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The Coming Tax Battle

John McCain – like countless Republicans before him – has made taxes a centerpiece of his political campaign, and no wonder: it’s a strategy that’s worked again and again.  But tomorrow night, it's likely to be Barack Obama who goes on offense on taxes. 

McCain wants to make permanent the Bush tax cuts he once opposed.  He’s also proposed an additional $300 billion a year in tax cuts, roughly doubling the size of the Bush tax cuts and making them even more slanted to high-income families.  And he is attacking Obama for a supposed vote for higher middle-class taxes (a claim calls “wrong”).

But Obama is ready for him.  A year ago, he laid out a clever tax plan that anticipated these general election battles. Long part of a lengthy list, these tax ideas will probably take center stage in his acceptance speech tomorrow night.

Unlike Al Gore and John Kerry, who also wanted tax cuts, Obama promises a new $500 tax cut for every worker.  This sweeping tax cut will benefit nearly every family.  As a result, while McCain's tax cut is larger, most families would fare better under Obama's plan.  “My plan would provide three times more tax relief to the middle class,” Obama said yesterday.  Expect to hear that again.

Obama’s health care plan -- which subsidizes premiums through tax credits -- is also a tax cut.  Its design allows Obama aides to boast that Obama is proposing an overall tax cut.  McCain, in contrast, has a plan that will raise taxes on health insurance.

Historically, middle-class tax cuts were not championed by either traditional liberals (who preferred public investments) or Rubin Democrats (who championed deficit reduction).  But they work well for Obama this year.  Obama is talking more and more about the middle-class squeeze, the problem of falling incomes and rising health care, energy, and other costs. Making the tax code more progressive is a simple, fast, and effective way to reach struggling families. Tax breaks are also a way for Obama to signal to voters that he is not a tax-and-spend Democrat and to Republicans that he is willing to reach across the aisle. 

So far, the Democrats haven't found a clear way to describe what's wrong with the economy and how they'll fix it.  The diversity among the speakers we heard yesterday -- on the convention's economy night -- made clear the many possibilities, some in tension with each other: energy, education, corporate power, small businesses.  Tomorrow night, Obama will have his chance, and his answer may well be tax reform.  

--Robert Gordon and James Kvaal