McCain’s Economic Plan: Tax Cuts vs. Balanced Budget

DENVER: As Senator John McCain kicked off a week of economic-themed campaigning here, it was apparent that some of the underlying tensions between the two schools that guide his economic thinking - the supply-siders who want to cut taxes and the deficit hawks who want to balance the budget - remain unresolved.

McCain is now pledging once again to balance the budget by the end of his first term in 2013, his advisers said Monday. In doing so, they were reverting to an earlier pledge that McCain had abandoned in April, when he proposed a series of costly tax cuts and said, citing the ailing economy, that it might take two terms to balance the budget.

"American workers and families pay their bills and balance their budgets, and I will demand the same of the government," McCain said at a campaign stop Monday. His top advisers went further, saying he would balance the budget by the end of his first term.

But it is unclear how McCain plans to balance the budget, given that fiscal analysts who have examined his plans say that his calls to extend the Bush tax cuts while cutting corporate and other taxes would probably increase the federal budget deficit significantly, because he is not calling for comparable spending cuts.

That tension - the tug-of-war between wanting steep tax cuts and trying to make sure that the government spends no more money than it takes in - has been a recurring theme this year as McCain's economic thinking and policies have evolved.

In the Senate, McCain voted against the Bush tax cuts that he now wants to make permanent, warning that they were tilted toward the rich and were not offset by enough spending cuts to pay for them. In doing so, he incurred the wrath - and suspicion - of many prominent supply-siders. As a presidential candidate, though, his circle of advisers has included both card-carrying supply-siders like Jack Kemp, the former New York congressman, and deficit hawks like Phil Gramm, the former senator from Texas.

But McCain's early ardor for balanced budgets seems to have cooled slightly in this campaign season, and he is much less specific about spending cuts than he is about tax cuts.

Robert Bixby, the president of the Concord Coalition, which advocates balanced budgets, questioned how McCain's current proposals could lead to balanced budgets.

"It's feasible to balance the budget by 2013, but very unlikely under the policies Senator McCain has proposed," Bixby said in an e-mail. "The spending cuts are far too vague to be counted on for significant savings and, even if they were more specific, I can't see how they would come close to offsetting the level of tax cuts he recommends. Looking at this set of proposals it doesn't seem that McCain fits neatly into either the deficit hawk or supply-side camp."

But McCain's tax cut proposals have won over some of his supply-side critics. Last year the Club for Growth, a prominent group that advocates tax cuts, issued a paper headlined "John McCain is No Supply-Sider" that faulted him for his earlier opposition to the Bush tax cuts. Now Pat Toomey, the president of the group, said that McCain's recent tax cut proposals indicated that supply-siders were getting the upper hand.

"Is John McCain a supply-sider in his bones?" Toomey asked. "I'm not sure he is. But I do support the positions he has been taking."

When McCain spoke about his tax plan in April, he cited the faltering economy in saying that it might take two terms to balance the budget, explaining that "economic conditions" are reversed. Since then, he seems to have refined some of his earlier tax cut plans. While his campaign once spoke then of repealing the alternative minimum tax, which is aimed at the wealthy but has increasingly ensnared middle-class taxpayers, his advisers now speak of "phasing out" the plan. And they now say that his proposal to let corporations write off their equipment expenses more quickly would be temporary.

McCain, who has been dogged by his own past statements that he does not understand the economy as well as he should, has not always spoken fluently about economic policy.

When McCain first outlined his tax cut proposals shortly before the South Carolina primary in January, he eagerly highlighted his new enthusiasm for supply-side economics. "Don't listen to this siren song about cutting taxes," McCain said then. "Every time in history we have raised taxes it has cut revenues."

Of course, history is full of tax increases that ended up raising revenues, just as planned, and many economists deride the notion that broad-based tax cuts would spur enough economic growth to raise tax revenues overall.