Citizens for Strength & Security

Aug 12 2008

The Best Laid Economic Plans Part I: John McCain


This two part series is meant to delve in to the finer points of the candidates’ economic plans. It may get a bit boring, but it’s meant to be more of a reference than an article. If there are inaccuracies that you find, please send concerns to Subject line: McCain Economic Plan. It is my goal to be as accurate as possible.

(Before you delve into this article, I wanted to make one thing clear about this issue, and it’s very important that everyone understand this. What we are talking about here, when you boil it down, are proposals for economic reform bills to be passed in Congress. It’s important to remember that the President has no authority to write law. As Jon Stewart wrote in “America: A citizens guide to inaction“, “Though the President is very powerful, He cannot make laws. The president can suggest laws. The President can call individual congressmen and threaten, beg, and cajole them to make laws. The President can use the bully pulpit and appeal directly to the people to ask congress to make laws. The President can promise that if these congressmen pass the laws the President likes, he will make them a delicious sandwich. The President can hold his breath and pound his fist and threaten to run away, but the President cannot make laws. The President can observe a vexing situation that seems to run counter to common sense, shake his head and say aloud, “There ought to be a law”, but the President cannot make that law. The President cannot even write up that law and submit it with his name on it. The President needs someone in Congress to submit it for him. The President can only sit in his office and sign or not sign laws other people make. Sometimes this makes the President feel like a total p*ssy. Then the President realizes that he is Commander in Chief of the armed forces, and an island nation is about to get a can of police action opened up on them. This usually makes the President feel better.” The division of power and checks and balances in the U.S. government, is such that only Congress can enact the kinds of reform that both of these candidates are suggesting. While the president can suggest these policy changes, they cannot force them. That being said, with a Democratically held Congress, the potential President with the most influence would probably be a Democratic President Obama, not a Republican President McCain. As I critique these plans, keep in mind that I’m not suggesting that either of these candidates has the power to implement a single “suggestion”, that they make. I am merely commenting on the policy positions themselves.)

John_McCainMcCain’s Plan:

(Economist Douglas Holtz-Eakin is the senior economic adviser for John McCain.)

Bring the Budget to balance by 2013

Reasonable economic growth (Though he doesn’t really say how he will implement and enforce, “reasonable economic growth”.)

Implement comprehensive spending controls.

Bi-partisanship in budget efforts (Which is great, but most likely he will expect the Democratic held congress to do most of the aisle crossing, rather than the other way around. He is also asking for the line item veto, which would negate his need to be bi-partisan. He could just veto any part of a bill that he didn’t like.)

Enhance international competitiveness to keep jobs here; not abroad.

Lower the corporate tax rate. (This includes the oil industry getting a $4Billion tax break, while he is against a wind fall profits tax.)

Improve investment and research incentives to ensure that workers have the most modern technology.

Bring the budget to balance reducing federal borrowing, and controlling spending to reduce the burden on the economy. (Again, I am confused how he proposes to require a democratically held congress to “bring the budget into balance.”, though pay as you go spending was a Democratic idea, not Republican.)

Comprehensive Spending Controls

Reserve all savings from victory in the Iraq and Afghanistan operations for reducing the deficit. (Like Sen. Obama, Sen. McCain plans to send troops into Afghanistan, so most of those savings would presumably go to the “new front in the war on terrorism.”)

Implement a one-year spending pause. Freeze non-defense, non-veterans discretionary spending for a year and use those savings for deficit reduction. A one-year pause in the growth of discretionary spending will be imposed to allow for a comprehensive review of all spending programs. After the completion of a comprehensive review of all programs, projects and activities of the federal government, propose a plan to modernize, streamline, consolidate, reprioritize and, where needed, terminate individual programs. (This is one of the best ideas that I’ve heard of, though it will make Congress unhappy that they can’t bring home any money from the Federal government to bolster their ratings.)

Take back earmark funds, reclaiming billions of add-on spending from earmarks and add-ons in FY 2007 and 2008. (Once a bill is passes, I’m not sure how Sen. McCain proposes to “take back”, the money that was given by the congress, which holds the purse strings in our government. The president has no control over what gets funded, as far as I know.) *please correct me if I’m mistaken.

Reform Social Security

John McCain believes that we may meet our obligations to the retirees of today and the future without raising taxes. John McCain supports supplementing the current Social Security system with personal accounts. (This is an absolutely horrible idea that gives a retirement advantage to the richest in our society, while giving the shaft to the working poor. This would also be a first step towards getting rid of one of the center pieces of “The New Deal” meant to keep our elderly from sinking into poverty.)

Control Medicare Growth

John McCain has proposed comprehensive health care reforms that will reduce the growth in Medicare spending, improve the quality of care, protect seniors against rising Medicare premium payments, and preserve the advancements in medical science central to providing quality care. (Nice sentiment, but he gives to specifics on how he plans to do any of this. You don’t get credit if you don’t show your work.)

Supporting Small Businesses

Lower Energy Costs

John McCain strongly supports increased domestic exploration of oil and natural gas, believing that This will send a strong signal to oil markets that future supplies will be more plentiful, countering the rise in oil prices (The problem with this fuzzy logic is that the U.S. would never produce enough oil to have a significant impact on global markets, and there is no guarantee that the oil would even see domestic markets once refined. We just don’t have the natural resources of oil to produce the kinds of effects he is projecting.)

John McCain has set the goal of building 45 new nuclear power plants by 2030 – creating 700,000 jobs and providing cheap electricity. (While Nuclear power would be beneficial to our energy needs in the U.S., it doesn’t address any foreign reliance on oil because most of our energy comes from coal burning plants, and we are the most coal rich country on the planet. The second problem with this plan is that since the residents of Nevada have shut down the Yucca Mountain nuclear waste storage facility, we have not found a suitable storage facility for the nuclear waste that we now have. Much of our waste is sitting in “temporary storage facilities”, awaiting a permanent solution to the storage location problem.)

The Lexington Project will devote $2 billion annually to research that will allow the clean use of our most plentiful and low-cost energy source: coal. (This plan makes sense, but only if we are able to invest heavily in research and construction. “Clean-coal” plants are currently not being built because they are cost-prohibitive.)

Opening New Markets

John McCain believes the U.S. should engage in multilateral, regional and bilateral efforts to reduce barriers to trade, level the global playing field and build effective enforcement of global trading rules. (This sounds good until you factor in the working conditions and workers pay of the countries that we want to reduce trade barriers with. Making our workers compete with countries that do not compensate their employees fairly is both morally and economically stupid. Until these inequalities are addressed, a democratically held congress will never go along, nor should they.)

Export growth is the strongest part of our sluggish economy, and we should be encouraging the growth of even more jobs in this sector through more free trade agreements which give American firms more access to sell our goods and services abroad. (This is another great idea, but does not jive with the previous position. We cannot export products from plants that have been moved overseas. By lowering our trade barriers to countries that do not require that companies adequately compensate their employees our companies are allowed pay the other countries workers $.10 to the dollar of what American workers earn.)

Tort Reform

John McCain will fight to eliminate lawsuits directed at doctors who follow clinical guidelines and adhere to proven safety protocols. (So if your husband dies in surgery from a doctor’s malpractice, and the nurses and other doctors at the hospital support the offending doctor, you are out of luck. Good luck paying that mortgage now.)

Making the Tax Subsidy Fair

John McCain will give every family a refundable tax credit – cash towards insurance – of $5,000 (Individuals receive $2,500). Every family in America, regardless of the source of their insurance or how much they make will get the same help. Families will be able to stay with their current plan, or choose the insurance provider that suits them best and have the money sent directly to the insurance provider. (The important things to focus on here are the words Tax Credit. What that means is that if you make $25,000/year, and agree to purchase insurance coverage, you will be taxed on only $20,000/year worth of income. The lower your income, the less the tax credit matters. This Tax credit unfairly favors those at the top of the income ladder, and will not allow anyone on the lower end to get coverage.)

Ban New Cell Phone Taxes

John McCain understands that the same people that would tax e-mail will tax every text message – and even 911 calls. John McCain will prohibit new cellular telephone taxes. (First there is only one body that has ever called for an e-mail tax, and that was the U.N., it was proposed to pay for internet access for third world countries. A bad idea then, and a bad idea now. That being said, no one in the U.S. has ever proposed an e-mail tax, and it’s misleading for McCain to imply otherwise. Secondly, there are no organizations that I know of that are proposing a 911 tax. As a matter of fact in most cities, 911 calls can be made at pay phones, free of charge. Again, misleading.)

The new McCain campaign economic advisor, DouglasHoltz-Eakin, was interviewed by Terry Gross on NPR’s Fresh Air, on July 24th, 2008.

Among other things that Holtz-Eakin was quoted as saying was that the U.S. has the 2nd highest corporate rate in the developed world, and that a combination of that and other factors are driving good jobs, the kinds with health insurance and retirement benefits, overseas.

A recent Critique of the McCain economic plan by The Tax Policy Center of the Brookings institute stated that McCain’s economic plan would make the tax system even more regressive then compared to the 2001-2006 tax cuts if they were to be made permanent. The McCain economic plan would implement huge tax cuts to the households at the top and very little to the households at the bottom.

In response Holtz-Eakin said, “This reveals all that is wrong with budgeting in Washington D.C., and why this city needs a vast clean up effort.” He went on to point out that under the new plan, McCain would:

  • Cut the corporate tax rate by 10%
  • Top marginal tax rate would be 35% (The same as the present system)
  • Top Marginal Dividend tax rate would be 15% (The same as the present system)
  • Top Marginal Capital gains tax would be 15% (The same as the present system)

Holtz-Eakin went on to state, “In a tax policy center view of the universe that benefit goes to some fat cat who never had to worry about losing their job, but out in the real world what’s happening is people are not keeping their jobs, those jobs are being moved to other parts of the globe and the burden of that tax is being borne by workers. That tax cut will benefit those people by keeping their jobs here, keeping their benefits intact, and helping the economy grow.”

The NPR host of Fresh Air, Terry Gross, asked Holtz-Eakin, “McCain wants to stay in Iraq, how does his expenses for the war get figured into his proposed budget?”

Holtz-Eakin responded, “Our proposals are built off of the CBO baseline projections and augmented to reflect the current deployments overseas in Iraqand Afghanistan. It is Sen. McCain’s view that we can achieve savings by 2013 by a reduction to 75,000 troops over seas (half the number now), or even do better than that. That will reduce federal spending for defense.”

After recalling the “Nation of Whiners” and “Mental Recession” comments made by former Sen. Phil Graham, Terry Gross then asked, “Is Phil Graham still informally advising John McCain, and is he still a possibility for treasury secretary?”

Holtz-Eakin answered, “He is not advising the campaign. He is not affiliated in any way. He properly made the decision to step down after remarks that were unfortunate and completely at odds with the Senators view of what is going on in the economy, and how the American public is viewing their situation. So, he is not affiliated with the campaign, and obviously it is premature to discuss appointments of any kind, whether they be treasury, or other possible agency appointments in a Senator McCain administration.”

Terry Gross: “So you aren’t ruling it out.”

Holtz-Eakin: “I’m not ruling it out, I’m not ruling it…Well, I guess I am ruling it out. I don’t know what the decisions are that are going to be made, on staffing, but it’s premature to discuss names.” (Note that he states that he is ruling it out, and then proceeds to restate that it’s premature to discuss names.)

It was then stated by host Terry Gross that, “Phil Graham, the designer of McCain’s Economic policy, in 2000, Co-Sponsored The Commodities Futures Modernization act. This bill deregulated the banking industry making it possible for commercial banks, investment banks, and insurance companies to merge. This bill also deregulated some complicated financial instruments that are behind the mortgage melt down and the financial crisis like credit default swaps and it enabled certain losses to be kept off the books through complicated things called structured investment vehicles. The bill also prevented the regulation of energy futures and that part of the bill came to be known as the ENRON loophole, which came to be blamed for California energy crisis and for the Subsequent ENRON collapse. The Bill was added as a rider to a big omnibus spending bill right before the Christmas recess.” (A pretty damning statement considering that Phil Graham was the architect of McCain’s current economic plan.)

Below is an Independent review of both plans by Leonard Berman the director of the Tax Policy Center. (A Joint venture of the Urban institute and the Brookings institute).

Berman stated, “Sen. McCain would basically extend all of President Bush’s tax cuts, and he also has cuts for businesses, and instead of eliminating the estate tax, he would cut it somewhat. Sen. Obama would extend most of the Bush Tax cuts, That would otherwise expire at the end of 2010, but he would raise tax on high income people. Return the levels of tax to what they were before 200, and he has a bunch of tax cuts targeted at low and middle income people. So for example the middle 20%, say middle class tax payers, under Sen. McCain they would get a $1400 tax cut, under Sen. Obama, they’d get a $2100 tax cut in 2012. The bottom 20%, these are pretty low income people, making less than $19,000 a year, they’d get an average tax cut of about $100 under Sen. McCain’s plan, and almost $700 under Sen. Obama’s plan. So there is a big change in the tilt in the tax schedule. There’s a big cut at the bottom for Obama and a big increase at the top, and under McCain there’s a tiny, tiny cut at the bottom and huge cuts at the top.”

“When you look at the bottom line of each of those plans do they generate an equal amount of money in taxes?” Asked Gross.

“No. Sen. Obama’s plan would add up to about $2.8 Trillion in tax cuts, over the next ten years. Sen. McCain’s plan would add up to about $4.2 Trillion in tax cuts. When you add the interest that would accrue, we are talking about an increase in the national debt of about $5 Trillion under Sen. McCain’s plan, and about $3.4 Trillion under Sen. Obama’s. I should point out that the candidates object to my saying that because they both say that they are going to cut spending, and if they do the situation will be better. They won’t be generating such large deficits. A lot of people are skeptical about their claims of spending cuts, but all of our numbers are just looking at the tax side.”

(The numbers and statements in this article were based on, and by an interview of McCain senior economic advisor Douglas Holtz-Eakin on July 24th, 2008 by Fresh Air host Terry Gross.)

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