'It's 3 a.m. and your children are safe and asleep. But there's a phone in the White House and it's ringing." Those lines from a Hillary Rodham Clinton campaign commercial invoked images of a president responding in the dead of night to "evil" forces threatening Americans' safety. These days, however, the 3 a.m. phone call to the White House is just as likely to come from the secretary of the Treasury, warning of an Asian stock market plummeting or a European government taking over another major bank. That's not a political scare tactic; it's an all-too-real consequence of the subprime mortgage fiasco.
The deepening problems in the financial markets have shifted the public's -- and the candidates' -- focus from homeland security to economic security. Rising unemployment, slowing production and stubbornly tight credit are all signs of a recession that's not likely to be cured by the time either John McCain or Barack Obama takes the oath of office in January. As we've seen in recent months, even dramatic action by the Bush administration and the Federal Reserve hasn't been able to stop the stock market from falling and credit from evaporating. We need a president with the grit and credibility to force harsh medicine into the financial system, identifying which banks are too troubled to save and making temporary, taxpayer-friendly investments in healthier institutions to jump-start lending. These efforts are fraught with risk, and they'll inflict more pain in the short term. But it's better to endure that pain now than to pretend the banks' illiquid assets are worth more than the market will pay for them, as some have advocated.
McCain and Obama showed political courage in supporting the Treasury Department's wildly unpopular $700-billion rescue plan for Wall Street after much-needed modifications were made. And at the risk of rankling the vast majority of mortgage holders who aren't defaulting, both have called for the government to help borrowers who got in over their heads. Yet foreclosures lie at the root of the credit malaise, and reducing the pace of repossessions is in the public interest. We give McCain points for offering the boldest idea on this front, a plan for the government to help refinance failing mortgages. But we'd prefer an approach that forced banks to take some losses on their risky loans instead of just shoring up their balance sheets.
Hoping to spark the economy out of its torpor, Obama has called for the federal government to dip more deeply into the red and dole out more cash. Among other things, he proposes to collect more taxes from oil companies, then use the revenue to pay for a $1,000-per-family tax rebate. We're no fans of levies on "windfall" profits of companies in competitive markets, nor do we think tax rebates have been very effective at stimulating the economy. Obama is on more solid ground when he calls for extending unemployment benefits and offering $50 billion to state and local governments to keep them from cutting services and rolling back construction projects.
McCain hasn't pushed a specific stimulus plan. Instead, he's called for Washington to promote growth by making President Bush's tax cuts permanent and lowering the tax on corporations. Neither move would provide a quick jolt to the economy. On the other hand, not extending Bush's tax cuts would amount to a huge tax increase, and now isn't the time for government to be siphoning off more revenue. Obama would also extend most of Bush's tax cuts, but he would require families earning more than $250,000 a year to pay income and capital-gains taxes at the levels they were in the late 1990s.
The difference in their plans is significant: Excluding their proposals for healthcare, McCain's would cut $1.2 trillion more in taxes than Obama's over the next decade, according to the Tax Policy Center’s analysis. Beyond that, as with the Bush cuts, taxpayers with high incomes would receive much larger benefits from McCain's plan than the average taxpayer would. But taxpayers at the upper end of the scale bear a larger percentage of the tax burden; just as the share of income held by the wealthiest Americans has risen, so has their share of the overall tax bill. We want the next president to examine the wealth gap -- assuming the crashing stock market doesn't wipe it out -- but there's more at issue than tax rates.