McCain’s Rightwing Economics

By Matthew Rothschild | The Progressive

So John McCain, who admitted a while back that he didn’t know jack about economics, proved it again on Tuesday when he unveiled his economic plans.

He said, “It will not be enough to simply dust off the economic policies of four, eight, or 28 years ago.”

But he not only is dusting them off, he’s putting them up on the mantelpiece.

He would make permanent the Bush tax cuts and eliminate the Alternative Minimum Tax. By doing so, he would cost the Treasury $4 trillion over the next ten years, according to Aviva Aron-Dine, policy analyst at the Center on Budget and Policy Priorities.

“It’s a massively expensive tax plan,” she says.

It’s also massively maldistributive.

These tax breaks would go disproportionately to the very rich. “Half goes to people making over $200,000 a year–that’s the top 4 percent,” Aron-Dine says. “A little more than a quarter goes to the top 1 percent.”

This is redistribution of income–from bottom to top.

McCain also said he favored a “flatter” tax code. That means one that is less progressive, one that lets the rich keep more of their money. Since the days of Dwight D. Eisenhower, the tax rates have pancaked. In the 1950s, the marginal tax on the wealthiest Americans was 70 percent. Now it’s half that much. And McCain wants to bring it even lower.

And despite his populist talk about “no more corporate welfare” and about the “extravagant salaries and severance deals of CEOs,” McCain announced he would “lower the business income tax for every employer that pays it.” This would be a giveaway to businesses of about $90 billion a year, says the Center on Budget and Policy Priorities. McCain then added another $70 billion a year deduction for corporate investment and equipment and a $10 billion credit for R&D. That hardly constitutes ending corporate welfare as we know it.

He said he’d pay for these corporate giveaways by freezing discretionary spending programs–the very kind of programs that could help people most in need, as well as jumpstart the economy.

Here McCain exposed himself as a pre-Keynesian economist.

Ever since the Great Depression, economists have understood that domestic government spending stimulates the economy much faster than business bennies and that such spending is crucial to get out of a recession. But rather than increase domestic government spending, McCain is going to throttle it.

Nor did he advocate a crucial policy to revive the economy and spare people suffering: and that is, to increase federal revenue sharing with the states, which are facing huge budget shortfalls and are required to have balanced budgets. “At least 20 states have made or proposed budget cuts that threaten vital services for many residents, including some of the state’s most vulnerable residents,” according to a new study by the Center on Budget and Policy Priorities.

These include cuts to education, health care for poor people, and programs for the elderly and the disabled. Tennessee, for instance, “has cut community-based services for the mentally retarded.”

Not only are state budget cuts savage. They are economically destructive. By strangling state spending, McCain would create a rolling recession from one state to another.

And this is where his attack on “earmarks” is so counterproductive. Many earmarks go for positive things: bridges and roads, university expansions, urban housing, etc. By vowing to veto each and every “earmark,” McCain will end up choking the states all the faster. They will have less money for public works, therefore higher unemployment, less state income tax revenue, and then a bigger budget shortfall. Thus does the circle become vicious.

As much as he tried to paint himself as an innovator, McCain revived the old Reagan proposal for a line-item veto (one that Bill Clinton, a true Republican, gave the Heimlich to when he was President).

But the last thing we need is more Executive Branch power–especially in the hands of an economic ignoramus.