McCain on the Economy

It looks like my post yesterday on the candidates’ proposals on taxes was timely. Today John McCain gave a speech on the economy and much of his emphasis was on tax reform:

PITTSBURGH, Pennsylvania (CNN) — An end to earmarks, a gas-tax holiday, government-backed mortgages — they’re all part of an economic-revival plan that a top aide to GOP Sen. John McCain described Tuesday as “big and ambitious.”

The presumed Republican nominee also wants to create an alternative system for paying income taxes and double the income tax exemption for dependents, McCain said during a Tuesday speech at Carnegie Mellon University in Pittsburgh.

The senator from Arizona is proposing an income tax system that offers two basic rates and a “generous standard deduction,” he said. McCain would let Americans choose between the new system and the present one.

The New York Times has a bit more detail:

PITTSBURGH — Senator John McCain offered the broadest look yet at his economic policies in a speech here Tuesday, calling for tax cuts, a freeze of discretionary spending for a year, higher premiums for better-off Medicare recipients and elimination of federal gas taxes this summer to reinvigorate the sagging economy.

Mr. McCain, who made no mention of his previous pledge to balance the budget by the end of his first term, outlined a long list of tax cuts he favored in the speech, which was delivered on the deadline for filing taxes. He called once again for making the Bush tax cuts, which he voted against, permanent, and for cutting corporate taxes, phasing out the alternative minimum tax and doubling the value of exemptions for each dependent to $7,000 from $3,500. He also proposed giving people the option of using a simpler, shorter tax form.

One of Mr. McCain’s tax proposals would take effect even before the Republican Convention: he called on Congress to suspend the 18.4 cent a gallon federal gas tax from Memorial Day until Labor Day. Mr. McCain said that doing so would provide “an immediate economic stimulus,” but some environmentalists said that the change might encourage more people to use their cars, while Mr. McCain has made combating global warming central to his campaign.

I can’t say I’m nuts about his proposal for suspending the federal gas tax. How much stimulus would that really provide? By my calculations the total dollars involved are less than $10 billion and, surely, all of it won’t constitute economic stimulus.

This is all still pretty sketchy but with this speech I think we’re starting to see the broad contours of Sen. McCain’s views on what needs to be done and it seems to begin and end with a balanced budget. I support balancing the budget but I’m not too confident that we can get there by reducing revenues. To his credit Sen. McCain’s ideas seem to rest on three legs: cutting taxes, limiting spending, and means testing entitlements which is a more realistic approach to the subject than most you hear.

The tax cutting is standard Laffer curve stuff and I don’t think we’re on that side of the curve nowadays. I believe that reducing marginal rates farther will reduce revenues not increase them. There isn’t enough “discretionary spending” to offset the revenue lost by the tax cuts Sen. McCain is proposing let alone to balance the budget with. Although I know the subject is anathema to most Democrats, I think that means testing some entitlement programs, most importantly Medicare, is part of the formula we’ll eventually adopt for achieving some sort of fiscal sanity.

So far I’d give him a C for economic proposals.