Obama is listing

Do I believe that John McCain is really up ten points over Barack Obama? No, I don't. My guess is that it has gone from a slim Obama lead to a slim advantage for McCain. It seems clear to me that, coming out of the back to back conventions, the momentum is with the Republicans. The Palin pick - the one that was supposed to be such a car wreck a few days ago - has helped on a number of levels. (The one that the Dems, given their devotion to identity politics, want to emphasize - that it was a sop to women, may not even make the top five.)

If I were an Obama supporter, what would concern me is that the race is even before what I suspect will be a tough effort on the part of the 527s to illustrate the more hard left aspects of his history.

It's even less clear that the weak economy helps as much as we would have expected. Palin is supposed to have misrepresented Obama's tax plan. Obama says that he is going to to raise taxes but only on the top 5% of earners. But there were three - and are now four problems.

One is that it is unlikely to be true. According to even the Tax Policy Center, a group that leans at least a tad toward the blue, Obama's plan (and, to be fair, McCain's as well) will reduce revenues and increase the deficit. In addition, Obama proposes or hints at a lot of new spending. It seems unlikely to me that Obama's actual policy will look much like what he is proposing on the campaign trail.

Of course, I suspect McCain's won't either. The difference is where one's inclinations lie. Obama is going to lean in the direction of raising taxes and spending. McCain will tend to go the other way.

The second problem is that tax imposition is not the same as tax incidence. Much income over $250000 is business income. Raising taxes is likely to increase prices and lower earnings. There may still be a net redistributive effect but not as much as is claimed.

The third problem is that Obama's plan will raise marginal tax rates to among the highest in the industrialized world. Even if those rates only apply to high earners, two things happen. First, taxable income declines as people engage in tax avoidance strategies. For that reason, revenue increases tend to be lower than expected. Second, the after tax returns to investment decrease. This will tend to attract capital away from the US or direct it to safer - but less growth generating uses - suppressing the economy.

Tax cuts don't always "pay for themselves" - although there are economic circumstances in which they might. But tax increases have implications that go well beyond simply taking part of a static pie and giving it to someone else.

Of course, Obama knows that. He is now backing away on his pledge to rescind the Bush tax cuts. I give him some credit for this. Wisdom that is late is nevertheless wisdom.

But it undercuts the Obama case on the economy. Just what government policy is supposed to have lead to a slower economy and what does he propose to do about it?