As the U.S. Presidential election winds down, the economy looms as potentially the top issue that separates the policies of the two candidates, Senators Barack Obama and  John McCain. Let’s look at how these two widely different viewpoints would affect the technology industries.

Senator McCain’s plan is to cut spending and to provide $300 billion in new tax cuts for wealthy taxpayers and big corporations. This concept is referred to as the “trickle down effect” which suggests that as taxes decrease, spending will increase, providing new jobs and injecting much needed capital into the economy. For technology corporations, this would free up capital to invest in research and development, as well as sales and marketing. This may also encourage venture capitalists to invest in new business opportunities, creating new jobs.

Senator Obama has pledged to give tax breaks to middle income families while doing away with tax subsidies for big corporations and increasing the income tax on the wealthy. This concept is a bottom-up approach which suggests that allowing the middle-class to keep more of their money will allow them to spend more of it on consumer goods and necessities. This approach would encourage the consumer to purchase consumer electronics and other high technology products they otherwise may not be able to afford.

The problem with the trickle down effect is it relies on the premise that the rich will increase their spending and big corporations will hire more employees. But it is more likely that these benefactors would invest in research and development while saving capital until the economy improves. The rich already purchase the things that they need and want, and a tax break for them is unlikely to make much of a difference in their spending habits. In the end, it may only encourage the saving of the extra capital until economic conditions improve. Cutting government spending sounds like a good idea, but it also hurts those in need the most, especially in those programs that are already under-funded.

On the other hand, Senator Obama’s plan to relieve the tax burden on those earning less than $250,000 a year would almost certainly stimulate spending and help to shore up the economy with an immediate influx of capital. This in turn would benefit technology companies as consumers become more willing to part with their hard-earned money. As consumers spend more money, more jobs would be created and more taxes collected from the previously unemployed.

While the direct results of either candidate’s policies are going to depend on which side of the $250,000 income level you are on, ultimately the technology sector would benefit more from Senator Obama’s plan because the sale of consumer electronics and technologies is what drives the profit margins and determines how the technology companies will invest their earnings. Research and development is worthless if there is nobody willing or able to buy your product.

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Entry was posted on Wednesday, October 29th, 2008 at 1:03 pm under Opinion, Science and technology, Technology.

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