The Strange History of John McCain's Economic Theories

According to the non-partisan Tax Policy Center, John McCain's recently released tax plan is very regressive "even compared with a system in which the 2001-06 tax cuts are made permanent." It provides "relatively little tax relief to those at the bottom of the income scale while providing huge tax cuts to households at the very top of the income distribution."

Many have remarked on McCain's inconsistency in proposing a tax plan even more regressive than the Bush tax cuts he once opposed. His criticism at the time was passionate and consistent. He first spoke out against Bush's proposed tax plan in January of 2000, arguing: "I don't believe the wealthiest 10% of Americans should get 60% of the tax breaks. I think the lowest 10% should get the breaks."

McCain then voted against Bush's tax cuts in both 2001 and 2003, explaining: "When you look at the percentage of the tax cuts that--as the previous tax cuts--that go to the wealthiest Americans, you will find that the bulk of it, again, goes to wealthiest Americans... A lot of Americans now are paying a very large a--low and middle-income Americans are paying a significantly larger amount of their income in taxes. I’d like to see them get the bulk of the relief."

McCain skipped significant tax votes in 2004, and it was not until 2006 that he voted to make the Bush tax cuts permanent.

McCain's change of heart in 2006 is particularly curious, since he only recently moved away from supply-side economic theory. In 2000, he explained: "In the interest of full disclosure, I didn't pay nearly the attention to those issues in the past. I was probably a 'supply-sider' based on the fact that I really didn't jump into the issue.... I also hope that my thinking has changed as a result of the times. I am compelled by information that indicates that there's a growing gap between haves and have-nots in America."

McCain's economic advisor, Kevin Hassett, added: "The Bush plan is a 1980s plan, and it ignores the lessons of the '90s. Senator McCain challenged his economic team to figure out why we're doing well in the '90s."

All the more strange then that Hassett and McCain have now returned to supply-side theory. This year, Hassett argued: "What really happens is that the economy grows more vigorously when you lower tax rates. It is beyond the reach of economic science to explain precisely why that happens, but it does."

But does it? The lessons of the 80's and 90's, which Hassett noted in 2000, demonstrate the opposite. The consequences of Federal policies in the 80's and 90's suggest that tight fiscal policy, not tax cuts, spurs growth. Moreover, the few years of economic growth between recessions under the Bush Administration pale in comparison to the economic boom of the 90's, so there has not been new information to contradict the lessons of the 90's. Finally, the income gap that McCain cited in 2000 as justification for his criticisms of supply-side theory has grown dramatically for the last eight years.

Without new information to lead McCain and Hassett to change their minds, one naturally suspects political motivations. John McCain, having been attacked by fellow Republicans for his opposition to Bush's tax cuts, conveniently returned to the conservative economic fold not long before running for President, and his change of heart certainly helped him during the Republican primary. Such an interpretation also fits with Hassett's shoulder-shrugging non-explanation for supply-side's alleged success as "beyond the reach of economic science." But if driven by political expediency, why has McCain continued to push an even more regressive tax policy after winning the nomination? While outdoing Bush on tax cuts for the wealthy helps him to maintain support from rank-and-file Republicans, he has lost significant strategic ground to Obama, since Obama's plan offers more tax relief to lower and middle class Americans than McCain's does. He has also underscored the validity of Obama's charge that he would continue Bush's policies.

There is a third possibility. McCain's rejection of Bush's tax policies from 2000 through 2003 may have been more politically motivated than his current economic position. That is to say, he may have exaggerated his opposition to those policies at the time in order to bolster his reputation as a maverick. This possibility is supported by the fact that there was a discrepancy between McCain's words in 2000 and his policies. While he argued that "the lowest 10%" of earners should receive the most tax breaks, his own tax proposal at the time offered them almost nothing; all the benefits would have gone to the top 40%. Attempting to demonstrate that his economic plan benefited "the have-nots," McCain highlighted his proposal to raise the income threshold subject to the fifteen percent tax bracket: "If you put more and more people into the fifteen percent tax bracket, you would have a significant beneficial effect. The have-nots are not the poorest necessarily; the have-nots are lower- and middle-income Americans, who are not rising as fast as the wealthiest Americans, as well." But as Jonathan Chait of the New Republic noted in an interview with John McCain, those making more than the threshold included only the top 25% of tax payers. McCain responded by acknowledging the discrepancy between his tax proposal and his stated intentions: "Maybe I'm not paying enough attention to the poorest of America. Maybe my priorities are not correct. I selected this course not thinking that it's perfect but thinking that it's the best that I could come up with."

In 2008, McCain has had ample opportunity to come up with a more perfect plan. His new and improved tax plan all but ignores the poor in favor of tax cuts for the most wealthy. Whether he never meant those words, whether he has since rejected them, or whether he has decided that political expediency forces him to contradict them, it seems that John McCain has chosen to pay even less attention to the poorest of Americans.