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McCain Offers Tax Policies He Once Opposed

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Almost exactly two years later, Bush was back for more: $350 billion in tax cuts, which accelerated the first round and added deep cuts to the tax rates on dividends and capital gains.

"Most of the economists view this as primarily benefiting wealthier Americans," McCain said on CNBC at the time. "There's a theory, I think, that's prevalent -- it was true in the 2001 tax cuts -- that if you give it to the wealthy people, then they will then, you know, create jobs, et cetera. The interesting thing to me is that most economists will tell you that it's the middle-income Americans that have been keeping the economy afloat."

Indeed, many of his warnings from those years have come to pass. Numerous expiration dates on those tax cuts, designed to hold down the cost to the Treasury, proved to be just the "gimmicks" he said they were, as Congress extended them repeatedly. The budget deficits he warned about in 2001 reemerged in dramatic fashion, as did defense spending increases not accounted for when Bush said the tax cuts were affordable. And the war in Iraq proved to be far longer and more expensive than lawmakers had expected when they approved the 2003 cuts.

"We have enormous defense expenditures. We don't know the cost of the war. We don't know the cost of reconstruction. We know it's in the tens of billions, at least, if not more," McCain said before the 2003 cuts were approved. "Obviously, we're going to be in Iraq a lot longer than many had anticipated."

Yet in Pittsburgh last week, in the face of a projected budget deficit of $400 billion and a sixth year of war, McCain proposed extending Bush's tax cuts, including the dividends and capital gains tax cuts, lowering the corporate income tax, allowing businesses to write off the cost of new equipment and technology, banning Internet and new cellphone taxes, and permanently extending the business tax credit for research and development.

By McCain's accounting, his tax proposals would cost the Treasury $200 billion a year.

"Philosophically, John McCain believes Americans pay too much in taxes, not too little," said Steve Schmidt, one of McCain's senior strategists. "The economy is in distress. Senator McCain wants to grow the economy."

Conservative tax policy analysts noted that some things McCain predicted in his earlier days did not happen. In 2003, he doubted that a capital gains and dividends tax cut would have any economic effect, and said that whatever gains were to be had would be swamped by rising deficits and interest rates. Foster said, however, that the economy took off with the passage of the 2003 tax cut, and although budget deficits have remained, interest rates have stayed low.

Holtz-Eakin said McCain did campaign for president in 2000 on a tax cut plan, albeit one significantly smaller than Bush's. But it was always meant as a first step toward a simple flat-tax system, Holtz-Eakin said. His latest tax proposal is merely the next step in that process, building on the past eight years of tax changes.

No doubt, conservatives say, McCain is now on the right political side of the tax issue.

"He's put himself in a position where a conversation about the economy is a conversation about Democratic tax increases and Republican lower taxes, and that's where any Republican wants to be," said Grover Norquist, president of Americans for Tax Reform, who has clashed fiercely with McCain in the past.

But a change of position can always be used by the opposition, and Democrats have already begun.

"He's promising . . . tax cuts that he once voted against because he said they offended his conscience," Sen. Barack Obama (Ill.) said Tuesday night. "Well, they may have stopped offending John McCain's conscience somewhere along the road to the White House, but George Bush's economic policies still offend ours."

Staff writer Juliet Eilperin contributed to this report.


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