Clinton, Obama differ on economic plans

As they traveled across Indiana and North Carolina over the past few days, trading charges and countercharges about the wisdom of suspending the federal gas tax for the summer, Sens. Hillary Rodham Clinton and Barack Obama were really having a larger fight.

They were arguing over who had better economic instincts.

For all the similarities between the two Democrats, there is also a core thematic difference between them. Clinton tends to favor narrowly focused programs, like the gas-tax holiday, that speak to specific voter concerns. By suspending the tax and replacing it with a new tax on oil companies, Clinton said Friday, she was standing with "hard-pressed Americans who are trying to pay their gas bills."

Obama, on the other hand, leans toward broader programs meant to help nearly all middle- and low-income families. Obama called the tax holiday a "gimmick" on Friday and said he instead favored a cut in the payroll tax, which finances Social Security, of up to $1,000 for middle-class households "to offset the costs not only of gas, but also of food."

The dueling instincts do not explain all the differences between the two Democrats. They also disagree about a health insurance mandate (Clinton favors one) and the capital-gains tax (Obama has indicated he would raise it more than Clinton would). Obama is open to increasing the amount of income subject to the Social Security payroll tax; Clinton has been critical of that idea.

But their contrasting approaches do extend to a range of issues, including the current economic slowdown, the mortgage crisis and retirement savings.

Both show weakness

The contrast between their approaches also highlights what many economists consider to be the biggest weakness of each candidate's plan.

As the economy has slowed, Clinton has released a series of proposals — to stimulate growth, stem home foreclosures and, most recently, reduce energy costs — that have helped burnish her image as the candidate most in touch with the specific concerns of working families. Yet policy experts say these proposals have generally made for better politics than economics.

"I was appalled by Hillary going with the gas tax," said Alice M. Rivlin, a budget director under former President Bill Clinton who supports Clinton for the nomination. It "looked like pandering," Rivlin said.

An open letter signed recently by more than 100 economists said the proposed tax holiday would do little to reduce gas prices. In part, that is because a fall in prices would lead to more demand, which would cause prices to return to their earlier level. The result would be that overseas oil-producing governments would get money now flowing to the U.S. government in gas taxes.

Along similar lines, Clinton's proposed stimulus plan was widely considered to be more complex and less effective than Obama's suggestion of quick tax cuts, which was the same approach Congress and the White House ultimately took.

But Obama gets lower marks from budget experts for fiscal discipline. His package of tax cuts and new spending would cost roughly $300-billion a year, while Clinton's would cost less than $250-billion. Economists said they were skeptical he could pay for his program without increasing the deficit.

"Obama has a shorter list of tax breaks," said Leonard E. Burman, director of the Tax Policy Center in Washington, "but has some really big items on it."

What McCain pledges

The Clinton and Obama approaches still have many more similarities than differences. Whether through focused tax breaks or sweeping ones, both candidates would reduce taxes on middle-class households and raise taxes on those making more than $250,000 a year.

Sen. John McCain, the presumptive Republican nominee, by contrast, would make permanent nearly all of the Bush tax cuts, including those on high earners. McCain advisers say allowing taxes on high earners to return to their pre-Bush levels would damage the economy when it is already vulnerable.

Both Democratic candidates have also promised to regulate corporate America more closely than President Bush has and to spend more than $100-billion a year on an overhaul of the health care system.

The one major difference between their health plans has received more attention than it deserves, economists say. The Clinton policy would require all Americans to have insurance, potentially making the health care system more efficient. But health analysts say the Clinton campaign has falsely suggested the Obama plan would exclude people who wanted to sign up for insurance.

Despite the individual criticisms of the two agendas, policy experts praise both candidates for an unusually substantive primary campaign, each having come forward with detailed plans to address climate change, the middle-class squeeze and the decline of company-provided health insurance.

Clinton, Obama differ on economic plans 05/03/08 [Last modified: Thursday, October 28, 2010 1:37pm]

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