There’s Room for McCain on the Right

Like many policy analysts, I am scrambling to learn what I can about Sen. John McCain’s platform, in particular his tax proposals. McCain’s impressive victory in the New Hampshire primary and even more impressive lead in the South Carolina polls--where Gov. George W. Bush had been expecting an easy victory--has forced many of us to give serious consideration to McCain as the Republican presidential candidate in November.

McCain’s tax cut proposal, which was released on Jan. 11, was deliberately designed to be smaller than the plan put forward by Bush in December and to be tilted more toward those with lower incomes. Its main element would raise the threshold for the 15% federal income tax bracket from $25,750 to $35,000 for individuals and from $43,050 to $70,000 for couples. Those with incomes above or below these thresholds would get nothing from this provision.

By contrast, Bush’s plan would lower marginal tax rates--the tax on each additional dollar earned--for all taxpayers, including the rich. McCain has attacked Bush’s plan for being weighted too heavily toward the wealthy, a charge one normally associates with liberal Democrats. For this, McCain has been almost universally condemned by political conservatives, who also question the $150 billion of tax loopholes he would eliminate to pay for his plan.

On the other hand, there are some positive elements in McCain’s plan. One that has gotten considerable coverage is his proposal to ban permanently the taxation of Internet purchases, a proposal Bush has been reluctant to endorse. The McCain plan would also considerably broaden the ability of families to save by creating new tax-deferred savings vehicles and expanding existing ones. And it would do a variety of other things, such as eliminate the Social Security earnings test, raise the estate tax exemption to $5 million, expand medical savings accounts and reform the alternative minimum tax.

These are all good, conservative tax policies. Perhaps more important, McCain has two major proposals on the table that so far he has not fleshed-out or emphasized.

First is the flat tax, which would vastly simplify the tax code by eliminating deductions, exemptions credits and exclusions for both individuals and businesses and would substitute a single tax rate for the five current rates. Second is allowing workers to invest up to 20% of their Social Security taxes in private accounts.

These are powerful issues--both economically and politically--that McCain should quickly move to the forefront of his agenda. The flat tax works especially well with McCain’s avowed desire to eliminate corporate welfare, but would do so in a way that does not involve picking on particular industries or disguising a corporate tax increase. All loopholes would be eliminated in one fell swoop, without having to make a judgment about those that are justified and those that are not.

Strong support for the flat tax would also position McCain to the right of Bush on taxes, because the governor has been unwilling to put forward a plan for fundamental tax reform.

This would negate, in the view of many conservatives, McCain’s ill-considered attack on Bush’s tax plan on traditionally liberal grounds. On Social Security, McCain and Bush have similar views. Yet Bush has not gone on the offensive with a Social Security plan, leaving him vulnerable to attack by McCain. If McCain emphasized Social Security private accounts, he would help position himself to Bush’s right, thereby easing the discomfort many conservatives feel about McCain’s views on campaign finance, tobacco taxes and other areas where he seems to have taken a liberal tack.

There is another candidate still in the race who fully supports a flat tax and Social Security privatization, and that is Steve Forbes. However, almost no one outside the Forbes camp believes that he has a chance of capturing the Republican nomination; he almost certainly will withdraw soon. Nevertheless, his endorsement may still be worth a lot, especially to McCain.

Bush already has most establishment conservatives on board; most of the rest of are with Forbes. Many, although worried about McCain and his seemingly liberal views, also are coming to believe that McCain may be more electable against Al Gore, the putative Democratic nominee, in the fall.

If McCain were to quickly emphasize the flat tax and Social Security private accounts as key elements of his agenda, and if he were to woo Forbes into his camp with the promise of a Cabinet position (Treasury, perhaps), many conservatives would find it very easy to switch their allegiance to the senator.