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Neither Candidate’s Tax Plan ‘Pro-Growth’ « The Washington Independent

During an interview with MSNBC’s Andrea Mitchell a short time ago, Sen. John McCain’s senior economic adviser, Doug Holtz-Eakin, said a nonpartisan tax analysis found McCain’s tax plan would better promote economic growth than that of Sen. Barack Obama.

“You go to the independent, quote, Tax Policy Center, a group I know very well, and I encourage people to go there. They’ll say, ‘John McCain’s [tax] plan is better for growth.’ What does this economy need? It needs to grow.”

A look at the Tax Policy Center’s analysis (PDF) of the two candidates’ tax plans, last updated Sept. 12, reveals that Hotz-Eakin’s claim appears to rest on this passage:

By many measures, the distribution of income has become much less equal over the past 20 years, and the recent tax cuts have exacerbated that trend. Since 2001, inequality in the distribution of after-tax income has grown faster than inequality in the distribution of pretax income. The Obama proposal tries to buck that trend by making the tax system much more progressive (as detailed in the next section). However, it does so at the cost of higher marginal tax rates and additional complexity.

Many provisions in Obama’s plan share a common shortcoming in their use of phaseouts to limit their benefits and constrain revenue costs. Phaseouts reduce tax benefits over a range of income and thus increase the effective marginal tax rate on taxpayers in that range. To the extent that higher tax rates affect behavior — inducing people to work fewer hours or save and invest less — the phaseouts adversely affect economic activity and growth. Furthermore, phaseouts add significant complexity to the tax code, making it more difficult for taxpayers to determine how much they owe and harder to understand how the tax system works. [Emphasis added]

However, the report’s executive summary (PDF), last updated Sept. 15, suggests neither plan would do much to promote economic growth:

Both John McCain and Barack Obama have proposed tax plans that would substantially increase the national debt over the next ten years, according to a newly updated analysis by the non-partisan Tax Policy Center. Neither candidate’s plan would significantly increase economic growth unless offset by spending cuts or tax increases that the campaigns have not specified.

Holtz-Eakin’s claim may be technically true, but according to the Tax Policy Center, it is insignificant.

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