Election Year Folly
WITH ONE significant exception, the essence of Sen. John McCain's speech on economic policy last week could be summed up as, "Let's just get me elected, and then we can talk seriously." Of course, the presumptive Republican nominee is far from the first candidate, and he's certainly not the only one in this campaign, to put political advantage over telling unpleasant truths. This is why he deserves credit for an element that is minor, as far as dollar amounts go, but still politically risky: his proposal to require wealthier seniors to pay higher premiums for prescription drug coverage. This would affect just 5 percent of seniors, with incomes of more than $164,000 a year per couple, and it would bring in only about $2 billion over five years. But it is one sensible step in the battle to control Medicare spending, and the howls of outrage with which it was greeted by Democrats illustrate the difficulty of dealing with entitlement spending.
At the other end of the spectrum of responsibility was Mr. McCain's proposal for a summer gas tax holiday -- the kind of pandering to voters that the Arizona senator prides himself on avoiding. This juicy promise would be done and gone before he took office, which makes it awfully easy to dangle. It would drain some $10 billion from the trust fund that pays for maintenance and repair, the opposite of what is needed. It's hard to square with Mr. McCain's commitment to combat global warming and his belief in a cap-and-trade system that would result in higher gas prices. And it might not even do much to reduce prices. Gas prices generally rise in summertime because demand is higher and refineries are already running near capacity. If lifting the federal excise tax of 18.4 cents a gallon reduced gas prices, that would push up demand and -- since supply can't grow -- result in driving prices back up. Think of it as help for the struggling petroleum refiner.
The rest of Mr. McCain's economic plan was more of the same. He had already endorsed cutting the corporate income tax from 35 percent to 25 percent, allowing immediate deductions for new business purchases and entirely eliminating the alternative minimum tax, even for the wealthiest taxpayers. To that, Mr. McCain added doubling the income tax exemption for dependents, from $3,500 to $7,000, at a cost of $45 billion per year. The exemption is twice as valuable to the wealthiest taxpayers as it is to those with modest incomes.
Mr. McCain's tax cuts would cost more than $300 billion a year in 2012, according to estimates from the Urban Institute and the Brookings Institution's Tax Policy Center . That sum does not include the cost of extending the Bush tax cuts (around $110 billion a year beyond the extensions that Sens. Hillary Clinton and Barack Obama also endorse), and it assumes any president would end up taking the costly step of fixing the alternative minimum tax. The McCain campaign posits an array of ways to pay for this -- slashing discretionary spending, abolishing earmarks, getting rid of corporate tax breaks -- but it has failed to give details about what, exactly, it would cut. In addition, it assumes that allowing immediate write-offs for all new investment would be cost-free. The Bush Treasury Department scored a plan to allow immediate write-off of 65 percent of the cost of new investments at $1.2 trillion over 10 years. Mr. McCain is making it awfully hard to take seriously his proclamations of fiscal responsibility.
The Ideas Primary, a series of editorials on the issues of the presidential race, can be found athttp:/