by BusinessWeek Staff and Wire Reports
For months now, political analysts and strategists have been arguing that John McCain needed a more developed economic program to match the extensive policy prescriptions he's outlined on Iraq and other national security issues. As the economy has increasingly moved front and center in the election, that difference has become even more glaring. Until recently, McCain's economic program consisted largely of a call to extend the Bush tax cuts.
On Apr. 15, McCain took a big leap forward in doing that. In a broad-ranging economic speech in Pittsburgh, he called for several highly targeted tax cuts and federal spending initiatives. Included were a summer gas-tax holiday that would suspend the 18.4¢ federal gas tax and 24.4¢ diesel tax, and a doubling of the personal tax exemption for dependents, from $3,500 to $7,000.
"He needed to make the transition from the primaries to the general election and say, 'Let's do something on the economy'" says Daniel Clifton, a Washington analyst with investment firm Strategas Research Partners. "The cylinders are starting to fire; while the Democrats will criticize this as 'Bush Three,' the important thing is he's getting into the game."
The speech followed one five days earlier in Brooklyn, N.Y., in which McCain reversed an earlier position and backed calls for the federal government to help out homeowners struggling to make their mortgage payments by helping them move into cheaper loans guaranteed by the Federal Housing Authority. In Brooklyn, McCain also called on the Bush Administration to stop adding to the country's Strategic Petroleum Reserve, in hopes of easing pressures on sky-high gas and oil prices.
But the Brooklyn speech was just a warm-up. In his Apr. 15 speech at Carnegie-Mellon University, McCain said he would offer people the option of choosing a simpler tax system. "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," McCain said.
To help consumers weather the downturn immediately, McCain urged Congress to institute a "gas-tax holiday" from Memorial Day to Labor Day. His proposal came on a day when oil prices hit an all-time high, rising past $113 per barrel.
Addressing the feared fallout of the ongoing credit crunch, McCain also said the U.S. Education Dept. should work with the country's governors to make sure that each state's guarantee agency—nonprofits that traditionally back student loans issued by banks—has both the means and the manpower to be the lender-of-last-resort for student loans. Lawmakers, students, and financial experts are worried that the credit crisis might make it more difficult for students and their families to find loans. Nearly two dozen lenders have dropped out of the federally backed student loan program.
Students, McCain said, "should not be denied an education because the recklessness of others has made credit too hard to obtain."
In his speech, McCain took shots at the Wall Street financial engineering, the "endlessly complicated borrowing, bundling, and betting" that led to the subprime crisis and credit crunch. He also sounded off on executives whose pay packages "bear no relation to the success of the company or the wishes of shareholders," adding: "Something is seriously wrong when the American people are left to bear the consequences of reckless corporate conduct, while Mr. (James) Cayne of Bear Stearns (BSC), Mr. (Angelo) Mozilo of Countrywide (CFC), and others are packed off with another 40 or 50 million [dollars] for the road."
Targets Democrats on Taxes
But not all of McCain's proposals offered relief. He also said he would require more affluent people enrolled in Medicare—couples making more than $160,000—to pay a higher premium for their prescription drugs than less wealthy seniors.
He faulted not only Democrats but also fellow Republicans for failing to practice prudent spending and fix pricey entitlement programs. "In so many ways, we need to make a clean break from the worst excesses of both political parties," McCain said, adding "somewhere along the way, too many Republicans in Congress became indistinguishable from the big-spending Democrats they used to oppose."
McCain proposed a cut in corporate taxes, from 35% to 25%. He also argued that Democratic rivals Barack Obama and Hillary Rodham Clinton would both impose the single largest tax increase since World War II by allowing tax cuts enacted in 2001 and 2003—and that McCain voted against but now wants to make permanent—to expire.
"Both promise big change. And a trillion dollars in new taxes over the next decade would certainly fit that description," McCain said. Playing on the title of an Obama book, McCain added: "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 a prepared statement, Obama campaign spokesperson Bill Burton said McCain's plan "could have been written by the corporate lobbyists who run his campaign, and probably was." He added, "Senator McCain's economic plan offers no change from George Bush's failed policies by going full speed ahead with fiscally irresponsible tax cuts for the wealthiest Americans that John McCain himself once said 'offended his conscience.'"
Clifton, the analyst with Strategas Research Partners, said that while McCain's plan repeats some proposals from the past, it is important because it shows the Republican candidate "communicating with the average American.… This reinforces his key theme. He would be facing a $500 billion deficit and a Democratic Congress. He's not gonna raise your taxes, he will lower your taxes. He will go after spending." And McCain's proposal on student loans could put him ahead on an important pocketbook issue, Clifton said, if students and their parents find over the spring and summer that they can't get college financing.