Economy: Candidates' instincts differ

As they traveled across Indiana and North Carolina over the past few days, trading charges and countercharges about the wisdom of suspending the federal gas tax this summer, Sens. Hillary Rodham Clinton and Barack Obama really were having a larger fight.

They were arguing over who had better economic instincts.

For all the similarities between the two Democrats, there is a core thematic difference between them. Clinton tends to favor narrowly focused programs, such as the gas-tax holiday, that speak to specific voter concerns. By suspending the tax and replacing it with a new tax on oil companies, Clinton told a rally in Hendersonville, N.C., on Friday, she was standing with "hard-pressed Americans who are trying to pay their gas bills."

Obama, on the other hand, leans toward broader programs meant to help nearly all middle- and low-income families. At a steel factory in northwest Indiana on Friday, Obama called the tax holiday a "gimmick," and said he instead favored a cut in the payroll tax, which finances Social Security, of up to $1,000 for middle-class households "to offset the costs not only of gas, but also of food."

The dueling instincts do not explain all the differences between the two Democrats. They also disagree about a health-insurance mandate (Clinton favors one) and the capital-gains tax (Obama has indicated he would raise it more than Clinton would). Obama is open to increasing the amount of income subject to the Social Security payroll tax; Clinton has been critical of that idea.

But their contrasting approaches do extend to a range of issues, including the current economic slowdown, the mortgage crisis and retirement savings. The contrast has been present since before the primaries began — when Obama announced his middle-class tax cut, for example, and when Clinton took out a whimsical television advertisement in which she was labeling Christmas gifts as if each were a specific policy proposal.

"Where did I put universal pre-K," Clinton asks herself, looking around. "Ah, there it is!"

The contrast between their approaches also highlights what many economists consider to be the biggest weakness of each candidate's plan.

As the economy has slowed, Clinton has released a series of proposals — to stimulate growth, stem home foreclosures and, most recently, reduce energy costs — that have helped burnish her image as the candidate most in touch with the specific concerns of working families. Yet, policy experts say these proposals generally have made for better politics than economics.

"I was appalled by Hillary going with the gas tax," said Alice Rivlin, a budget director under former President Clinton who supports Clinton for the nomination. It "looked like pandering," Rivlin said.

An open letter signed last week by more than 100 economists said the proposed tax holiday would do little to reduce gas prices. In part, that is because a fall in prices would lead to more demand, which would cause prices to return to their earlier level. The result: Overseas oil-producing governments would receive money now flowing to the U.S. government in gas taxes.

Along similar lines, Clinton's proposed stimulus plan was widely considered to be more complex and less effective than Obama's suggestion of quick tax cuts, which was the same approach Congress and the White House ultimately took.

But Obama receives lower marks from budget experts for fiscal discipline. His package of tax cuts and new spending would cost roughly $300 billion a year, while Clinton's would cost less than $250 billion. Economists said they were skeptical he could pay for his program without increasing the deficit.

"Obama has a shorter list of tax breaks," said Leonard Burman, director of the Tax Policy Center in Washington, "but has some really big items on it."

Policy analysts specifically criticize Obama's proposal to eliminate income taxes for senior citizens with up to $50,000 in income. Thanks to Social Security and Medicare, the federal government already spends a large amount of resources on older citizens.

"The tax system already does a pretty good job of protecting poor and near-poor seniors," said Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities in Washington.

The Clinton and Obama approaches still have many more similarities than differences. Whether through focused tax breaks or sweeping ones, both candidates would reduce taxes on middle-class households and raise taxes on those making more than $250,000 a year.

Sen. John McCain, the presumptive Republican nominee, by contrast, would make permanent nearly all of the Bush tax cuts, including those affecting high earners. McCain advisers say allowing taxes on high earners to return to pre-Bush levels would damage an already-vulnerable economy.

Both Democratic candidates also have promised to regulate corporate America more closely than President Bush has and to spend more than $100 billion a year on an overhaul of the health-care system.

The one major difference between their health plans has received more attention than it deserves, economists say. Although opinion is divided, they generally favor the Clinton policy, which would require all Americans to have insurance, potentially making the health-care system more efficient. But health analysts say the Clinton campaign has falsely suggested the Obama plan would exclude people who wanted to sign up for insurance.

Despite criticisms of the two agendas, policy experts praise both candidates for an unusually substantive primary campaign, each having come forward with detailed plans to address climate change, the middle-class squeeze and the decline of company-provided health insurance.

Clinton and Obama also have been more forthcoming than McCain about how they would pay for their plans. McCain has proposed almost $300 billion a year in new tax cuts, on top of Bush's cuts, but has offered little detail about how he would pay for them.

Douglas Holtz-Eakin, the McCain campaign's top economic adviser, has said McCain would later offer more details and that the tax cuts would spur economic growth, reducing their cost.

New York Times reporters Jeff Zeleny and Patrick Healy contributed to this report.