McCain Reverses
Position to Support
Bush Tax Cuts
New Plan Includes
Billions in Breaks; Setting Up a Clash
By LAURA MECKLER,
April 17, 2008
PITTSBURGH, Apr. 16-- John
McCain famously opposed President Bush's tax cuts a few years ago, saying they
would irresponsibly swell the budget deficit. Now the Arizona senator not
only supports extending those cuts indefinitely, he is backing more than $200
billion a year in new breaks.
The Republican presidential candidate's platform sets up a sharp clash with his
eventual Democratic rival over taxes, spending and fiscal responsibility.
The new McCain tax plan -- including new corporate breaks and a summer gas-tax
holiday -- is stirring more enthusiasm for his campaign among his party's
economic conservatives. They have been wary about his candidacy, both
because of his spotty record supporting the Bush tax cuts and his unusually
strong support -- for a Republican -- for regulation on issues ranging from
climate change to drug prices.
Grover Norquist, president of Americans for Tax Reform, said Sen. McCain's
speech here Tuesday provided "red meat for low-tax, free-market Reagan
Republicans." Mr. Norquist has been critical of Sen. McCain in the past
for refusing to sign his group's no-tax-hike pledge but was effusive in praising
his campaign pledge. But Sen. McCain's new-found enthusiasm for tax cuts
could undermine his reputation as antideficit budget hawk.
Given the new proposals, it was unclear how Sen. McCain will achieve his
previously stated goal of eliminating the federal deficit by the end of his
first term, and he didn't mention that in his speech Tuesday. The
Congressional Budget Office projected in January that the federal deficit would
hit $350 billion for the year that began Oct. 1, but worsening economic
conditions or new government spending could make that gap even wider.
Sen. McCain later told reporters that it might take two terms to achieve that
goal of eliminating the deficit. He has also said that some of his tax cuts
might need to be phased in.
For their parts, Democrats Hillary Clinton and Barack Obama both have smaller
targeted tax cuts and would let the Bush tax cuts expire for upper-income
earners. And both were critical of the McCain plan.
"Sen. McCain's economic plan offers no change from George Bush's failed policies
by going full speed ahead with fiscally irresponsible tax cuts for the
wealthiest Americans that John McCain himself once said 'offended his
conscience,'" said Obama spokesman Bill Burton.
Sen. McCain and his aides said his plans were fully paid for through reduced
federal spending and a broader tax base, including some $65 billion a year in
cuts to unspecified domestic programs. And he would reduce government
health-care spending in part by increasing Medicare prescription-drug premiums
for the best-off Americans, which has a small budgetary impact.
Speaking on April 15 -- the day income-tax returns are due -- the senator
proposed several new tax cuts beyond those he already has endorsed, including
doubling the exemption for dependents, a tax break for nearly every family with
children.
"We need reforms that promote growth and opportunity," Sen. McCain said at
Carnegie-Mellon University. "We need tax policies that respect the wage-earners
and job creators who make this economy run, and help them to succeed in what we
all know is a global economy."
The McCain campaign estimated that its package of new tax cuts would add up to
about $225 billion a year, while independent analysts said the price-tag could
come closer to $300 billion.
The proposal to lower the corporate tax rate from 35% to 25% would cost about
$100 billion a year. Doubling the dependent exemption would cost $65 billion a
year.
Sen. McCain also wants to eliminate the alternative minimum tax -- not just for
middle-class families who are now being unintentionally snagged but for the
wealthy people whom it was meant to affect. That would cost an additional
$60 billion a year.
Further, Sen. McCain would change the rules governing expensing to allow
companies to write off the entire cost of new equipment in the first year.
The McCain campaign says this change has negligible costs over time, but
economists at the Democratic-leaning Center for American Progress say the change
would cost the Treasury about $75 billion a year.
In his speech, Sen. McCain also said he wanted to reduce the estate tax, ban
Internet taxes, ban new taxes on cellphones and make the
research-and-development tax credit permanent.
In addition, he said he would like to require a three-fifths supermajority vote
in Congress to raise taxes.
To prevent the budget deficit from swelling, Sen. McCain said he would find
about $200 billion a year in lower spending or higher revenue.
His most significant proposal for reducing spending is to eliminate all earmarks
-- pet projects inserted into spending bills by members of Congress.
Taxpayers for Common Sense, a nonpartisan watchdog group, found $18.3 billion in
earmarks in fiscal 2008 budget. The McCain campaign says the total is much
higher -- some $95 billion -- if all projects that began life as earmarks are
counted.
But Mr. McCain draws criticism from budget-balancers for refusing to provide
offsets to his biggest-ticket item: extending the Bush tax cuts past their
scheduled 2010 expiration. That alone will cost about $270 billion a year.
The McCain campaign doesn't count those costs. The candidate's chief
economic adviser, Douglas Holtz-Eakin, a former director of the Congressional
Budget Office, says it is "fantasy land" for people in Washington to assume
taxes will rise automatically just because the law that authorized them expires.
He says the campaign also doesn't see a need to cover the full costs of
protecting middle-class taxpayers from the alternative minimum tax, since
Congress routinely does that anyway.
The Bush tax cuts included an expiration date when they were passed, and if they
are renewed without offsetting cuts, the lost revenue will add to the deficit
according to standard budget accounting rules.
Write to Laura Meckler at
laura.meckler@wsj.com
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