Toomey, Sestak set apart on tax policies

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Tax policy, the subject of recent jousting between Pennsylvania's Senate candidates, offers one of the clear distinctions between Rep. Joe Sestak, D-Delaware County, and his Republican opponent, former Rep. Pat Toomey.

The contenders have sharply contrasting views on the future of Social Security, the tax cuts of the Bush era and how to apportion the tax burden, both between businesses and individuals, and among individuals with different incomes.

Democrats have repeatedly criticized Mr. Toomey for a statement at the Harrisburg Press Club last month in which he denied ever having advocated the "privatization of Social Security." That statement may seem at odds with Mr. Toomey's long and outspoken advocacy of a shift from the current system to one that would allow workers to invest their own retirement funds in private or personal accounts.

The dispute is not an example of a campaign trail conversion by the Republican but a replay of a semantic argument from the early years of the second term of President George W. Bush. Before it became clear that Mr. Bush's plan had no political momentum, its proponents tried to boost its chances with a rhetorical shift from the term "private accounts" to "personal accounts" -- a nominal but not substantive change rooted in the poll-tested notion that "personal accounts" would sound more appealing.

Mr. Toomey has not modified his position that such a change is essential given the projected shortfalls in the massive retirement program. In his 2008 book, "The Road to Prosperity," written with his campaign communications director Nachama Soloveichik, he devotes a chapter to his vision for the system, one that he reaffirmed in a recent interview. Mr. Toomey would retain the current system and promised benefit levels for current beneficiaries and those close to retirement.

For younger workers, however, he would establish the option of investing part of their Social Security contribution in private accounts -- or personal accounts, take your pick -- that would allow them to take advantage of the potentially more generous yields of private markets.

Mr. Toomey acknowledges that that's a tougher argument to make after the market turmoil of recent years. Using stock performance during his own working life as an example, however, he contends that if such a system had been in effect, the returns from a private account, even after the losses of the last decade, would still have provided a larger retirement nest egg than the current system.

Critics of the original Bush proposal argued that the diversion of money to personal accounts would exacerbate the funding shortfall of the system, since that money would not be available to pay current and near-term recipients of Social Security. Mr. Toomey has acknowledged that his prescription would in fact worsen the system's funding gap, leading to larger short-term deficits that would have to be financed by borrowing or some other new source of revenue.

But he argues in his book, "At least, in the reformed system ... that shortfall ends eventually when the last person collecting traditional Social Security transfer payments dies and all the remaining workers and retirees are relying on accumulated savings for their retirement income."

Mr. Sestak opposes privatization -- or personal accounts -- or any major change, however characterized, in the Social Security system. A spokesman said he opposes any cuts in benefits and believes the program can be sustained with only minor changes.

A spokesman for the Democrat suggested, for example, that revenue from the Bush tax cuts could be used to shore up the system.

Social Security is one of the categories of federal spending expected to be addressed in some form by the deficit commission empaneled by the administration and due to make a report sometime after the election that will choose a new Pennsylvania senator. Despite his own deficit warnings, Mr. Toomey said he is wary of the commission for fear that it will focus more on new taxes than spending cuts.

Mr. Toomey consistently criticizes the Obama administration, and, by extension, his opponent, for policies that have increased the nation's deficit. But to the Republican, some deficit-boosting policies are more tolerable than others, a view reflected in the candidates' clash on the tax cuts of the Bush era.

Those cuts are due to expire next year. Like the Obama administration, Mr. Sestak favors rescinding them for taxpayers making more than $250,000 a year, reverting to the top marginal rates that were in effect during the Clinton administration, while preserving the lowered rates for other taxpayers.

Mr. Toomey is adamantly against that proposal. Beyond his general preference for lower taxes, he argues that it would further harm the limping economy to raise taxes in the foreseeable future. While that position might seem to be at odds with his preaching of the evil of deficits, Mr. Toomey's constant antidote to deficits is to reduce spending rather than increase revenue.

That view is reflected in another dispute between the candidates. Mr. Sestak has repeatedly criticized the Republican for having opposed a congressional anti-deficit measure, known as pay-go, that would have forced lawmakers to offset spending increases with new revenue or spending cuts elsewhere in the budget.

Mr. Toomey said he opposed it because it would still allow new taxes. He said he preferred a pay-go system relying exclusively on spending cuts to balance new outlays.

Taxes were also the subject of the Democrat's first television assault against his opponent. The ad featured a clip of a 2007 talk show appearance in which Mr. Toomey called for the abolition of corporate taxes.

Responding to the ad, the Toomey campaign soft-pedaled that position, saying that Mr. Toomey was expressing a general policy preference. His campaign told the Post-Gazette that, "Pat understands that a zero tax rate on businesses is impractical for a host of reasons."

But Mr. Toomey's book makes clear his overall preference for easing the tax burden on corporations, a step that he believes would lead to greater employment and economic growth. In a critique of the $787 billion stimulus bill that was one of the administration's first legislative achievements, Mr. Toomey writes that, "Total corporate taxes for all American companies generate something on the order of $300 billion per year -- in recent good years.

"For little more in lost revenue that was spent in that single bill, Congress could have eliminated all corporate income taxes for nearly three years."

Mr. Sestak supported the Obama stimulus along with the Bush administration's 2008 TARP legislation to fend off the collapse of banks and other large financial institutions. Mr. Toomey, a former investment banker, frequently reminds voters that he opposed the measure perceived as a Wall Street bailout.

While many economists credit TARP with forestalling an even greater financial meltdown, Mr. Toomey said in a recent interview that if the federal government had not intervened so aggressively, markets might have been hit even harder in the near term, but the economy would have rebounded from the crisis more rapidly.

After month upon month of disappointing news on economic growth, no one seems to think the level of stimulus was just right. Mr. Sestak said that he would have preferred a more robust package, with added spending of as much as $1 trillion.

The non-partisan Congressional Budget Office estimated last month that during the second quarter of this year, the stimulus bill had added between 1.7 percent and 4.5 percent to the nation's gross domestic product and reduced the unemployment rate by between 0.7 percent and 1.8 percent. Mr. Toomey said he is skeptical of those figures and remains convinced that the stimulus was not worth its deficit cost.

Discussing alternatives to the current income tax system in "The Road to Prosperity," Mr. Toomey came down in favor of a tax plan that would retain corporate taxation, albeit at a significantly lower rate than under current law. Businesses and individuals would pay a Flat Tax of 17 percent under that plan, which also is supported by figures ranging from the publisher and onetime presidential candidate Steve Forbes, to Mr. Toomey's old nemesis, Sen. Arlen Specter.

On another revenue issue, in a recent Pittsburgh appearance, Mr. Sestak accused Mr. Toomey of supporting a value added tax, "like they have in France."

The charge does not appear to be accurate. The Republican said it is "absolutely not true." The dispute is rooted in Mr. Toomey's words of support in his book for another form of a sales tax, the so-called Fair Tax. A value added tax, used in the European Union and elsewhere, is a form of sales tax in which the tax is calculated at each stage of production, wholesale through retail. That tax is typically levied in addition to income taxes.

The Fair Tax is a plan, favored by politicians including former Arkansas Gov. Mike Huckabee, that would completely replace the current income tax system with a sales tax with a rate of either 23 percent or 30 percent, depending on who's calculating. Mr. Toomey writes that it would be preferable to the current tax system, but he says that the Flat Tax offers a more feasible alternative to the current system.

One revenue issue on which Mr. Toomey has sought to put his opponent on the defensive involves his support for the cap-and-trade provision of a House energy bill.

Mr. Toomey contends that its auction system for permits for the emission of greenhouse gases would have amounted to a tax on industry that would have cut jobs. The Republican cites one study that estimated that the measure would mean 66,000 fewer jobs in Pennsylvania over the next decade.

Mr. Sestak dismisses that statistic as an industry estimate and offers a competing projection that the legislation would instead produce 70,000 new jobs in the state over the longer term. The debate over the rival projections appears moot, however, as the bill is stalled in the Senate with little hope of action before a new session of Congress convenes with either Mr. Sestak or Mr. Toomey as the freshman senator from Pennsylvania.


Politics editor James O'Toole: jotoole@post-gazette.com or 412-263-1562.


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