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"Barack Obama victory will hurt US firms - and world economy

By Janet Daley
Source Telegraph UK
Last Updated: 12:01am GMT 03/11/2008

"Well, it's nearly over - this presidential election campaign that has gone on for so long I can scarcely remember what life was like before it started. So long has it been running that the world has actually gone through two tumultuous transformations of political reality during its span.

First there was the emergence of Russia as a threat to international stability in a form that should not have, but nevertheless did, come as a startling revelation to a complacent free world: a phenomenon which, in cynical partisan terms, played heavily in John McCain's favour. But that was followed, and almost totally eclipsed, by the economic implosion that brought every earlier assumption about the electorate crashing down with it.

So, in one of those bizarre jokes that history sometimes plays, the United States is apparently about to choose as president the most inexperienced, untried and virtually unknowable (because there is so little to know) candidate who has ever run for that office at a time of unquantifiable international risk and unprecedented economic instability: a candidate who, as Bill Clinton revealed in a wonderfully back-handed "tribute", responded to the banking collapse by ringing every expert he could find (including Bill) to ask them what he should be saying.  

And not only does it seem likely that Barack Obama will be elected president, but that he will arrive in office accompanied by a legion of new Democratic senators and congressmen which will give his party a lock on both the executive and legislative branches of government, thus permitting it to do precisely anything it wants.

A week ago in New York, I talked to senior Republicans who were dividing their time between conference calls to the White House to discuss the economic crisis and exasperated confrontations with the McCain campaign team over the ineffectiveness of its strategy. It is almost impossible to exaggerate the state of dissension and dissatisfaction within the higher ranks of the Republican Party - which is why the Obama claim that a McCain White House would simply be George Bush by other means is so ludicrous and disingenuous.

In truth, McCain's status as an outlaw within his own party ("maverick" is much too mild a word) has meant that he has had only the most ambivalent relationship with what was once a very professional Republican campaigning machine. Those members of the Bush team who have been involved with the McCain-Palin ticket have been accused of being so out of sympathy with its message and tone as to be positively counter-productive.

Combine this with the fact that McCain has been running against not just a super-financed Obama machine but the most monolithically hostile media barrage in electoral history, which forced him to spend most of his time and energy on defensive fire-fighting, and you get a sense of why the Republican effort has so often seemed at cross-purposes with itself.

This media phenomenon may yet prove double-edged. There is just a possibility (maybe I am clutching at straws here, but we shall see) that the relentless onslaught from the mainstream press and television networks has made support for McCain unsayable rather than impossible and that this is producing seriously skewed opinion-polling results. This could mean, to put it in British historical terms, that this election will be 1992 (complete with premature victory celebrations) rather than 1997. Interestingly, in the 1992 election it was the issue of tax that brought about Labour's defeat in the face of resounding leads in the polls. And it is tax policy that is Obama's most dangerous ground. It must be surprising to British observers that his proposal to cut taxes for the 95 per cent of people who earn less than $200,000 a year (down, incidentally, from his initial figure of $250,000) has not straightforwardly won the day in the American national debate.

In Britain, such a promise (if believed) would be an electoral free pass to Downing Street. But in the US, voters are aware that the largest category of people who would be hit by Obama's higher tax would be those who own small businesses, as Joe the Plumber famously aspired to do and as many, many of his countrymen already do. Ordinary working-class people in America do not automatically expect to be low earners, or even employees, all of their lives: they believe that through hard work and resourcefulness, they are as likely as anyone to rise in the world. And so they do not necessarily take kindly to someone who wants to penalise them as soon as they break through an income ceiling in order, as Obama fatally put it, to "spread the wealth around".

But there is another facet of Obama taxation with even more serious consequences for the US. In order to pay for his tax cut for 95 per cent of the population (half of whom do not pay income tax and whose "cut" would be in the form of a cash rebate), President Obama and his Democratic Congress would raise the US rate of corporation tax - already the second highest in the world - from 15 to 20 per cent. They also plan to punish through taxation companies that employ people overseas rather than "creating American jobs". These measures would have the almost immediate effect of driving companies and capital out of the US.

In the same "help the little guy" spirit, Obama proposes to raise capital gains tax, thus penalising those whose investment is desperately needed for market recovery. As my economist friends always tell me when I advocate tax cuts for the low-paid: it may seem a morally and politically attractive policy but it doesn't do a damn thing for economic growth. The tiny amounts that the lower-paid receive in such wide-ranging cuts make little difference as a stimulus and if they are balanced by penalties on business and on the investing classes, they are worse than useless.

So what will happen? For what it is worth, I think it will be a close presidential race with the favourite, Obama, winning by a squeak (which is what happened in 1960 when the then favourite, John Kennedy, was the voice of the "future"). Whoever gets the White House, America will eventually return to being what it must be: the economic engine of the world and the greatest testimony to the power of human initiative in history. On both of those counts, it will once again be resented. But it will take a while longer to reach that point under Barack Obama."

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