Apr 16 2008

SAS student Alice Su critiques John McCain’s tax plan

Shanghai American School Economics Student Blog » You Hate Taxes, I Hate Taxes… Let’s Hug- by Alice Su

I’m repeatedly amazed at the intelligence and maturity of the young economists here at Shanghai American School. After only nine months of econ instruction, these students already know more about sound economic policy than politicians of 40 years! Case in point: SAS senior Alice Su offers an stinging critique of John McCain’s proposed tax plan over at the SAS Economists Blog. Read below…

It’s easy to see how politics and sound economic policy may not mix very well; in fact, trying to put the two together usually ends up in contradiction and confusion that puts economically concerned voters in great distress. (Example: Remember that one econ class when Welker was talking about taxes, trying to decide if he was more liberal or conservative, and then got so agitated that Jeff said “You’re having a midlife crisis” and Welker threw a smartboard marker at him yelling “I’M 29!!”? Case in point. :P)

In this case, McCain’s speech about his economic policies on Tuesday contains so many contradictions, both with classroom economic theory and various parts of his own policy platform, that I find myself questioning whether he is taking a solid stance on the economy at all, or is simply trying to say whatever will appeal to his audience the most.

First, McCain’s economic plan, dripping with supply-side sentiment, is centered around a series of tax cuts. In addition to making Bush’s tax cuts permanent, he also calls for cutting corporate taxes, phasing out the alternative minimum tax, doubling the value of exemptions for each dependent to $7,000 from $3,500, and giving people the option of using a simpler, shorter tax form. As a finishing tax-cut touch,

One of Mr. McCain’s tax proposals would take effect even before the Republican Convention: he called on Congress to suspend the 18.4 cent a gallon federal gas tax from Memorial Day until Labor Day. Mr. McCain said that doing so would provide “an immediate economic stimulus,” but some environmentalists said that the change might encourage more people to use their cars, while Mr. McCain has made combating global warming central to his campaign.

Hmm. Here’s where the first hints of contradiction kick in. Besides the conflict between wanting to end global warming and yet encouraging more cars on the road, we’ve all studied the Laffer Curve, and I think I can speak for all the SAS Economists when I say that the U.S. Economy is not at a place where further tax cuts will lead to an increase in tax revenue or benefit the economy. Furthermore, what about the enormous budget deficit that Mr. Bush has so graciously left us with? As the author of this article discreetly points out, McCain seems to have forgotten that he previously promised to balance the budget by the end of the first term; rather than offer the economic stimulus that McCain is claiming it will, the tax cuts would probably just plunge the nation deeper into debt.

What answers do McCain’s economic policy have to offer these questions? Well, he also proposes a one-year freeze on most “increases in discretionary spending” while he reviews every federal program, department, and agency… with the exception of spending on the military. Supposedly, the money saved from eliminating earmarks as well as getting rid of unnecessary “discretionary spending” will add up to $100 billion annually, and that is how McCain says he will pay for the lowered business taxes. However, he neglected to address the issue of all the money being spent on the wars in Iraq and Afghanistan, and whether any of that might be categorized as unnecessary “discretionary spending”, or whether we should be spending anything over there in the first place.

An analysis by the Center for American Progress Action Fund, a liberal think tank, estimated that the overall cost of Mr. McCain’s tax cuts would be three times as much as the $100 billion he estimates that he can save. And they questioned whether his programs would really save $100 billion a year.

While I’m not saying anything in support of Obama or Clinton’s economic policies, McCain’s plan seems so shaky that I would think twice before buying into how he’s going to save our country. Personally- especially since this tax-cut-focused speech was given on the day of the deadline for filing taxes- it looks to me like another plan designed for the purpose of politics, and not with sound economic policy in mind.

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

6 responses so far

6 Responses to “SAS student Alice Su critiques John McCain’s tax plan”

  1. James Tsaoon 19 Apr 2008 at 12:37 pm

    Alice is not a senior! haha. Anyways, I can see the logical fallacies of McCain's proposals that Alice has pointed out here. It seems that many policies that McCain strives to carry out are policies that can earn the likings of his voters. However, many of these policies produce effects that offsets one another, and therefore it may seem like McCain is using politics rather than sound economic policy to earn support.

  2. optional.xuon 20 Apr 2008 at 7:51 pm

    since when has politics ever had to make sense… the general populace doesnt have that ability to think 3, 4, or 5 steps ahead. to them, more money = good, less money = bad. mccain isnt appealing to the economics crowd, i think hes just going for the down-to-earth citizen who probably doesnt have the luxury of taking an economics course.

    as bush has shown, the republicans clearly arent running a fiscally sound economics scheme.

  3. ElaineLungon 21 Apr 2008 at 3:13 pm

    It's times like these when I thank the big deity in the sky for keeping the Fed away from the reaching claws of Mr. Politician. Forgive me for being a bit presumptuous, but it seems a short course in rudimentary economics is all that's required to steer some Americans away from the shortsightedness that is "MORE TAX CUTS YAY!" None of us are real economists with paying jobs, and most of us have only been familiar with it over the past year — could it be time to enroll much of the American public in Economics 101 or even AP? C'mon, Americans are provided with education. How 'bout we use it?

    Also, orz, Alice.

  4. Jason Welkeron 21 Apr 2008 at 8:27 pm

    @ElainLung: Amen to that! If all Americans were to take Econ 101 or AP Econ, what would I have to blog about?!

  5. Drew Venkatramanon 21 Apr 2008 at 10:38 pm

    I agree. I think McCain is just swaying his votes, and thats what he needs to do. ALthough it does not seem smart to us, to many in America this means more money now. and that is what they care about. I think that this is a pretty ok plan, as far as politics is concerned. and it could get him elected.

  6. Michael Dailyon 29 Apr 2008 at 11:49 pm

    In reality, it does not matter if McCain knows anything about economics or not. I mean as people have said, he has no control over the fed, and I doubt he is going to be making very many original economic policies. In fact, I'm pretty sure his advisers just told him what to make his economic plan. And also like David said, the public does not really care either.