Objective Sources in Electoral Politics

Getting to the real candidates in this election is tough. They are shielded more than any previous election and the semblance of a campaign is really a set of manufactured events. One source which claims to be objective and thus get to the facts is FactCheck.Org ,which is a project of the University of Pennsylvania's Annenberg Center.

In a post published yesterday the supposedly objective center took a shot at Senator McCain's claim that under an Obama tax policy "23 million small business owners would pay higher taxes." Fact Check concludes that McCain's figure is " a false and preposterously inflated figure." It then goes on to "analyze" the figure of how many small businesses would be affected. The claim rests, in part, on the number of businesses that file as individual taxpayers (which one of McCain's speeches actually stated) but the larger issue is whether the sum total of the proposals that Senator Obama has offered will raise taxes on a large number of individual proprietorships. The Fact Check post quibbles whether an increase in costs, especially related to health care proposals by Senator Obama, amounts to a "tax increase" because Senator McCain was addressing tax rates. McCain's comments addressed rates but an objective analysis of his comments on Obama's proposals would also raise issues about other elements in his tax plans such as the idea to create a new "donut" rate for higher income taxpayers for social security taxes.

Ultimately if you read the Tax Policy Center's excellent brief comparing the presidential candidate's tax proposals you come away with the distinct impression that Senator Obama's proposals would raise taxes on a number of Americans when compared to Senator McCain. But the distributional effects of the changes offered by both candidates depend on a lot of different factors besides rates. What is clear from my reading of both candidate's proposals is all of the following:

1) McCain continues a strong GOP tradition of understanding that rates matter on personal income tax and capital gains. The Fact Check "analysis" makes no statement about whether the increase in capital gains rates proposed by Senator Obama would raise taxes on small business owners and it undoubtedly would.
2) Depending on how income is received by small business owners the proposal to create the "donut" rate on social security taxes could also raise rates on many small business owners.
3) Obama proposes to use the tax code to implement many of his policies including his health care proposals. The net effect of those ideas might or might not produce a net increase for small business owners, depending on how the proposed credits are implemented.
4) The combination of his estate tax and capital gains proposals would raise the tax rates on capital and depending on where the threshold for the estate tax wound up, that would increase taxes on small proprietorships including farms.

What bothers me here is not whether McCain made a claim which could be considered false. Indeed, both candidates have told a bunch of whoppers throughout the campaign. That is part of the current state of campaigns. It is also clear that the net effect of Senator Obama's proposals would increase the percentage of Gross Domestic Product taken from taxes when compared to Senator McCain's. The distributional effects of those changes are relatively clear, although not entirely.

What is more important here is not whether the figure used by Senator McCain is an accurate one (undoubtedly it is probably wrong) but whether the analysis that a large number of small business owners would pay higher taxes is correct under an Obama administration. The answer here is absolutely. The even more important question for the voters is whether the sum total of proposals from Senator Obama will help or hinder economic growth. From my perspective that is a lot more important than whether the number of small business owners who would pay more is one figure or another.