A couple of weeks ago, John McCain, in a high-profile speech, unveiled his response to the mortgage crisis. After it was universally panned as a bad joke, McCain scrapped his own proposal and tried again. Considering the Republican candidate’s admission that he doesn’t understand economics, it was an inauspicious start to unveiling his economic policy agenda.
Yesterday, McCain took the next step, presenting his ideas on taxes. In light of his recent track record, I half expect him to scrap this economic plan and give another speech on taxes in a couple of weeks, because yesterday’s presentation left much to be desired.
Senator John McCain offered the broadest look yet at his economic policies in a speech on Tuesday in Pittsburgh, outlining a series of tax reductions and backing away from his pledge to balance the budget by the end of his first term.
The speech, delivered on the deadline for filing taxes, afforded the clearest view to date of what McCainomics might look like. There was a dash of populism, as Mr. McCain criticized executive pay and corporate wrongdoing. There was a strong supply-side bent, with Mr. McCain focusing on cutting corporate taxes and making permanent the Bush tax cuts that he once opposed. And there was a decidedly less hawkish note on deficits, as Mr. McCain called for spending cuts but did not mention balancing the federal budget.
The cost of the plan would total hundreds of billions of dollars a year, on top of the $400 billion deficit Bush will leave for his successor. McCain, who had vowed to balance the budget by the end of his first term, has given up on that promise entirely, and didn’t even pretend to care how he’d pay for these lavish tax cuts, the vast majority of which would benefit corporations and the wealthy. (The campaign alluded to targeting congressional earmarks, but even if McCain were to eliminate every pork-barrel project, it would total no more than $20 billion.)
For a guy who rejected Bush’s first-term tax cuts as “irresponsible,” McCain has fallen surprisingly far.
But it’s that “gas-tax holiday” that has everyone scratching their heads.
As a matter of politics, it sounds like a possible winner: over the summer, when demand is at its peak and gas prices are on the rise, McCain wants to shave 18 cents off the price of a gallon of gas by temporarily waving federal taxes. It would cost $11 billion a year.
This is a remarkably bad idea.
On the face of it, John McCain’s proposal to offer a gasoline tax “holiday” during the summer driving season might sound like a good way to cut gas prices at the busiest time of the year. But economists and energy analysts say it would have little impact on mitigating the rise in gasoline prices. In fact, it could lead to the opposite result.
The federal gasoline tax represents a flat fee of 18.4 cents a gallon nationwide. With gasoline currently averaging $3.39 a gallon, the tax represents a mere 5 percent of today’s pump price. While that’s not trivial, consider that gasoline prices have more than doubled since 2004.
The problem is that lowering gasoline prices at the pump would encourage more consumption. So in the long run, it would push prices up.
“You don’t want to stimulate consumption,” said Lawrence Goldstein, an economist at the Energy Policy Research Foundation. “The signal you want to send is the opposite one. Politicians should say that conservation is where people’s mindset ought to be.”
For that matter, federal gas taxes go towards rebuilding and maintaining roads and highways. Cutting the gas tax would mean less investment in infrastructure — a very dangerous approach right now — and fewer jobs.
So, the provocative centerpiece of McCain’s big, new tax idea stimulates gas consumption, raises the price of fuel, undermines his own environmental agenda, weakens U.S. infrastructure, and would cost thousands of jobs.
McCain recently acknowledged, “The issue of economics is not something I’ve understood as well as I should.” If only he didn’t seem so anxious to prove it, I might have a little more confidence in his competence.