Both U.S. Senate candidates say that helping small American companies is the key to jump-starting the nation’s economic engine. But they differ sharply on what kind of assistance small businesses need. And the two contenders also disagree on a raft of other key economic and fiscal questions, from earmarks to stimulus spending to tax cuts.
With unemployment at 9.6 percent, the economy and jobs are the driving issues in the contest to replace retiring Democratic Sen. Christopher Dodd. In the most recent Quinnipiac University poll on the race, 54 percent of respondents said they were “very worried” about the direction of the economy in the next year, and 55 percent said the economy and jobs would determine how they vote.
“We need an economic recovery that’s going to be driven by small business,” McMahon said in a recent interview.
McMahon’s prescription, first and foremost, is to extend all the 2001 and 2003 tax cuts enacted under ex-President George W. Bush, including those for individuals earning more than $200,000 and couples making more than $250,000.
Allowing the top-tier breaks to expire at the end of this year, McMahon said, would take a heavy toll on small business owners who report their company income on their personal tax forms.
“If we start raising taxes on small businesses, you are going to cut economic growth,” said the former World Wrestling Entertainment CEO. “It’s just counterintuitive to what we should be doing.”
Blumenthal said it’s “misguided” to argue that letting those top-bracket breaks lapse will hurt small businesses. “Tax cuts that aid wealthy would affect a tiny fraction of small businesses,” he said, noting that the average small firm reports less than $40,000 in annual income.
“We should not extend those cuts for the top two percent because they don’t need, they won’t spend it, and it will irresponsibly balloon our national debt,” Blumenthal said.
The two candidates do agree on at least two tax proposals. Both support making the corporate research and development tax credit permanent, saying it encourages innovation. And both favor giving employers a payroll tax holiday; Blumenthal would offer this to companies for newly-hired workers, while McMahon has called for a one-year payroll tax break for all employees.
McMahon said she would press for other new tax breaks, including a repeal of current limits on contributions to tax-deferred retirement accounts, larger deductions for college-related costs, and a 100 percent deduction for corporate capital expenses.
Blumenthal’s economic cure includes a proposal to increase tax deductions for small business start-ups and to end capital gains taxes on certain small business investments. The attorney general also said he favors increasing federal grants for small business innovation and creating a new federal lending program to help such firms.
And while McMahon espouses less federal regulation and freer trade, Blumenthal says officials in Washington need to crack down on China for manipulating its currency and for flouting international trade rules.
When it comes to the need for additional stimulus spending, such as President Barack Obama’s proposed $50 billion transportation initiative, McMahon said no way. “We have to tighten our belts … and not continue to create more debt,” she said.
Blumenthal said he liked Obama’s new infrastructure plan, although he wanted to examine the details to make sure the money would be targeted to projects that “really put money in people’s pockets and paychecks that they will spend.”
On earmarks, the federal funding provisions directing money to home-state projects, they also part ways.
“We can’t afford them,” McMahon said. “Any senator wants to do well for his or her state,” she said, but in these fiscally-tight times, she would swear off such projects and instead push for Connecticut to get competitive grants.
Blumenthal said earmarks have channeled vital federal funding to the state, citing, for example, money for the F-22 aircraft and submarines manufactured in the state. “I’ll support deserving projects that create jobs,” he said.
So how would they pay for any of their new tax breaks or spending proposals? On that front, both candidates were light on specifics.
Blumenthal said he would go after “sweetheart deals” and “special interest giveaways” that have found their way into federal law. For example, he said he wants to repeal the ban that prevents Medicare from negotiating prices with drug companies, which proponents say could save more than $150 billion over ten years. And borrowing a page from Senate Democrats, he says he’d push to end tax breaks for the oil and gas industry and for U.S. companies that send jobs overseas.
McMahon said she would tap into unspent funds from the 2009 economic stimulus law and the Troubled Asset Relief Program, better known as the Wall Street bailout passed in 2008. She also called for a freeze on government hiring and government pay raises, as well as a roll-back in discretionary spending to 2008 levels (a proposal House GOP leaders recently outlined).
With the federal deficit projected to exceed $1.47 trillion this year, neither candidate’s platform would really sop up much of Washington’s red ink.
On McMahon’s proposal to tap into TARP or the stimulus, for example, it’s unclear how much would be available from either of those pots by the time a new Congress is sworn in next January. And while going after big pharmaceutical companies and the oil and gas industry might sound good, any effort to repeal special tax provisions would be meet by a fierce well-funded lobbying blitz.
“The budget deficit is enormous and we need to make hard decisions,” Blumenthal conceded.
But on the hardest decision in Washington right now-what to do about entitlement programs like Social Security and Medicare that are fueling the nation’s fiscal woes-McMahon is completely mum and Blumenthal said all cuts are off the table.
On Social Security, for example, the attorney general said he would oppose any effort to trim benefit checks, to impose a means test, or to raise the retirement age. “These commitments are promises we’ve made to our seniors,” he said.
McMahon reiterated her position that Social Security and other entitlement programs are too volatile to discuss in an election context. She said these programs clearly “need to be strengthened,” but declined to elaborate.
“When the issues of entitlements have come up on the campaign trail, they get demagogued, and they never get resolved,” she said.
How well voters receive these proposed solutions to the country’s economic ills is far from clear. But that will go a long way toward determining which candidate wins on Nov. 2.