John McCain's big economic speech today was sort of one part Ronald Reagan (cut taxes, cut spending), one part Mike Huckabee (help for workers; Main Street is as important as Wall Street), and one part Teddy Roosevelt (criticism of "reckless CEOs and speculators").
The big policy-wonk news was that he called for some new initiatives, including doubling the personal exemption for dependents from $3,500 to $7,000, an alternative and supposedly simpler two-rate tax code, a one-year spending freeze for all government programs other than defense and entitlements, some sort of wage insurance for displaced workers, a summer suspension of the 18.4-cent gas tax, and making wealthier seniors pay more for prescription drugs under Medicare Part D. He also reiterated the need to do away with the alternative minimum tax, cut corporate taxes, and allow immediate expensing of business purchases. Here are my key takeaways:
1) McCain's proposal to increase the exemption for dependents—from $3,500 to $7,000—gives him a differentiating tax cut to compete with Barack Obama's middle-class tax cut. It also gives him another tax policy to talk about other than the Bush tax cuts, an important thing for a guy trying to be Not Bush. Plus the expanded exemption, along with the income-volatility help for workers, begins a process of moving the party back to a more Main Street, family-friendly image that probably tends to get lost with all the focus on capital-gains taxes and corporate income taxes. There was a reason Reagan attracted those blue-collar Democratic voters in 1980 and 1984: They felt he understood their problems and had policies that would directly help them. Recall these words from his 1980 acceptance speech:
Ours are not problems of abstract economic theory. Those are problems of flesh and blood; problems that cause pain and destroy the moral fiber of real people who should not suffer the further indignity of being told by the government that it is all somehow their fault. We do not have inflation because—as Mr. Carter says—we have lived too well.... Work and family are at the center of our lives; the foundation of our dignity as a free people. When we deprive people of what they have earned, or take away their jobs, we destroy their dignity and undermine their families. We cannot support our families unless there are jobs; and we cannot have jobs unless people have both money to invest and the faith to invest.
And here is McCain from today:
Economic policy is not just some academic exercise, and we in Washington are not just passive spectators. We have a responsibility to act—and if I am elected president I intend to act quickly and decisively. We need reforms that promote growth and opportunity. We need rules that assure fairness and punish wrongdoing in the market. We need tax policies that respect the wage-earners and job creators who make this economy run, and help them to succeed in a global economy. In all of this, it will not be enough to simply dust off the economic policies of four, eight, or 28 years ago. We have our own work to do. We have our own challenges to meet.
2) Supply-siders probably won't think much of the exemption proposal because it creates "tax relief" instead of new incentives for working, saving, and investing. Plus, they'll worry it would mean even fewer people paying any income taxes at all—already more than 50 million households pay none—further unbalancing the tax code and breaking the connection between personal income taxes and government spending for more folks.
But, of course, McCain is also calling for a cut in the corporate income tax rate, as well as full one-year expensing of equipment purchases—both items on the wish list of supply-siders. Plus, he holds out the possibility—as unlikely as it might be if McCain were to have a Dem Congress—of creating a flatter, alternative tax code that people could choose to file under, riffing off an idea by conservative GOP-ers in Congress like Rep. Paul Ryan of Wisconsin.
3) Social conservatives will like the expanded exemption since it would relieve some of the financial burden of raising kids—though a tax credit would be a better, if potentially costlier, idea, as would the ability to apply the credit against payroll taxes and begin to reverse the antichild, antifamily bias in the current tax code. Example: Parents pay the full amount of Social Security taxes even though it will be their kids who will be financially supporting today's childless boomers and gen X-ers.
4) McCain's proposal for a one-year spending freeze on nondefense discretionary spending creates a more comprehensive approach to tackling high government spending that goes beyond earmarks. It will be interesting to see whether the media play it as a "freeze" or a "cut," since spending won't keep up with inflation. If it's the latter, look for plenty of stories about how McCain wants to cut education and other domestic programs.
Overall, the speech puts McCain on the board with a detailed economic plan and provides a vivid contrast with this Democratic rivals. Definitely a choice rather than an echo.