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information that's the part of the
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calculus that's very unclear at this
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point am and it's neither candidate has
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a very clear plan on it they both are
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basically appealing to the vague
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language of will find the inefficiencies
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somewhere in the budget and will cut
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those things out but when persons
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efficiency is another person subsidy and
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so it's very hard to find those things
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and so what you see before the election
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will actually happens after the election
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are often two very different things I
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think you know the best way of trying to
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answer that question is to look at track
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record and in particular McKeen's plan
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will cause probably a little larger
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deficit than Obama's not so much but
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McCain also does have more of a track
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record voting against government's
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spending trying to cut government
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spending in fact one example is that he
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actually voted against Medicare Part D
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which is quite remarkable coming good
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night comes from Arizona the second-most
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agent state and he's actually never
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lobby they were putting a bill a single
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earmark during this entire career and so
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that's I think he has more of a track
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record of cutting spending on the other
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hand Obama has advantage to being a
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Democrat so when it actually comes to
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cutting spending he'll actually be may
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be trusted more with that and so I think
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what at the same time his track record
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his short track record is not as
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compelling he's had lobbied for earmarks
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for his district and he's never been
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kind of a color in terms of government
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spending and so on when he and he had
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mckean with kind of the track record of
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cutting who will have a harder time as a
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Republican doing it another hand you
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have Obama who had probably more
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naturally trusted the Democrat to do it
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but doesn't have the track record
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so the theorem what's called divided
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government can suggest both ways in
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particular on one hand having a divided
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government the idea is that it's
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supposed to just constantly constant
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roadblocks it's very hard to get
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increases in government spending because
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it's hard to get a bill through Congress
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that's actually can be signed by the
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President and so forth but when it
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actually comes to cutting spending it
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may be actually to Obama's advantage
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because he does have a cooperative party
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and so he has to kind of get them on
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board and use the power of the White
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House for that so again I think
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politically it's going to a little bit
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easier on Obama that the problem is is
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that he doesn't have the maverick track
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record that McCain has
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there's no question that tax cut is a
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perfect place for thinking about
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distribution equity and efficiency in
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terms of economic growth in fact it's
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the key area at the same time I think
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the Obama side they really want to focus
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on what we call the deltas that is they
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want to look at past tax changes and say
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lots of those accrued to the rich and
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therefore we were we want to reverse
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those it whereas they don't what they
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don't report as much as what we call the
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levels actually reporting what is the
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actual distribution of the tax burden
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between middle-class and rich and so
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what they do is they are in some ways
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exploiting a misconception that
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misconception is that most Americans
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believe is that the middle class pays
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the taxes it's not true at the top 10%
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of the income earners pay majority of
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the taxes it used to be true before the
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1986 Tax Reform Act the tax reform 1986
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Tax Reform Act really close down lots of
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loopholes and so forth today the rich
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pay actually most of the taxes and so
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when we think about what's the ideal tax
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system we shouldn't just look at how a
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tax plan impact one group versus the
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other group what we should actually look
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as the resulting state what type of how
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much taxes do we want levied on the rich
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versus the poor it presumably we want a
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higher tax rate and a rich then on the
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poor for equity reasons and but for
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efficiency reasons we don't want the tax
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rates to go so high in the wrist they
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are in fact many of the job creators and
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so we want to have that that type a
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trade-off but we shouldn't just look at
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the changes we should actually look as
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the resulting levels that that a
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particular tax change and the fact of
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the matter is McCain plan will actually
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result again in the top 10% of the
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income earners pain most of the taxes
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that's like I change on are either
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either plan
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but this is a part of the rhetoric
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that's very confused in the people
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technically these tax cuts do sunset in
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2011 and so by extending them you know
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is that a tax cut or not just huge
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debate about language I think it's
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irrelevant and the reason why it's
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irrelevant because i don't think the
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right focus should be on what's the
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impact of the change on each particular
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group what I think the right in analysis
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should be is what is the resulting n
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that is what is the level of taxes that
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we should expect they have from
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high-income earners versus middle versus
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low and in so give you a simple example
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if i told you that the top 10% p ninety
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percent of the tax as well if it's cut
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taxes most of the tax cuts are going to
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accrue to the top 10% just pure math and
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so that's not a group therefore a
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regressive tax cut it's just attributing
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it's just the natural result of the
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original level while the top ten percent
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actually pay about sixty sixty-five
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percent depending what year that you
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look at the total other income tax
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revenue they paid in some years was even
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higher than that in the 70s and so you
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know what we really should ask ourselves
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from a distribution perspective is is
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that the type of allocation that we we
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like and so when we cut taxes across the
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board yeah lots of its going to accrue
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to them that's only because they're
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paying law texas to begin with right so
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that's why it's not fair i think to look
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at the change it's what you really want
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to look at is kind of the actual
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resulting level that you end up with and
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also for in terms of efficiency that is
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production in the economy you don't care
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about the change impact what you care
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about as a result in level and so that's
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where mckean the Obama plans are going
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to differ a fair amount and partly it
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depends on how you interpret the Obama
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fix of the Social Security tax and that
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is he's been unclear he said one thing
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where he basically said he wants to lift
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the cap on Social Security taxes that
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would result in a dramatic increase in
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marginal tax rates of higher income
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people his advisors however say he's not
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actually going to propose that he just
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wants have a tax surcharge and the
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higher income people well
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difference between those two things what
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the one he eventually comes out with
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could have a dramatic impact
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the deficit certainly matters for each
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plan but at the same time I think the
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distribution of the taxes do matter I
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mean I think we my own opinion is that
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we do want a progressive tax system the
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question is how much you really want to
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hit the higher income people right
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versus middle income and lower income
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and again most Americans really believe
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that the middle income people pay the
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taxes and exhaust it is not actually
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true it's it is most of the taxes are
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actually paid by the rich and when I
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told my beetle and come class friends
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include my consider myself fairly
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middle-income class they don't want to
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believe that they say I'm definitely
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wrong but the data is pretty clear
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oh and those numbers don't help up a
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small portion of the truth because they
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rely simply on this my opinion
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fraudulent government accounting scheme
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which ignores how much we're accruing in
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the big entitlement program Social
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Security Medicare and so forth I went
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testified before Congress that if they
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did this up by counting the private
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sector the CEO as we go to jail it could
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actually be illegal basically I duns my
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own calculations and if you actually
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brought in the increase in liabilities
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and Medicare Social Security Medicaid
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all the entire government liabilities
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the true deficit is not in the 450 to
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500 range it's actually about 2.5
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trillion dollars much larger and that's
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that's just the increase in liabilities
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across all spending minus tax programs
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and Medicare is the much bigger problem
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it's actually about six this shortfall
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in the Medicare program is about six
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times larger than Social Security and
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it's also a harder problem to fix with
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Social Security there's actually some
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easy fixes that may I don't want to make
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it sound like it's without pain but the
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Bush administration and mckean have
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talked about scaling back benefits for
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higher income earners by scaling back
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from the dollar benefits having those
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grow just with inflation and not faster
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than inflation for lower-income actually
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have them grow faster inflation so it
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tilts it makes it more progressive that
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type of change alone could go a long way
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to solving the social security problem
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Medicare very difficult problem to solve
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not only is it is the shortfall think of
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six times larger but how do you cut it
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debt is do you say world will pay for
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half the operation it's not a dollar
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benefit it's an in-kind benefit and so
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it's much harder to cut that type of
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program because now the government's in
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the position where they have to start
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saying you know we'll pay for that type
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of surgery but not this type of surgery
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right involves very tough moral
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decisions
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so what happen whether care Part D it's
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the first rule of temp and Part D pays
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for prescription drugs it's a very first
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attempt to get some type of income or
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what's called means-testing into the
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system right that's going to be a very
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natural way to go with the other parts
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and mainly Parts A and B that pays for
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hospitalization outpatient services at
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the same time it's going to be you know
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very difficult to tell some higher
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income people that G with something that
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you are getting before is not going to
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happen and they keep in mind is that you
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don't just have to hit high high income
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people it's a lot of people who don't
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see themselves as high income will it
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would actually get hit by this it make a
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dramatic point if you to balance
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Medicare and Social Security going out
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into the into the future we would have
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to immediately cut benefits by over
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fifty percent in both of the programs to
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create balance that's how much we're
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overspending and present value and and
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that's immediately no one's proposing
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that no one's going to cut your
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grandma's you know Medicare benefit
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immediately so if you delay it twenty or
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thirty years you phase it in it's even
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more dramatic cuts that I needed and
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most of that is due the Medicare and so
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this these are very dramatic changes
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that are going to have to happen if they
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don't happen we're going to have to
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raise more money through taxes that's
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going to slow economic growth a or we're
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going to have a serious day of reckoning
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I mean people talk about the type of
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things that happen in Asian currency
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crisis and Latin America debt crisis
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that those things can't happen America
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well that's what they thought in those
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countries to it can happen in America
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for more information please visit
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knowledge wharton you Penn dot edu
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