McCain's Economy: Major Tax Reform, No Austerity

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The message from Sen. John McCain's economic speech today seems to be that the economic policies of both parties are dogmatic and ill-equipped to harness the energy and contain the excesses of the modern economy.

"In so many ways, we need to make a clean break from the worst excesses of both political parties," he plans to say in his economic policy speech today.

"The great goal is to get the American economy running at full strength again, creating the opportunities Americans expect and the jobs Americans need," McCain plans to say.

Deficit reduction?

McCain had promised to balance the budget by 2012. That promise does not appear in the excerpts of the speech provided to a reporter last night. Indeed, a top McCain policy adviser said he would counsel all the presidential candidates not to talk about deficit reduction with the economy in its present condition.

More important to McCain are concepts like tax reform and "wasteful spending."

The headline-making proposals are:

--Major tax reform. The broad sketch: "When this reform is enacted, all who wish to file under the current system could still do so. And everyone else could choose a vastly less complicated system with two tax rates and a generous standard deduction." No specifics yet given.

-- McCain promises to veto every spending bill containing earmarks (this is not new, but it is now an official campaign promise). Same thing with his vow to cut the corporate tax from 35% to 25%. He also proposes to increase the dependent deduction from $3500 to $7500.

-- McCain wants a one-year pause in discretionary spending while every government agency reviews its spending and practices from top to bottom;

-- McCain plans to ask seniors earning more than $160,000 to help pay for their prescription drug coverage

-- McCain plans a reconfiguration of the country's unemployment insurance system

-- McCain wants the government this year to avoid collecting gas taxes from Memorial Day to Labor Day

You can see the full excerpts after the jump.

Full excerpts from McCain's speech today:


Thank you. I appreciate the hospitality of the Allegheny Business Conference … the Pittsburgh Tech Council … and the students and faculty of Carnegie Mellon University. We have a strong showing this morning from the Carnegie Mellon Naval ROTC unit as well. And I'm happy to be with all of you.



In our free society, it is left to each one of us to make our own way in the world – and our jobs, businesses, savings, pensions, farms, and homes are the work of years. Take these away and you are diminishing a lot more than the GDP, or the final tally on the Big Board on Wall Street. Take these away, and a million dreams are undone. The gains of hard work and sacrifice are lost. And something can be lost that is very crucial in our economy, and very slow to return – confidence.



Economic policy is not just some academic exercise, and we in Washington are not just passive spectators. We have a responsibility to act – and if I am elected president I intend to act quickly and decisively. We need reforms that promote growth and opportunity. We need rules that assure fairness and punish wrongdoing in the market. We need tax policies that respect the wage-earners and job creators who make this economy run, and help them to succeed in a global economy. In all of this, it will not be enough to simply dust off the economic policies of four, eight, or twenty-eight years ago. We have our own work to do. We have our own challenges to meet.



Americans are also right to be offended when the extravagant salaries and severance deals of CEO's – in some cases, the very same CEO's who helped to bring on these market troubles – bear no relation to the success of the company or the wishes of shareholders. Something is seriously wrong when the American people are left to bear the consequences of reckless corporate conduct, while Mr. Cayne of Bear Stearns, Mr. Mozilo of Countrywide, and others are packed off with another forty- or fifty million for the road.



In the same way, many in Congress think Americans are under-taxed. They speak as if letting you keep your own earnings were an act of charity, and now they have decided you've had enough. By allowing many of the current low tax rates to expire, they would impose – overnight – the single largest tax increase since the Second World War. Among supporters of a tax increase are Senators Obama and Clinton. Both promise big "change." And a trillion dollars in new taxes over the next decade would certainly fit that description.



Of course, they would like you to think that only the very wealthy will pay more in taxes, but the reality is quite different. Under my opponents' various tax plans, Americans of every background would see their taxes rise – seniors, parents, small business owners, and just about everyone who has even a modest investment in the market. All these tax increases are the fine print under the slogan of "hope": They're going to raise your taxes by thousands of dollars per year – and they have the audacity to hope you don't mind.



In so many ways, we need to make a clean break from the worst excesses of both political parties. For Republicans, it starts with reclaiming our good name as the party of spending restraint. Somewhere along the way, too many Republicans in Congress became indistinguishable from the big-spending Democrats they used to oppose. The only power of government that could stop them was the power of veto, and it was rarely used.

If that authority is entrusted to me, I will use the veto as needed, and as the Founders intended. I will veto every bill with earmarks, until the Congress stops sending bills with earmarks. I will seek a constitutionally valid line-item veto to end the practice once and for all. I will lead across-the-board reforms in the federal tax code, removing myriad corporate tax loopholes that are costly, unfair, and inconsistent with a free-market economy.

As president, I will also order a prompt and thorough review of the budgets of every federal program, department, and agency. While that top to bottom review is underway, we will institute a one-year pause in discretionary spending increases with the necessary exemption of military spending and veterans benefits. "Discretionary spending" is a term people throw around a lot in Washington, while actual discretion is seldom exercised. Instead, every program comes with a built-in assumption that it should go on forever, and its budget increase forever. My administration will change that way of thinking.



In my administration there will be no more subsidies for special pleaders … no more corporate welfare … no more throwing around billions of dollars of the people's money on pet projects, while the people themselves are struggling to afford their homes, groceries, and gas. We are going to get our priorities straight in Washington – a clean break from years of squandered wealth and wasted chances.



The goal of reform, however, is not merely to check waste and keep a tidy budget process – although these are important enough in themselves. The great goal is to get the American economy running at full strength again, creating the opportunities Americans expect and the jobs Americans need. And one very direct way to achieve that is by taking the savings from earmark, program review, and other budget reforms – on the order of 100 billion dollars annually – and use those savings to lower the business income tax for every employer that pays it.

So I will send to Congress a proposal to cut the taxes these employers pay, from a rate of 35 to 25 percent. As it is, we have the second-highest tax on business in the industrialized world. High tax rates are driving many businesses and jobs overseas – and, of course, our foreign competitors wouldn't mind if we kept it that way. But if I am elected president, we're going to get rid of that drag on growth and job creation, and help American workers compete with any company in the world.

I will also send to the Congress a middle-class tax cut – a complete phase-out of the Alternative Minimum Tax to save more than 25 million middle-class families more than 2,000 dollars every year.

Our tax laws and those who enforce them should treat all citizens with respect, whether they are married or single. But mothers and fathers bear special responsibilities, and the tax code must recognize this. Inflation has eroded the value of the exemption for dependents. I will send to Congress a reform to increase the exemption – with the goal of doubling it from 3,500 dollars to 7,000 dollars for every dependent, in every family in America.

The tax laws of America should also promote and reward innovation, because innovation creates jobs. Tax laws should not smother the ingenuity of our people with needless regulations and disincentives. So I will propose and sign into law a reform agenda to permit the first-year expensing of new equipment and technology … to ban Internet taxes, permanently … to ban new cell phone taxes … and to make the tax credit for R&D permanent, so that we never lose our competitive edge.

It is not enough, however, to make little fixes here and there in the tax code. What we need is a simpler, a flatter, and a fair tax code. As president, I will propose an alternative tax system. When this reform is enacted, all who wish to file under the current system could still do so. And everyone else could choose a vastly less complicated system with two tax rates and a generous standard deduction. Americans do not resent paying their rightful share of taxes – what they do resent is being subjected to thousands of pages of needless and often irrational rules and demands from the IRS. We know from experience that no serious reform of the current tax code will come out of Congress, so now it is time to turn the decision over to the people. We are going to create a new and simpler tax system – and give the American people a choice.



Americans also worry about stagnant wages, which are caused in part by the rising cost of health care. Each year employers pay more and more for insurance, leaving less and less to pay their employees. As president, I will propose and relentlessly advocate changes that will bring down health care costs, make health care more affordable and accessible, help individuals and families buy their health insurance with generous tax credits, and enable you to keep your insurance when you change jobs.

Many retired Americans face the terrible reality of deciding whether to buy food, pay rent or buy their prescriptions. And their government should help them. But when we added the prescription drug benefit to Medicare, a new and costly entitlement, we included many people who are more than capable of purchasing their own medicine without assistance from taxpayers who struggle to purchase their own. People like Bill Gates and Warren Buffet don't need their prescriptions underwritten by taxpayers. Those who can afford to buy their own prescription drugs should be expected to do so. This reform alone will save billions of dollars that could be returned to taxpayers or put to better use.



When new trading partners can sell in our market, and American companies can sell in theirs, the gains are great and they are lasting. The strength of the American economy offers a better life to every society we trade with, and the good comes back to us in many ways – in better jobs, higher wages, and lower prices. Free trade can also give once troubled and impoverished nations a stake in the world economy, and in their relations with America. In the case of Colombia, a friend and crucial democratic ally, its stability and economic vitality are more critical now, as others in the region seek to turn Latin America away from democracy and away from our country. Trade serves all of these national interests, and the interests of the American economy as well – and I call on the Congress once again to put this vital agreement to an up or down vote.



These reforms must wait on the next election, but to help our workers and our economy we must also act in the here and now. And we must start with the subprime mortgage crisis, with the hundreds of thousands of citizens who played by the rules, yet now fear losing their houses. Under the HOME plan I have proposed, our government will offer these Americans direct and immediate help that can make all the difference: If you can't make your payments, and you're in danger of foreclosure, you will be able to go to any Post Office and pick up a form for a new HOME loan. In place of your flawed mortgage loan, you'll be eligible for a new, 30-year fixed-rate loan backed by the United States government. Citizens will keep their homes, lenders will cut their losses, and everyone will move on – following the sounder practices that should have been observed in the first place.



I propose that the federal government suspend all taxes on gasoline now paid by the American people – from Memorial Day to Labor Day of this year. The effect will be an immediate economic stimulus – taking a few dollars off the price of a tank of gas every time a family, a farmer, or trucker stops to fill up. Over the same period, our government should suspend the purchase of oil for the Strategic Petroleum Reserve, which has also contributed to the rising price of oil. This measure, combined with the summer-long "gas-tax holiday," will bring a timely reduction in the price of gasoline. And because the cost of gas affects the price of food, packaging, and just about everything else, these immediate steps will help to spread relief across the American economy.

By summer's end, moreover, millions of college students will be counting on their student loans to come through – and we need to make sure that happens. These young Americans, including perhaps some of you at CMU, are among the many citizens whose ability to obtain a loan might be seriously hurt by faraway problems not of their own making. So, today, I propose that the Department of Education work with the governors to make sure that each state's guarantee agency has the means and manpower to meet its obligation as a lender-of-last-resort for student loans. In the years ahead, these young Americans will be needed to sustain America's primacy in the global marketplace. And they should not be denied an education because the recklessness of others has made credit too hard to obtain.

These are just some of the reforms I intend to fight for and differences I will debate with whoever my Democratic opponent is. In the weeks and months ahead, I will detail my plans to reform health care in America … to make our schools more accountable to parents and taxpayers … to keep America's edge in technology … to use the power of free markets to grow our economy … to escape our dependence on foreign oil … and to guard against climate change and to be better stewards of the earth. All of these challenges, and more, will face the next president, and I will not leave them for some unluckier generation of leaders to deal with. We are going to restore the confidence of the American people in the future of this great and blessed country.

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Marc Ambinder is an Atlantic contributing editor. He is also a senior contributor at Defense One, a contributing editor at GQ, and a regular contributor at The Week.

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