Let’s be clear: we know where Hillary Clinton and Barack Obama will take the country in tax policy–roll back the Bush tax rate cuts, restore the death tax, reverse the capital gains and dividend tax cuts, increase the cost of capital, thereby damaging investment, job creation, and prosperity. It works every time. It also works in reverse every time, and this is where I get nervous. We all know that John McCain initially did not support the Bush tax cuts, but since then he has “grown” into support of them. But if you read his pronouncements on tax policy, you get the distinct impression that he has bought into the result, but not the theory, at least entirely.
Memo to McCain: supply side economics works and it should not require a Ph. D. in economics to explain it; further, you can’t win the tax policy argument by playing on the home field of the Democrats, which is the “static” scoring of tax cuts and the notion that tax cuts have a “cost” that create larger deficits and therefore must be “paid for”. Federal tax revenues have exploded since the Bush tax cuts of 2003. All of history is on the side of supply side theory, but McCain needs to buy into the soundness of the theory, not be baited into an argument based on static, non-dynamic scoring or worse, the politics of “fairness” and “envy”, in which case he will lose.
In addition there is another aspect of “tax” policy that matters very much: it is the implications of Federal Reserve monetary policy in the form of the penalty that is tantamount to a tax imposed on average Americans by its failure to protect the value of the dollar.
The Wall Street Journal notes in a recent editorial that since 2003 the dollar price of oil has risen by 273% compared to 146% in euros, meaning that had the dollar maintained the same purchasing power as the euro over this time period, today’s price of oil would be below $70 per barrel. This is a tax on Americans as surely as the one they pay on April 15. So clarity in tax policy also means recognition of the importance of the primary responsibilty of the Federal Reserve to protect the value of the dollar. Again, it should not require a Ph. D. to understand and explain this, and we certainly know who will get the blame come election time, but McCain is strangely silent.