McCain proposes gas tax suspension

Sen. John McCain on Tuesday outlined his agenda for reviving the nation’s troubled economy with a mix of tax and spending cuts, starting with a summerlong suspension of federal gasoline taxes to ease the pain of soaring fuel prices.

McCain’s plan included an idea that carries some political risk: an increase in the premiums that high-income elderly people would pay for prescription drugs under Medicare.

The speech at Carnegie Mellon University here was McCain’s most sweeping presentation of the presidential campaign on how he would try to reverse America’s economic slowdown.

Voters consistently name the economy as their top concern, but McCain’s rivals have been pelting him with reminders of his concession not long ago that it is not his strong suit.

The thrust of McCain’s approach would be to limit the size of the government, though the presumptive Republican nominee also recently proposed rescuing as many as 400,000 homeowners facing the threat of foreclosure.

Though the package of ideas drew support from some economists for its pledge to cut taxes and simplify the tax system, many analysts called the proposed holiday in the 18-cents-a-gallon gas tax a gimmick. Others questioned whether McCain’s plans would bloat the federal budget deficit.

The Arizona senator made a point of criticizing his own party at a time when polls show that most Americans view Democrats as better-suited than Republicans to handle the economy.

“In so many ways, we need to make a clean break from the worst excesses of both political parties,” McCain told several hundred students in a university gymnasium. “For Republicans, it starts with reclaiming our good name -- our good name as the party of spending restraint.”

McCain portrayed the Democratic White House contenders, Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York, as sorely lacking in fiscal restraint. At the same time, he hammered them for opposing a permanent extension of President Bush’s tax cuts.

“Both promise big change, and a trillion dollars in new taxes over the next decade would certainly fit that description,” McCain said. “Of course, they would like you to think that only the very wealthy will pay more in taxes, but the reality is quite different.”

When McCain voted against Bush’s tax cuts, he denounced them as a giveaway to the rich. But in his campaign for president, he has called for keeping them on the books -- at an annual cost of $280 billion, aides said -- rather than letting them expire in 2010.

Beyond preserving those cuts, McCain’s agenda calls for slashing the corporate income tax from 35% to 25% and banning new taxes on mobile phones and the Internet. He would also double a tax break for parents, increasing the exemption for dependents from $3,500 to $7,000.

In addition, McCain called for abolishing the alternative minimum tax, a levy originally aimed at the wealthy but now increasingly hitting the middle class.

All told, the new tax cuts would put a $195-billion-a-year dent in the Treasury when fully phased in, but spending reductions would entirely offset them, McCain advisors said.

McCain promised a “top-to-bottom review” of federal spending. He pledged to veto any bill that earmarks money for pet projects of members of Congress. And he singled out Clinton and Obama for pushing “pork-barrel projects” in their home states, such as Clinton’s $1-million item for “that all-important Woodstock museum.”

“That kind of careless spending of tax dollars is not change, my friends. It is business as usual in Washington, and it’s all a part of the same wasteful and corrupting system that we need to end,” McCain said.

McCain’s fiscal blueprint drew scorn from the Clinton and Obama campaigns. Neera Tanden, policy director of the Clinton campaign, called it “a George Bush redux of corporate windfalls and tax cuts for the wealthy that will bankrupt our government and leave working families with the bill.”

With family incomes on the decline and corporate profits on the rise, she said, “the last thing that hardworking families need is a president committed to slashing corporate taxes.”

Obama spokesman Bill Burton dismissed McCain’s agenda as an extension of “George Bush’s failed policies.”

“John McCain’s plan is one that could have been written by the corporate lobbyists who run his campaign, and probably was,” Burton said.

The Club for Growth, an anti-tax group, welcomed most of McCain’s plan but criticized his recent proposal to spend up to $8 billion on efforts to keep homeowners from defaulting on mortgages that require sharply mounting monthly payments.

“Though McCain declared his aversion to government bailouts just a week ago, this new plan is exactly that,” said Pat Toomey, the group’s president.

Absent from McCain’s speech was any pledge to wipe out the federal deficit. Asked about the omission a few hours later at Villanova University outside Philadelphia, McCain told reporters that he would balance the budget within eight years, a retreat from his previous vow to do so within four.

With Pennsylvania’s tightly contested Democratic primary a week away, McCain’s daylong visit gave him a burst of free media exposure in a state that will be a major battleground in the general election.

But the state’s relatively large population of elderly voters made it an odd setting in which to unveil his plan to reduce prescription drug benefits for higher-income Medicare recipients.

Individuals who earn more than about $80,000 a year -- or couples earning about $160,000 -- would see their $35 monthly premiums for medicine coverage rise. The schedule of how the increases would be phased in has not been set.

“People like Bill Gates and Warren Buffett don’t need their prescriptions underwritten by taxpayers,” McCain said. “Those who can afford to buy their own prescription drugs should be expected to do so.”

The other attention-grabbing proposal that McCain released Tuesday -- relief from federal gasoline taxes from Memorial Day until Labor Day -- would cost the Treasury $8 billion to $10 billion, aides said. But prospects for quick passage of that tax break in a House and Senate controlled by Democrats appeared bleak.

Marvin Goodfriend, a Carnegie Mellon economist who attended part of McCain’s presentation at the university, called the proposal “a gimmick.” Goodfriend said it was at odds with most of the candidate’s other proposals, which he said generally squared with his own support of stable, low taxes and a “market-oriented” approach to guiding the economy.

Murray Weidenbaum, chairman of the Council of Economic Advisors in the Reagan administration and now an economics professor at Washington University in St. Louis, also was critical of the gas tax holiday.

“The gas tax thing is a sop, because rising gasoline prices are the most effective way of encouraging new energy sources and reducing our imports of oil. Painful as gasoline price increases are, they serve a useful purpose,” Weidenbaum said.

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michael.finnegan@latimes.com

Times staff writers Maeve Reston and Stuart Silverstein in Los Angeles contributed to this report.

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(BEGIN TEXT OF INFOBOX)

Economic initiatives

Gas tax ‘summer holiday’: Calls on Congress to suspend the 18.4-cent federal gas tax and 24.4-cent diesel tax from Memorial Day to Labor Day.

Student loans: To prevent the credit crunch from disrupting student loans for the fall, asks the federal government and governors to expand the lender-of-last-resort capabilities for each state’s guarantee agency.

Tax deduction: Proposes raising personal exemption for each dependent from $3,500 to $7,000.

Alternate tax system: In addition to the current system, allow taxpayers to choose to file under a much less complicated system with two tax rates and a generous standard deduction.

Spending pause: Outside of essential military and veterans programs, adopt a one-year discretionary spending pause to allow a top-to-bottom review of the effectiveness of federal programs.

Medicare: Reduce subsidies in the Medicare prescription drug program for the most affluent individuals.

Source: John McCain campaign

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Democratic debate

Sens. Hillary Rodham Clinton and Barack Obama will debate today at the National Consti- tution Center in Philadelphia. A tape-delayed broadcast of the debate will be aired at 8 p.m. Pacific time on ABC.