McCain's problem is that his party's standard economic pitch has become less and less relevant. Lowering taxes was terrifically pro-growth in Ronald Reagan's time, when the top income tax rate was slashed from 70 percent in 1980 to 50 percent in 1982, significantly changing incentives for work and risk-taking. But with the top rate at 35 percent today, a modest shift in either direction makes less difference. Given the yawning budget deficit and the coming demographic crunch, tax cuts aren't affordable anyway.Now, Mallaby must not realize that there was actually a time when there was no income taxes. The reality is that any tax on income is punitive, excessive, and totally unnecessary. The income tax in general grew out of and continues to be a product of bloated government. The founding fathers saw taxes and infringement on freedom. They never imagined the plethora of taxes that would be created. Yet, Mallaby thinks that cutting the top tax below 35% is now counter productive. No, what's counter productive is having an income tax at all. Unfortunately, the explosion of entitlement programs makes income taxes a reality.
The same goes for deregulation. Getting the nanny government out of trucking and airlines yielded huge benefits in the 1970s and 1980s. But the "price-and-entry" regulations that used to cosset such industries have long since gone, and remaining regulation is harder to demonize. We are left with government rules to protect the environment, check the safety of medicines and prevent systemic financial crises. These rules are generally helpful. There's nothing "pro-growth" about bashing them.
The same is approximately true for trade. When Bill Clinton ran for president in1992, you couldn't be pro-growth if you were anti-trade because the creation of the North American Free Trade Agreement and the World Trade Organization hung in the balance. Today most trade barriers have been removed; although the remainder certainly ought to be abolished, there's not much prospect of that because the Doha trade talks have stalled. Provided that Obama finds a way of crawling back from his embarrassing talk of reopening NAFTA, the gap between his trade views and McCain's doesn't much matter.
If Mallaby thinks that rules and regulations are helpful, he should spend a day in mortgages trying to navigate between state regulations, federal regulations, and loan specific regulations. Ironically, all the hyper regulations that have long been in effect in mortgages mattered zero in stopping the mortgage crisis we are in. The answer for Mallaby and his ilk is more regulations, even though they can't explain why the plethora of regulations we already had in place did nothing to stop the crisis we already had. It seems that Mallaby thinks borrowers just happen to sign nearly one hundred documents at closing by accident rather than in response to mortgage regulations. He conveniently forgets that none of those hundred documents did bubkus to save us from the mortgage crisis.
As for free trade, well Mallaby is simply wrong. For instance, we still face a great deal of tariffs on goods we export to Colombia. The free trade pact with that nation would resolve that issue, and Barack Obama is against. There are plenty of barriers that need to be removed. Furthermore, Obama is for creating new barriers which is something Mallaby doesn't address. Even though Mallaby implicitly backs the concept of free trade, he says nothing about Obama's protectionist policies.
Mallaby continues with some of his solutions.
So the real litmus tests on growth lie elsewhere: in policies toward education, basic science, skilled immigration, infrastructure and the grotesque tort system. Tax reform, not cuts, would help: The complexity of the tax code wastes millions of hours, and the crazy deductibility of mortgage interest encourages real estate bubbles. Regulatory reform, not deregulation, could help, too. Unless the United States consolidates its bewildering tangle of Wall Street overseers, creative financiers will flee and the country will lose its lead in a key 21st-century industry. But the old
Republican playbook of tax cuts, deregulation and lower barriers to trade misses
the real challenges.
Now, I agree with many of these though most of them would produce growth twenty and more years down the road. What I don't agree with is that somehow it is Barack Obama and not John McCain that is the agent of growth on these issues. Obama is for targeted tax cuts in which some will receive tax cuts while others will receive tax increases. He wants to bring back the death tax and increase the capital gains tax. He wants to increase the top tax rate while dropping some of the lower rates. How does this simplify the tax code? He wants massive new regulations in mortgages and he wants universal health care and with it massive new regulations. How is that regulatory reform rather than simply more regulations.
In my opinion, the biggest barrier to economic growth is bloated government. The burden of an endless stream of taxes is the real main barrier to economic growth. Unfortunately, the Republicans have not been much better on this issue than the Democrats over the last eight years. Decreasing the size of government is something you would never hear a liberal suggest to creating economic growth. That's because they think that government can solve all problems. That's why they use euphimisms like regulatory overhaul for more regulations. Republicans used to believe that too. Unfortunately, that has gone by the way side recently. On that front, John McCain is a real leader in government. Barack Obama's plans include a massive increase in the size of government. I'd love to hear what Mallaby thinks about the relationship between the size of government and economic growth. Of course, that would require Mallaby to cease seeing the world from his liberal prism.