A recent Heritage Foundation Center for Data Analysis report[1]
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.[2]
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.
Show references in this report
[2] The
Center for Data Analysis used a version of the Global Insight (GI)
baseline forecast and the U.S. Macroeconomic Model to simulate the
economic effects of adopting the McCain and Obama tax proposals.
This model is provided to The Heritage Foundation by IHS Global
Insight, Inc., of Lexington, Massachusetts. The methodologies,
assumptions, conclusions, and opinions in this CDA Report
are entirely the work of CDA analysts. They have not been endorsed
by and do not necessarily reflect the views of the owners of the GI
model. The GI model is used by leading government agencies and
Fortune 500companies to provide indications to policymakers of the
probable effects of economic events and public policy changes on
hundreds of major economic indicators. State estimates were
calculated by multiplying each state's share of total national
employment to the macroeconomic estimates of each of the tax plans.
For example, the population of employed people in California
accounts for almost 12 percent of employment nationwide. In order
to calculate the percentage of jobs California would stand to gain
as a result of the candidates' tax plans, this percentage was
multiplied by the national estimates of job change from the macro
model. State employment data for July 2008 was collected from the
U.S. Department of Labor, Bureau of Labor Statistics, Civilian
labor force and unemployment by state and selected area, seasonally
adjusted, table 3, at http://www.bls.gov/news.release/laus.t03.htm
(September 29, 2008).