A recent Heritage Foundation Center for Data Analysis report describes the economic outcomes that can be expected based on the presidential candidates' proposed tax plans. The outcomes include the effects of these proposed policies on gross domestic product, disposable income, and employment growth over a 10-year period.
The analysis finds that job growth under Senator John McCain's (R-AZ) plan at the national level is more than two times faster than job growth under Senator Barack Obama's (D-IL) plan. Table 1 shows the average yearly employment gain that can be expected in each state as a result of McCain's and Obama's tax plans.
Job creation grows faster in McCain's plan because of the plan's pro-growth provisions. The McCain proposal includes lower tax rates for businesses and allows businesses to deduct the cost of new purchases of equipment and technology in the first year. Both of these proposals lower business expenses, leaving more money for business owners to use for employment and operation purposes. Owners will use this money to hire new staff, purchase more materials, and invest more in research and development activities.
Obama's plan relies chiefly on a series of tax credits in order to redistribute income. These credits will serve to boost consumption, creating some demand for new employment. However, tax credits will not boost business investment, which influences employment outcomes in other sectors of the economy. As a result, none of the trickle down employment effects observed as a result of McCain's tax cuts result from Obama's tax credits.
Shanea J. Watkins, Ph.D., is Policy Analyst in Empirical Studies in the Center for Data Analysis at The Heritage Foundation.