McCain Offers $237-Billion Tax Cut Plan

Invoking such disparate figures as Ronald Reagan, Harry Truman and Chairman Mao--and making at least 10 separate references to the terms “conservative” or “conservatism”--Arizona Sen. John McCain on Tuesday unveiled what he called a “radical recipe” for tax reform.

His first major economic proposal--aimed at countering the sizable tax cut offered by Texas Gov. George W. Bush, his leading opponent here for the Republican presidential nomination--focused on salvaging Social Security while simultaneously offering a $237-billion tax cut over five years.

His plan relies heavily on deriving $150 billion in savings by closing corporate tax loopholes and allowing citizens to invest money withheld for Social Security in private investment accounts. He would use the projected federal budget surplus to finance about $85 billion of his proposed tax cut.

McCain--with a 41% to 34% lead over Bush in a New Hampshire poll released Tuesday--took an indirect swipe at his rival when he declared, “We can afford a tax cut, and American taxpayers deserve one. But it must be a tax cut promise a leader can keep.”

With barely enough time for the applause for McCain to subside at a Chamber of Commerce luncheon here, the Bush camp fired back with a biting criticism of McCain’s plan.

Campaigning in Charleston, S.C., Bush branded any possibly good ideas McCain might have as derivative of his own. “Maybe the man recognizes a good idea when he sees one,” Bush said.

Bush’s advisors, meanwhile, charged that McCain’s proposal threatened to make the already Byzantine tax code even more impenetrable and complex. As for McCain’s insistence that his policy would help poor and middle-class working families who make up the vast majority of American taxpayers, Bush economic advisor Larry Lindsey rejoined that “you have to have an income of more than $88,000 to get the full $3,500 tax cut Sen. McCain is proposing.”

McCain explained it differently. Seeking a tax that begins “from the bottom up,” McCain said he would add more than 25 million new taxpayers in the lowest, 15% tax rate by raising income eligibility to $70,000 per couple.

Bush derided this concept, saying, “My problem with his plan is that I went an important step further by dropping the rate from 15% to 10%. That’s important. That’s important to knock down the toll booth to the middle class.”

Barely two weeks before the Iowa caucuses kick off the presidential balloting season, taxes have emerged as the central issue by which Republican candidates are defining themselves. Among his rivals, McCain occupies a center position on taxes. His proposed tax cut is about half the size of Bush’s. McCain also paints his plan as more responsible because it saves money for Medicare, Social Security and reducing the national debt.

At the opposite end of the Republican spectrum, multimillionaire businessman Steve Forbes has posed the revolutionary idea of junking the entire tax system and instituting a universal flat tax.

McCain summoned up the legacy of Reagan by asserting that “empowering free markets and free people is the path to prosperity.” A quip about the need for one-armed economists--”since they always say ‘on the one hand this, but on the other hand’ “--was borrowed from Harry Truman.

His critics at Bush headquarters said he sounded almost Democratic when he talked about social policy, such as the way his tax plan would allow a single mother earning $40,000 a year and supporting two children to reduce her taxes by 57%--from $2,810 to $1,212. Under Bush’s tax plan, according to McCain, the same mother would pay $1,310.

For those in higher tax brackets, McCain continued, the discrepancy becomes even greater.

“For a lucky millionaire who is currently paying $325,601 on an income of $1 million, I give a tax cut worth $3,500,” he said. “Under Gov. Bush’s plan, the tax cut is worth $50,000.”

McCain also took aim at “corporate welfare” and the “army of lobbyists” who push for special breaks for “oil companies, ethanol giants, insurance companies and the multitude of other powerful special interests.”

Stressing the themes of investment and savings, McCain said his plan would allow citizens to keep 20% of what they pay in payroll taxes in a private retirement account that they control themselves. He also promised to repeal the “indefensible” marriage tax penalty and to slash inheritance taxes. The McCain plan also would increase the child tax credit.

He pledged also to permanently ban sales taxes on the Internet, maintaining the Internet as “a magnificent engine of economic opportunity,” not a politician’s “favorite tax collection machine of the 21st century.”

Members of the armed forces deployed overseas would pay no income taxes under McCain’s proposal.

Families could bank $1,000 per year, tax-free--double the current limit--to save for children’s higher education. “Family security” accounts of up to $6,000 per year, per couple, would function similarly to IRAs and 401(k) plans.

Rather than his tax plan, questioners on Tuesday asked McCain about negative campaign advertising, health care, support for the military and how he foresaw his role in international diplomacy.

Artfully, McCain dodged one questioner who wondered if he might consider Bush as his running mate. Referring to the huge gap in campaign chests between him and the Texas governor, McCain said he was “so far behind” that even contemplating the choice of a vice president would be presumptuous.

Then, playfully, he quoted from Chairman Mao, reminding his audience that “it’s always darkest before it’s totally black.”

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Brass Tacks on Tax Plans

Federal income tax rates currently range from 15% to 39.6%, with most Americans taxed at 28% or under. Here are the key components of the 2000 presidential candidates’ tax proposals:

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REPUBLICANS

GARY BAUER

* 16% flat tax on personal and business income and on capital gains

* $1,400 per-person tax credit

* Retains charitable and mortgage-interest deductions

* 20% cut in payroll taxes

* Ends the “marriage penalty” and inheritance taxes

GEORGE W. BUSH

* Plan costs $483 billion over five years

* Reduces and simplifies tax rates for nearly all taxpayers, with poorest workers paying 10% and the richest 33%

* Eliminates inheritance taxes

* Ends the “marriage penalty”

* Offers tax breaks for education and the elderly

* Doubles the per-child tax credit to $1,000 a year and doubles the income ceiling to get it to $200,000

STEVE FORBES

* 17% flat tax on income over $36,000 for a family of four

* Ends charitable and mortgage-interest deductions

* Eliminates taxes on capital gains, personal savings, inheritances, health care and college education

ORRIN G. HATCH

* Tax break for parents who stay home with children.

* Voted for 10-year, $792-billion congressional tax cut

ALAN KEYES

* Replaces income tax with national sales tax

JOHN McCAIN

* Plan costs $237 billion over five years

* Expands the bottom 15% tax bracket to couples with taxable income of $70,000, up from $43,050, and to individuals with taxable income of $35,000, up from $25,750

* Ends the “marriage penalty’

* Doubles the per-child tax credit to $1,000 a year.

* Allows families to bank $1,000 per year, tax-free--double the current limit--to save for children’s higher education

* Closes corporate tax loopholes for a savings of $150 billion over five years

* Exempts first $5 million of estates from taxation

* Permanently bans sales taxes on the Internet

*

DEMOCRATS

BILL BRADLEY

* Expands earned income tax credit

* Families that don’t make enough to pay income tax--and can’t take the dependent care credit--would get the equivalent in cash for child-care expenses

* Ends $25 billion in corporate tax breaks over 10 years and save billions from tougher audits and penalties

AL GORE

* Plan costs $250 billion to $300 billion over 10 years.

* Targeted tax cuts for education and retirement

* Increases earning cap for receiving earned income tax credit. Credit would be worth $500 more for married couple making about $29,000

Source: Associated Press