Megan explains what the economic meltdown means for the candidates' economic proposals:
McCain will probably not be able to make the Bush tax cuts permanent. It's possible that tax revenues will recover by 2010, though frankly I think the magnitude of the cuts on Wall Street will take years for the tax base to digest. But we won't know that until early 2011, after the tax cuts have already expired. He'll likely have to push this through with the grim memory of a plummeting 2009 revenue line fresh on everyone's minds.
But Democrats shouldn't smile too much, because this also means Barack Obama will not get his middle class tax cut.
Raising taxes on the rich will not raise all that much revenue in the next year or so. He'll need the stable middle-class base just to sort of cover current expenses.
Plus, Barack Obama will probably have to radically trim back his spending plans. Unlike John McCain, he can't just wait a year or so and see if Wall Street bonuses rebound. He needs the political momentum that he will presumably derive from election to get a big package like his health care plan through. Given the budget problems, unless he's willing to spend money like a drunken sailor, those programs will come attached to a hefty tax increase that will need to fall, at least in part, on middle-class voters.
Otherwise, the Democrats will have to abandon Paygo. It's not clear how much good this will do them, however. The price of money after the fallout settles may make this pretty unattractive--if not to Democrats, then to their constituents.
Marc explains why we can't just borrow more.