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McCain's Economics: Pass the Dramamine

A Commentary by Froma Harrop

Thursday, April 17, 2008

John McCain admits that economics are not his passion, and that's fine. His past instincts were mostly good. He voted against tax cuts not paid for by savings elsewhere. He fought earmarks, earning the wrath of big-spenders in his own Republican Party. As president, he could hire some economic brain to do the big thinking about money.

But he really shouldn't wait for this. His economic policy address in Pittsburgh needed a captain. It pitches toward McCainian conservatism, then rolls on deficits, then yaws with a flaky proposal to suspend the federal gasoline tax for the summer. Cheaper gas is bad for the environment and national security. Besides, the tax goes for roads. Are we going to stop paying for that, too?

McCain complains that the 35-percent corporate income tax is "the second-highest business tax in the industrialized world." That would be true if companies actually paid it. Few do, thanks to a stretch limo full of loopholes.

What's crazy about the corporate tax is the huge discrepancy between what different industries pay. Technology companies tend to be taxed toward the high end, Aviva Aron-Dine, an analyst at the Center on Budget and Policy Priorities, explained to me. But for other businesses that borrow a lot of money, the effective tax rate is negative.

"What we need is not another big unpaid-for tax cut, but reform" of the tax's weird incentives, Aron-Dine said. "The key is neutrality."

On his way to proposing that rich senior citizens pay for their own medications, McCain said, "Many retired Americans face the terrible reality of deciding whether to buy food, pay rent or buy their prescriptions."

Not so. The Medicare drug program subsidizes nearly all the costs for low-income beneficiaries. The elderly and disabled poor pay no monthly premiums and zero deductibles.

McCain notes that "people like Bill Gates and Warren Buffett don't need their prescriptions underwritten by taxpayers." Point granted, but the universal nature of Medicare is what keeps it strong. Better to have the rich support Medicare by paying more taxes than seizing their benefits. That way, it doesn't turn into the most vulnerable of things -- a poverty program.

Earlier in the same speech, McCain says that his (Democratic) opponents would raise taxes for "seniors, parents, small business owners and just about everyone who has even a modest investment in the market."

Wait a minute. If the senior is Warren Buffett, and the parent is Bill Gates, and the small business owner is my much-visited dentist, then why not tax their fortunes with a heavier hand? As for investors of modest sums, most keep the money in retirement or other accounts, which are already tax-advantaged.

You see, the trick in selling tax cuts for the rich is to make everyone else think he or she would benefit. As it happens, the tax plans of Hillary Clinton and Barack Obama would not touch a hair on the vast majority of American heads.

The good McCain calls for death to earmarks and corporate welfare -- and for putting a cork in the tax loopholes. That's all nice, but not enough to balance budgets, as he had promised.

For those of us who desire certain programs -- universal health coverage comes to mind -- and are willing to pay for them, McCain's brand of conservatism would not be a first choice. But it would be worlds superior to the Bush orgy of tax-slashing, hyper-spending and binge-borrowing -- with little to show for it other than massive deficits and a fattened sliver of exceedingly rich Americans.

And so onward and upward and downward and sideways with the McCain economic vision. Makes you kind of seasick.

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