Whose Tax Plan Is Really Best?

In what may end up being a particularly unfortunate example of poor
timing, Donald Luskin, an economic adviser to John McCain, wrote an
article in Monday's Washington Post arguing that, as his candidate avowed recently, the U.S. economy is fundamentally sound.

This article appeared even as a wild scramble was taking place on
Wall Street in an attempt to keep the financial markets from melting
down. The day before, Lehman Brothers, one of the nation's oldest and
largest investment banks, filed for bankruptcy, after various attempts
to engineer a bailout of the firm failed.

At the same time, the Bank of America announced it was buying
troubled brokerage house Merrill Lynch, in a deal designed to stanch
the bleeding from the ongoing mortgage lending crisis.

Then, as this column went to press, the Federal Reserve made the
shocking announcement that the U.S. government was essentially buying
insurance giant AIG in return for $85 billion in loans - a rescue
operation literally 25 times larger, in real terms, than the infamous
1979 bailout of Chrysler.

Stocks were down sharply on Monday, and on Tuesday morning McCain
was advocating a 9/11-style commission to investigate the financial
crisis that an economic adviser told us Monday isn't happening. Indeed,
the GOP presidential candidate is suddenly sounding like William
Jennings Bryan, railing against greedy Wall Street financers who have
robbed America's workers blind.

Anyway, Luskin's argument is essentially that average Americans feel
worse about their financial situation than the facts warrant, because
politicians, most notably Barack Obama, are, for reasons of electoral
self-interest, painting an unrealistically gloomy economic picture.

What Luskin's argument overlooks are how the economic anxieties of
Americans are the inevitable result of 30 years of widening income
inequality, in a culture that also encourages conspicuous consumption
and celebrates fantasies of unlimited wealth.

Consider that in 1978 the median household income in America -
meaning half of households made less - was about $40,000, in current
dollars. Today it's about $48,000.

Meanwhile, the gross domestic product has grown by 140 percent, from
about $5 trillion to around $11.7 trillion, again in current terms. At
the same time, the population has increased by 40 percent.

This means that, per person, the nation is nearly twice as rich as
it was 30 years ago. Yet the income of the typical household has barely
grown at all.

It's hardly a mystery where all those extra trillions have gone;
while median household wealth has increased only modestly, the income
at the top of the economic pyramid has skyrocketed to such an extent
that we now have a greater level of income inequality in America than
at any time since before the Great Depression.

The priests of the "free market" (these are generally the same
people who are currently trying to shake down the federal government
for taxpayer- funded bailouts of some of our biggest financial
institutions) will tell you all this is an inevitable product of global
capitalism, and as unavoidable as the laws of thermodynamics.

That's obviously untrue; the reason the rich have gotten so
fabulously rich in America over the past generation is because almost
every change in the rules of the economic game has been designed
specifically to benefit them.

A new report from the Tax Policy Center reveals that McCain's tax
proposals promise more of the same - if they were enacted, the richest
1 percent of Americans would see a far larger percentage increase (and
an astronomically larger gross increase) in their income than anyone
else.

Under Obama's proposed tax plan, 95 percent of American taxpayers
would see their after-tax incomes increase, while the richest Americans
would experience a slight decline in the staggering wealth they've
accumulated during our new Gilded Age.

And if that means people like John and Cindy McCain end up owning
only 11 instead of 12 houses, that's a price I suspect the average
American voter is willing to pay.