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More Reasons to Worry about McCain-onomics

Opinion pieces and speeches by EPI staff and associates


More Reasons to Worry about McCain-onomics

By Jared Bernstein

As Jonathan Taplin’s discusses in an earlier post, candidate McCain gave a big economics speech today. Allow me to elaborate on why this stuff should scare you.

First, the gas tax holiday is smart politics but lousy policy. As Taplin aptly described, high gas prices are sending an important economic signal and jamming that signal is ill-advised. On the other hand, as one of the commenters points out, this idea could really help some strapped families.

The problem is there’s absolutely nothing to stop the oil companies from claiming a big chunk of this subsidy by raising the pretax price of gas at the pump. Prices go up in the summer anyway, and I’ll bet you a gallon of premium that they go up even more than usual, such that some of that 18.4 cents/gallon ends up back in Exxon’s wallet, not yours.

Which leaves us with a nice little transfer from taxpayers to oil companies. Nice work, John.

Also, and this is an important theme re McCain-onomics, he assiduously avoids connecting the dots between taxes and what they finance. As the AP wrote today, “The federal gasoline tax helps pay for highway projects in nearly every town through a dedicated trust fund. In the past, such proposals for gas tax holidays have not fared well as lawmakers and state and local officials prefer not to see changes in their revenue source.”

Next, there’s his idea to simplify the tax code by introducing “an alternative new and simpler tax system” that offers taxpayers the choice of staying in the current system or opting to pay taxes under “a vastly less complicated system with two tax rates and a generous standard deduction” (I couldn’t find what the two rates are but I’ll bet they’re 15 and 25 percent…just a guess.)

As John Irons (EPI’s research director) recognized, this is absolutely nuts from a simplicity standpoint: McCain just gave every taxpayer a huge incentive to calculate their taxes twice…three times if you include the alternative minimum tax (AMT…more on that below). Just what we need: a whole other layer of choices and schedules, surely with their own income definitions, loopholes, etc.

Finally, and this is the most worrisome aspect of McCain’s economics, if he gets what he wants, he has two fiscal choices: deeply cut entitlement programs, especially those related to health care, or blow a massive hole in the budget.

I give the details here, but the arithmetic is simple: you can’t extend the Bush tax cuts forever, same with the war, end the AMT, finance big health care subsidies, and slash the corporate tax rate all on the backs of “savings from earmark, program review, and other budget reforms.” Like I said, you either end much of government as we know it–a standard conservative goal–or become unsustainably indebted.

This is seriously scary stuff, and Senators Clinton and Obama need to stop duking it out long enough to tell the electorate all about this agenda and its potential impacts on America. McCainonomics is threatening to make Bushonomics look reasonable.
Jared Bernstein is a senior economist at the Economic Policy Institute in Washington, D.C.