Slow to post, but thanks CCP for kind words asking my opinion on John McCain's tax plan. McCain presented it on April 15 when I was up to my neck in guess what - tax compliance tasks. There are both tax system and political considerations to take into account when viewing the campaign proposals. The plan is far better than I expected from McCain. Here are my random thoughts, mostly positive, followed by negative coverage from the MSM.
1. Not raise taxes like his opponents both want to do plus a proposal to require 3/5 majorities to raise taxes. I don't see that one explained but sounds to me like a constitutional amendment which is always unlikely.
2. Get our Corporate Tax in line with other countries, Cut from 35 down to 25%. This needs to be explained and sold or it certainly will be demogogued to sound like tax cuts for the wealthy - people living paycheck to paycheck don't own profitable corporations. The federal corporate tax is double taxation (at least, and really triple and quadruple taxation when all things are considered). You can't just take your money after the corporate tax, federal and state, is paid. You must declare the personal income and be taxed again at the federal and state levels. The rate correction will bring in more money to the treasury. Having a rate higher than our economic competitors pulls companies, jobs and profits away. Excessive rates keep money diverted away from profits and taxes.
3. Introduce an alternative tax system. I thought this was the big one but I don't see it on his site as I look now. Near as I can tell this was the Fred Thompson plan that received the highest marks from conservative pundits such as the WSJ editorial page. Not a true flat tax which would never be implemented in this liberal dominated political time we are in, but a 2-step 'flat tax' of 10 and 25% combined with a generous standard deduction. Making this plan optional is clever. It eliminates the gripe of those who lose deductions and fare worse under the new, simpler system.
4. Estate tax: Exempt the first $10 million and reduce the rate to 15%. - That is FAR better than the current schedule to go to zero in 2010 and then back to 55% in 2011 which is completely nuts! 15% is probably a reasonable rate that people would pay without turning their lives upside down to avoid. Estate is generally after-tax money but I don't think this electorate is going to repeal the tax entirely. Also, the argument that we collect more money at lower rates doesn't work at zero.
5. Gas Tax Holiday. No federal gas taxes for this summer. To me, that falls in a gimicky category with the rebates. We don't need up and down tax rates. We need a tax system that pays our bills without stomping down productive activities. One piece of logic supporting a summer holiday is that gas prices go up partly because of summer formulation rules. One might say this break would offset that.
6. Repeal the Alternative Minimum Tax. This is BIG, affects more and more taxpayers every year.
7. Other: 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.
8. Hard line on spending. McCain originally opposed the Bush cuts based on budget balance concerns. In fact, revenues SURGED under the rate cuts and the economy only started to stall as impending tax rate hikes looked likely. We know the deficits came from excessive spending because the revenue increase were far above expectations. McCain will be attacked (and already has been) for fiscal irresponsibility for cutting any tax rate or even for any instance of not raising taxes. McCain has to make the case that tax rates that are "low, simple and fair" are good the economy and good for revenues to the treasury and that fiscal responsibility must come from entitlement reform and spending disciplline. Good luck with that.
Other than perhaps the final point about spending discipline, I would find his tax proposal to be the right plan, wrong messenger. Bush passed some impressive cuts of the best kind - to marginal tax rates, but he failed to articulate how they worked, why they worked or even that they did work. Most people are far more aware of the past couple of months of slow growth than they are about 51 months of robust growth. McCain has a history of being a tax cut skeptic and that will make selling his program difficult.
In 1996, Bob Dole's lackluster campaign picked Jack Kemp to be his running mate and Dole adopted a serious tax cut proposal from Kemp. On the stump and in press questioning Dole couldn't explain his own support for this new, bold proposal and Kemp couldn't explain Dole's past positions opposing these types of rate cuts.
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Here is a negative story on the McCain tax plan from CBS / Washington Post just yesterday:
http://www.cbsnews.com/stories/2008/04/25/politics/washingtonpost/main4044195.shtmlMcCain Changes Tune On Tax Cuts
Washington Post: GOP Candidates Offers Tax Policies He Once Opposed
April 25, 2008
On May 26, 2001, after then-Sen. Lincoln D. Chafee (R.I.) cast his vote against President Bush's $1.35 trillion tax cut, he trudged back to his office, convinced, he recalled, that he had been the lone Republican to oppose the largest tax cut in two decades.
But Chafee's staff told him that one other Republican, who had largely avoided the grueling efforts at compromise, had joined him in dissent. That senator, John McCain, was marching to his own beat, Chafee said, impervious to pressure from either side.
Now that he is the presumptive Republican presidential nominee, however, McCain is marching straight down the party line. The economic package he has laid out embraces many of the tax policies he once decried: extending Bush's tax cuts he voted against, offering investment tax breaks he once believed would have little economic benefit and granting the long-held wishes of tax lobbyists he has often mocked.
McCain's concerns -- about budget deficits, unanticipated defense costs, an Iraq war that would be longer and more costly than advertised -- have proved eerily prescient, usually a plus for politicians who are quick to say they were right when others were wrong. Yet McCain appears determined to leave such predictions behind.
"He's looking forward, not back," said Douglas Holtz-Eakin, McCain's senior policy adviser.
To supporters, McCain has simply seen the light and now understands the power that business tax relief has to spur economic growth and innovation. Said J.D. Foster, a former Bush White House and Treasury tax policy expert, now at the Heritage Foundation: "It's logical that he wouldn't be repeating the arguments he made then. We all learn from experience."
To critics, it is political pandering. "It's just part of the new John McCain that's taking on the conventional wisdom that in tight races, you have to energize the base and win by 50.000001 percent," Chafee said. "I was frankly surprised that he's kept it up after securing the nomination. I thought he'd move to the center, and I haven't seen it."
Holtz-Eakin urged skeptics to "wind the clock way back," saying McCain has supported lower taxes and a smaller federal government throughout his political career.
But McCain's conflicts with fellow Republicans over taxes date back well before his differences with Bush. In December 1994, after his party swept to control of Congress on tax-cut promises, he challenged Ronald Reagan's legacy when he warned, "I think we would be making a terrible mistake to go back to the '80s, where we cut all of those taxes and all of a sudden now we've got a debt that we've got to pay on an annual basis that is bigger than the amount that we spend on defense."
In 1998, Republican leaders and their tobacco industry allies lambasted McCain's $516 billion tobacco regulation bill as the "McCain tax," painting it as big-government overreach and a $1.10 tax increase on every pack of cigarettes.
"This bill is not about taxes," he pleaded, just before the measure fell to a Republican filibuster. "It's about whether we're going to allow the death march of 418,000 Americans a year who die early from tobacco-related disease and do nothing."
In 2001, just days before Bush's first tax cut passed, McCain lamented on ABC's "This Week" that, "I'd like to see much more of this tax cut shared by working Americans. . . . I think it still devotes too much of it to the wealthiest Americans."
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."
