Election – Compare and Contrast Obama/McCain

Smart Money.com

The Pres. Candidates on Taxes, Housing and Health Care
By Matthew Heimer
September 18, 2008
ELECTION DAY IS just weeks away, and voters have had what seems like eons to play compare and contrast with the presidential candidates, Senators John McCain and Barack Obama. The 24-7 coverage has picked up every kissed baby, every veiled insult and every regrettable gaffe. Yet somehow, one issue has tended to get lost in the scrum: how the new president, whoever he may be, will affect voters’ personal finances. Yes, we know both men want to curb carbon emissions and catch Osama bin Laden. But who has the better plan to incentivize nonemployer-linked health insurance purchases?

Chances are, you can’t answer that question, nor do you know what either man thinks about estate taxes or mortgage relief. You wouldn’t be alone. Even though economic uncertainty may be at the top of most voters’ worry lists, candidates tend to steer away from financial details on the stump. “Winning the war on terror” and “change we can believe in” make good sound bites; “insurance portability” and “education credits,” not so much. Historically, “you don’t get a lot of traction out of specific economic proposals,” says William Galston, a former Bill Clinton aide and senior fellow at the Brookings Institution who studies the interplay of politics and economics. Such vagueness may explain why the candidates are closely matched in voters’ minds when it comes to money matters. In most polls Obama holds a slight edge with voters on economic topics, while in a recent Reuters survey, 12 out of 20 economists for Wall Street banks preferred McCain’s ideas.

Suffice it to say, you deserve to step into the ballot box with a clearer picture. So SmartMoney has dug into the candidates’ stands on economic issues, including regulation of the financial markets, protection for homeowners, and health care, the white-coated, stethoscope-wearing elephant in the room.
The Home Front

For McCain, addressing the housing crisis has involved a sometimes awkward balancing act. Back in March, when Congress started wrestling with the subprime debacle, McCain’s response was stern. “It is not the duty of government to bail out and reward those who act irresponsibly,” he told an audience in California. When the housing-rescue bill reached the Senate floor in July, McCain called it a “sweetheart deal” for Fannie Mae and Freddie Mac and didn’t show up to vote for it. Yet one of the most consumer-friendly components of the new law, a program that would allow holders of “nonconventional” mortgages to convert them into 30-year fixed loans, is an idea that had been part of McCain’s campaign platform for months.

It’s a tricky situation for the Arizona senator. He shares the instincts of free-market Republicans who are outraged at the potentially huge cost of the bailout and the perceived free pass it gives some borrowers. But he can’t afford to seem coldhearted to voters who don’t share those views. To reach them, McCain “needs to dissociate himself from the Bush league in the public eye, and that means having a sensible plan for getting out” of the mess, says Georgetown associate finance professor James Angel.
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Obama didn’t show up for the housing vote either; he was wrapping up a media-saturated tour of the Middle East and Europe. But as a Democrat, he’s less shy about involving the federal government in fixing the housing debacle  or, indeed, in consumer lending in general. Obama wants to create a standardized “home score” that would make it easier for consumers to compare the costs of mortgages. He’s advocating a “Credit Card Bill of Rights” that would restrict the ability of credit card issuers to add new fees and hike interest rates. And he has also said banks receiving aid from the Federal Reserve should face bigger disclosure and liquidity requirements that might head off subprime-like blowups in the future. The key word here, of course, is future. In Washington circles, “all this tough talk is happening after the fact,” notes Ann Lee, a former hedge fund partner and an adjunct finance professor at Pace University.
Health Insurance

To ease voter anxiety about losing insurance, both McCain and Obama propose fairly radical changes  policies that would loosen the ties between your health coverage and your job.

Obama’s proposals owe a debt to an unlikely source: former GOP presidential candidate Mitt Romney. Like the universal-coverage plan that Romney helped enact as governor in Massachusetts, ObamaCare would set minimum standards of coverage for every health care plan, and no plan would be allowed to exclude people with preexisting medical conditions. Obama would create a “National Insurance Exchange” where consumers could choose among private plans and a new public plan that met the standards. Many small businesses and individuals who currently struggle to pay for coverage would get it through this exchange. Bigger employers could either continue to provide insurance for their workers or pay a 6 percent payroll tax to fund the public plan.

Many observers believe that under Obama’s plan, most businesses would decide that paying for the public plan was a better deal than providing their own insurance. The nonpartisan Tax Policy Center estimates that the cost to the government would reach $1.6 trillion over 10 years  much more than Obama has estimated  as more consumers nestled under the federal wing. That price tag antagonizes conservatives; they also fear the plan would drive private insurers out of business. To address that objection, the Obama plan has a loophole: Unlike in Massachusetts, adults wouldn’t be required to buy insurance. But if coverage isn’t mandatory, many healthy people won’t bother buying it  potentially making the program much more expensive, as only the sick sign up.

McCain’s plan revolves around changing the tax code. Currently, people who get insurance through work get a hidden tax break: The value of their insurance isn’t included in their taxable income. McCain’s plan would eliminate this break and instead give every consumer a tax credit  $2,500 a year for individuals, $5,000 for a family  to pay for coverage. Armed with this infusion of cash, the theory goes, consumers would shop for the insurance whose balance of cost and coverage they liked. Insurance companies would rush to design policies for this market. And many employers would stop providing insurance  ideally diverting some of their resulting savings to increase employees’ pay.

Skeptics of MediCain have plenty to chew on. There’s a big gap between the value of McCain’s tax credits and the current cost of insurance. In 2007 the average health plan cost $4,479 for a single person and $12,106 for a family, according to the Kaiser Family Foundation  and for many with preexisting health problems, it was much higher. “The plan’s not credible until he tells us what he’s going to do to make the individual market an affordable alternative for people with illnesses,” says Paul Ginsburg, president of the Center for Studying Health System Change.
Investments & Taxes

Historically, the stock market fares a little better when there’s a Democrat in the White House. Still, Wall Street economists believe by a margin of more than three-to-one that a McCain presidency would be better for stocks than an Obama administration, at least in the first year after the election. That belief may come down to one thing: the tax code. Taxes on capital gains and dividends fell under both Bill Clinton and George W. Bush. The Bush-era cuts are set to expire at the end of 2010, but McCain wants to make them permanent. Obama, by contrast, would let them climb back up from their current 15 percent to as high as 25 percent. Some economists think that capital gains tax cuts in 1997 and 2003 played a big role in the rallies that followed those years, and some McCain supporters argue that raising the rates would have the opposite effect.

McCain also wants to cut the top corporate rate, from 35 percent to 25 percent. That could leave public companies with more profit to return to shareholders through share buybacks or dividends  or, of course, they could plow the windfall into golf junkets and $14,000 bottles of Bordeaux. To show their disapproval of the latter kind of behavior, both Obama and McCain are advocating bigger roles for shareholders in controlling executive pay.

It may cut against the stereotypes of their parties, but this year there are more tax-break ideas coming out of Obama’s camp than McCain’s. Obama has proposed a flurry of so-called refundable credits, which result in cash refunds when they exceed the amount that the taxpayer owes Uncle Sam. He’s proposing a $500 credit to middle-income families who save $1,000 or more a year; an $800 credit for taxpayers who pay mortgage interest but don’t itemize their tax deductions; a college tuition credit of as much as $4,000 for families earning up to $114,000 a year; and a “Making Work Pay” credit equal to the first 6.2 percent of salary or wages, up to $8,100. Roberton Williams, principal research associate at the Tax Policy Center, says Obama’s proposals are more ambitious than his recent Democratic predecessors’ in targeting their benefits to the middle and working classes.

But while Obama’s cuts are more numerous, McCain’s are bigger in the aggregate. McCain wants to make permanent the income-tax cuts passed under Bush in 2001 and 2003, which would otherwise expire at the end of 2010. In terms of tax revenue lost, McCain’s proposals would exceed Obama’s by $1.4 trillion over 10 years. In contrast, Obama wants to restore tax rates to their pre-Bush levels for people making more than $250,000 a year, to pay for his health care proposals and other priorities. “People at the top end would pay the price under Obama,” says Williams. The top 1 percent of earners would likely see their after-tax income fall.

In case you’re wondering, $111,645 is the magic number for comparing the tax policies. If you make less than that, Obama’s proposals would put more money in your pocket than McCain’s; if you make more, McCain’s your man. Of course, plenty of voters, from unemployed steelworkers to Warren Buffett, vote according to their values rather than their wallets. Whichever you pick, save the date: Tuesday, Nov. 4.