparing politicians' tax plans is good clean fun, but it's an exercise in fantasy IMHO. There's no reason to believe that they will actually enact them. Obama, like most Presidential candidates, proposed taxes insufficient to pay for his spending. The situation today is worse than usual, because:

-- Bush leaves office a half trillion dollar annual budget deficit.

-- The recession will increase spending and decrease tax revenue.

-- The bailouts of AIG, banks, GM etc. will cost hundreds of billions, if not trillions.

-- Nancy Pelosi wants a half trillion dollar so-called stimulus package. It makes no economic sense, but giving money to a lot of people makes political sense, so I think Congress will go along.

In total, we're looking at a deficit of 1 to 2 trillion dollars or more. I don't know what President Obama is going to do about this difficult situation, but his stated plans of some months ago would seem to be irrelevant.

[Andrew Biggs]

The TPC analysis doesn't include the effects of the McCain $5,000 health care tax credit, which is $5,000 more than low income workers get under current law (as they pay no income tax, the tax deduction for employer-sponsored health care doesn't benefit them). Obama's health plan would also benefit low earners, but not as much as McCain's. Moreover, Obama's tax on employers who fail to provide health care (6%, according to the TPC) would almost certainly come out of workers' wages or other benefits, so it amounts to an effective tax increase on labor.

[David]

Correction: "Pelosi...called for the two-stage effort to involve a 60 to 100 billion dollar stimulus package in November, according to AFP."

http://afp.google.com/article/ALeqM5gkjQFGF-21lWB1z2Hsnf3HkIKzjg

[Noumenon]

Rob -- Brendan is making a generous exemption for those Manhattan dwellers. There's really no reason people in the 80th-90th percentile should be counted in the "middle class" anywhere.

$112,000 is easily enough to hire a butler, anyway, it's just that most people are uncomfortable with that.