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Fiscal mantra for McCain: less is more

Senator John McCain said that, if elected, he would cut spending sharply while lowering taxes at the same time.
/ Source: The New York Times

Senator John McCain said that, if elected, he would do what other presidents had tried but failed to do: cut government spending sharply enough to reduce the budget deficit while lowering taxes at the same time.

In an interview outlining his economic approach, Mr. McCain emphasized his experience working on economic matters in Congress and laid out an unorthodox version of conservatism. After initially opposing President Bush’s tax cuts, he has become a supporter of making them permanent and of pursuing additional tax reductions, saying they are the best way to encourage economic growth.

But unlike Mr. Bush — or other Republican presidential candidates this year — Mr. McCain favors government mandates to halt global warming and slow the growth of Medicare costs. His campaign says it would also cut financing for programs that the White House budget office has deemed ineffective, a list that includes Amtrak.

Speaking at a law office here on Thursday, shortly after holding a fund-raiser in the reception area, Mr. McCain, of Arizona, offered warm praise for Alan Greenspan, the former Federal Reserve chairman. But he said it was unclear whether Ben S. Bernanke, the current chairman, was adequately handling the present slowdown.

“Depending on the depth of this crisis that we’re in, we’ll find out whether he acted soon enough and whether he acted appropriately enough,” Mr. McCain said. “I don’t think it’s clear yet.”

He also said that he would consider resuscitating the work of a bipartisan tax-reform commission, appointed by Mr. Bush, whose 2005 report on simplifying the tax code was largely ignored by the administration. Using the process that has been used to close military bases, Mr. McCain said he would ask Congress to vote yes or no on an entire tax-simplification program.

'Foot soldier in the Reagan revolution'
With recession fears mounting, Republican candidates have increasingly focused on the economy in recent weeks. This presents challenges for Mr. McCain, who has already angered some primary voters with his stances on immigration, global warming and campaign finance. Likewise, he has angered some conservatives by changing his position over the years on tax cuts.

Mr. McCain has joked on previous occasions about his lack of economic expertise. And in a debate earlier this month, he said that he would stimulate the economy by cutting government spending, a move that economists say would have the opposite effect.

“The issue of economics is not something I’ve understood as well as I should,” he said last month, according to The Boston Globe. “I’ve got Greenspan’s book.”

Recently, though, he has stopped making self-deprecating comments about his background and instead emphasized his role in helping to cut taxes and spending as “a foot soldier in the Reagan revolution.” Noting that he also later ran the Senate Commerce Committee, Mr. McCain said in the interview that he would feel no need to select a vice president with expertise in economic policy to balance his own foreign-policy experience.

He also pointed to a recent Wall Street Journal survey of economists, many of them from Wall Street firms, which found that he was easily their top choice for president. “I don’t need any extra help,” he said.

Mr. McCain described himself as being in the mold of Theodore Roosevelt, as a “free-enterprise, capitalist, full-bore guy” who nonetheless believes that the economy depends on government institutions “that need to do their job as well.”

Mr. McCain begins the story of his economic education in 1982, when the country was in recession and he was first elected to the House.

Once in Congress, he worked with Jack F. Kemp and Phil Gramm, two conservatives who were also in the House then, and Martin Feldstein, a Harvard economist who was an aide to President Ronald Reagan, to pass tax cuts and spending restraints. Mr. McCain said that Mr. Gramm — “a guy who taught economics for 12 years at Texas A&M” and who has endorsed Mr. McCain — had been an especially important mentor.

“Those were my formative years,” Mr. McCain said. “We went from those abysmal situations when he came to office in 1981,” he said, referring to Reagan, “to a long period of economic growth and prosperity.”

During Reagan’s years in office, unemployment and inflation dropped sharply. Tax rates generally fell, as did spending on government programs outside the military. But there were also two significant downsides to the 1980s economy, and Mr. McCain has made an issue of both at different points in his career. The budget deficit soared, because the cuts in domestic spending were not large enough to make up for the Reagan tax cuts and a military buildup. And middle-class incomes grew at a much slower rate than they had in the 1950s or ’60s.

In the aftermath of his loss to Mr. Bush in the 2000 Republican primaries, Mr. McCain began emphasizing middle-class pocketbook issues. After having consistently voted for tax cuts in the 1980s, he was one of the few Republicans to oppose the administration’s tax cuts in 2001 and 2003. He said at the time that they benefited “the most fortunate among us at the expense of middle-class Americans.”

In the current decade, wage gains for most families have been even weaker than they were in the 1980s, and Mr. McCain has spoken during the campaign about the anxiety being caused by a globalization and technological change. Were he to win the Republican nomination, it is possible he would then put a bigger emphasis on such themes.

“Change is hard,” he said in a speech in Detroit in October, “and while most of us gain, some industries, companies and workers are forced to struggle with very difficult choices.”

To spur the economy, Mr. McCain has called for more spending on alternative-energy research. Spending on basic research, he said, could lead to a repeat of the Internet’s success story, in which government financing ultimately led to the creation of a huge private industry. He has also called for an expansion of community-college programs and an overhaul of unemployment benefits, to reflect the fact that people who lose their jobs now are often out of work for long periods.

Mr. McCain now favors the extension of the Bush income tax cuts, saying that letting them lapse would amount to a tax increase that would damage the economy. He said the Democrats’ plans to allow the expiration of the Bush tax cuts for households making at least $250,000 would simply redistribute wealth and lead to an endless fight over who was truly affluent.

“Americans don’t dislike wealthy people; they want to be wealthy people,” he added.

On several occasions over the last year, Mr. McCain has said that tax cuts can reduce the deficit by spurring additional activity that, in turn, leads to more taxes being paid. But numerous studies have found that not to be the case.

In the interview, Mr. McCain said, referring to tax cuts, “Whether they actually pay for themselves dollar for dollar, obviously there are differences in opinion.”

During his campaign, Mr. McCain has focused much more on spending than on taxes. He has called for the end of earmarks, which are pet projects inserted into spending bills by legislators.

They are “a very small part of the budget,” he said, “but so symbolic” — because they prevent politicians from having any credibility when they try to persuade the public about other budget cuts. The campaign has also said Mr. McCain would consider cutting the programs that the White House has identified as ineffective, which together make up 10 percent of the budget. The campaign has not specified which ones it would cut. In addition to Amtrak, the list includes various programs dealing with Defense Department communications, veterans’ disability and low-income heating assistance.

He has spoken in detail about reducing Medicare costs, which budget experts say are the biggest long-term fiscal problem. He has proposed changing the way that Medicare reimburses hospitals and doctors so that it stops paying for care that fails to make people healthier.

Both Reagan and the current President Bush vowed to cut spending enough to reduce the deficit but failed to do so. Mr. McCain said he believed he could succeed, even if he had not yet explained all of the cuts he would make.

“I think the time is ripe for spending restraint,” he said. “We can make the case more strongly than ever before, particularly to our Republican base, because they’re angry and they’re upset and they’re dispirited.”