John McCain has unveiled a series of economic proposals today, and it's the usual mixed bag for free market conservatives. There's a lot to like here. For me, the best parts are a one year freeze in non-defense discretionary spending, a phase out of the AMT, and a curbing of the Medicare perscription drug benefit to wealthier individuals. In his speech, he also reiterated his pledge to veto any spending bill with earmarks and his overall commitment to return the Republican party to its roots as the party of fiscal discipline.
Other proposals I'd give an incomplete grade to until I learn more. For instance, following Fred Thompson, McCain proposes a voluntary simpler tax code, which could be promising, but on a conference call with reporters, the campaign said that he hadn't chosen a specific plan yet.
McCain proposes to double the personal exemption for dependents to $7,000 to keep up with inflation, which he bills as a middle class tax cut, but that doesn't do anything for the middle class families who have grown children or no children at all. I don't believe that the tax code should be an instrument of social policy.
He also proposes to suspend the federal gas tax for the summer. However, I'm hesitant about this sort of thing because my general belief is a tax is either justified or it isn't. When you do something shortterm like this to pander to the public, it plays the same sort of role that a Democratic targeted spending proposal does.
One thing that's disappointing is entitlements, which of course is the elephant in the room. While McCain does acknowledge the problem, he doesn't offer any specific solutions. Instead, he pledges, "as president I will work with every member of Congress -- Republican, Democrat, and Independent -- who shares my commitment to reforming and protecting Medicare and Social Security." But that's what every politician says. The devil is in the details. For instance, will bipartisan compromise mean raising the cap on payroll taxes? It's early in the campaign, and certainly getting specific on entitlements carries political risk. But this an area where we could really use some of McCain's straight talk and bold, courageous, leadership. Stay tuned.
His speech also contains some unfortunate populist rant against CEO salaries.
Overall, what I continue to notice is the absence of any clear overriding philosophy in McCain's economic thinking. It's just sort of a bunch of stuff that McCain likes.
Meanwhile, on the conference calls, reporters kept asking about the "cost" of the tax cuts, unable to grasp the fact that we don't have a revenue problem, we have a spending problem. Nonetheless, expect this to dominate coverage of McCain's proposals in the newspapers tomorrow--that somehow it's unclear how he'll "pay" for the tax cuts, even though he's proposed several hundred billion dollars in spending cuts.
The big debate is whether the budget analysis should consider maintaining the current tax rates by extending the Bush tax cuts as a "cost" since they are scheduled to expire, or whether we should see the current rates as homeostasis. Republicans will emphasize that if the Bush tax cuts are allowed expire it would represent the largest tax increase in history because rates would go up, while Democrats will say that maintaining the lower rates will "cost" us trillions of dollars. From this call, let's just say I got a clear sense of which side the media are on.
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