The economic policy of John Edwards

Eagle-eyed William Saletan, at Slate, posted a very useful heads-up

today about a key speech which Democratic presidential

candidate John Edwards gave on Tuesday at Georgetown University. Saletan gives

the Cliff’s Notes version, full of paradox and "audacity", and says

that "Edwards is trying to turn the traditional politics of left and right

upside down".

I’m not sure that I – or, for that matter, the Edwards campaign –

would completely agree with Saletan’s characterisation of the speech, but he

does perform a very useful précis, since the speech itself is long on

standard stump-speech rhetoric and isn’t that easy to read on screen (as opposed

to listen to in person).

But after reading them both, I think I’m close to considering myself an Edwards

supporter. Certainly, there’s a lot more meat here than in any dozen Howard

Dean speeches, which are full of grand phrases designed to fire up urban left-liberals,

but which are ominously light on policy specifics.

The substantive part of the Edwards program is basically to cut taxes on earned

income, while raising taxes (or, more precisely, repealing tax cuts) on unearned

income. Here’s an excerpt from the speech:

First, I will ask Congress to cancel the 2001 and 2003 income, dividend, and estate

tax breaks for the wealthiest Americans in the upper two brackets. In these

times of national sacrifice, we should not be asking less of the most fortunate.

I agree with Bill Gates, Sr., the father of the richest man in America, that

in a world where taxes must be paid, the people who inherit massive estates

ought to pay taxes too. I agree with Warren Buffett, the shrewd investor and

another of America’s richest men, who said that something is deeply

wrong when a billionaire has a lower tax rate than his secretary.

Second, I will give America a tax code that rewards work, not wealth. Today,

middle-class families pay income tax on their earnings at a rate of up to

25%, plus another 7.65% in payroll tax. Yet under the law President Bush just

signed, a CEO who pays himself whatever he wants can sell millions of dollars

in stock and pay tax at a total rate of 15%.

It’s hard to argue with that, although I’m sure that should Edwards get the

nomination, cries of "class warfare!" will start ringing out from

the GOP. Edwards is certainly going to have to make sure he’s a lot more specific

about who, exactly, "the wealthiest Americans in the upper two brackets"

are, since vastly more Americans think they’re in the top x% of the

population than actually are.

So Edwards should be very specific, making sure that he’s specifying incomes

over $350,000 a year, and estates over $6 million. Even then, many Americans

are going to be suspicious of such talk, since even if they’re not in that wealth

bracket now, they think (erroneously) that they will be very soon.

The key part of the speech which Edwards should concentrate on, then, is the

bit where he’s giving help and tax credits to the working poor and the lower

middle class. A $5,000 tax credit towards buying a home? That’s something people

can understand. Likewise making the first $1,000 of capital gains and $500 of

dividend income tax-free: an easy way of increasing the abysmally low (in fact,

negative) savings rate of the working classes. Best of all, Edwards proposes

a dollar-for-dollar match for retirement savings up to $1,000 a year.

I honestly believe that much of the Republican Party never even thinks about

such policies, even to reject them, because they’re in a comfortable middle-class

mindset which considers $500 of dividend income or $1,000 of retirement savings

to be negligible. Edwards should make them realise that there are millions of

Americans for whom such sums are anything but negligible, and that those Americans

are just as important and powerful as the richest plutocrats on one crucial

day every fourth November.

Edwards is right to make people realise that while the Bush administration

is passing enormous tax-cutting bills, most people aren’t seeing any of it.

Their federal income taxes might be down a little bit, but their state taxes

are rising, their city, property, and sales taxes are rising, their health-insurance

and college-education costs are rising: all these things mean that despite the

tax cuts, they have less disposable income now than they did before the Republicans

came in to office.

And it goes without saying that Edwards’s emphasis on fiscal responsibility

is a refreshing sign of sanity.

He’s clearly got a pretty solid grasp of basic macroeconomics, too. His policies

might well decrease investment from people with significant unearned income,

but they will increase investment from working people, with probably a small

positive effect on total savings. More importantly, while the big-picture numbers

might not change much (GDP, inflation, that sort of thing), Edwards would be

helping out the poorest members of society and giving workers much of the fruits

of their productivity gains which have gone overwhelmingly to their bosses until

now. That should help make America a more equitable, not to mention safer, place.

But while I agree with Edwards, I disagree with Saletan, or at least with part

of his spin. Saletan seems to think that talk of the wonders of capitalistm

is a naturally Republican domain, and that the Democrats are venturing into

new territory by attempting to show that they’re actually more capitalist than

their rivals.

While this might have been true ten or 20 years ago, I can’t see how it’s true

now. The past three presidencies have demonstrated beyond a shadow of a doubt

that when it comes to government finances and the economy, the Democrats do

much better than the Republicans. Just as Blair and Brown have been better economic

managers than Major was, it seems completely natural to suppose that Bush’s

opponent in the next election – whomever he might be – will run

America much more efficiently, on a purely capitalist level, than Bush is doing

right now. It’s hard to overstate the fiscal devastation that Bush is wreaking

right now, and if he’s allowed to carry on down this path for four more years,

he could hobble the economy to a point where the best-willed successor in the

world could not repair the damage.

Doesn’t Saletan remember Clinton’s famous slogan from 1992, "it’s the

economy, stupid"? That worked then, and it’s likely to work again now.

Americans like the idea of huge tax cuts, they just don’t like it when they

realise that most of the money is going to people who barely even notice it,

they’ve got so much to start with. Let’s direct tax cuts where the extra money

will be spent, stimulating the economy, rather than directing them where the

money will be put into Swiss bank accounts. Let’s use tax cuts as a means to

an end, and not as an end in themselves, and judge their success by how well

they help achieve those ends.

And let’s get the word out that it’s not audacious or topsy-turvy to say that

a vote for the Democrats is a vote for small business, private enterprise, and

lower taxes on earned income. It simply reflects the realities of what Washington

has become in the first years of this century.