Redstate

By Adam C Posted in 2008 — Comments (36) / Email this page » / Leave a comment »

This is part of a series addressing Senator McCain's views, record, and promises on major issues. I will attempt to put a list of all the diaries at the top of each of these:

Abortion

Taxes

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Taxes:
Votes and Quotes

Club for Growth White Paper

I will address only taxation in this diary and I intend to address spending in a separate entry.

Early Record

Sen. McCain opposed President Bush’s tax hike in 1990 and President Clinton’s tax hike in 1993. In 1991 and 1992, McCain introduced legislation that would have raised the required minimum number of votes for a tax hike to 60 Senators. This is particularly important because it shows some leadership on the issue (as opposed to his pro-life record that is devoid of leadership) and an ability to find structural changes that have a longer impact that some other hot button issues.

1998-2008

McCain has an average rating of 82.7 percent in the Americans for Tax Reform scorecard since 1994. This compares to other Presidential contenders as follows: Hunter, 88.5; Ron Paul, 71.9; Obama, 7.5; Clinton, 6.7; Edwards, 5.8.

Here are some of McCain’s votes on major tax issues over the last decade.

* Require super-majority for raising taxes (1998)
* Phasing out estate tax (2000)
* Eliminate marriage penalty (2000)
* Against increasing tax deduction for college tuition (2001)
* Against Bush tax cuts (2003) (see below)
* Extending tax cuts on capital gains and dividends (2005 & 2006)
* Permanent repeal of estate tax (2006)
* Repeal Alternative Minimum Tax*

2000 Tax Plan and Flat Tax

In 2000, Senator McCain proposed the following reform:

McCain’s tax cut plan is valued at $238 billion over five years; and $500 billion over 10 years. Its centerpiece is an expansion of the lowest income tax bracket, the 15% bracket, to cover higher incomes.
Under the plan, the ceiling for the 15% bracket would rise to $70,000 from $43,050 for married couples filing jointly, and to $35,000 from $25,750 for single taxpayers. The effect is to give a $3,504 tax cut to a couple with taxable income of $70,000 or more.

The plan also included doubling the child tax credit and reducing the marriage penalty. It also focused on tax simplification and was pushed with rhetoric that attacked “special interests” for creating confusing loopholes in the tax code.

Asked about his support for a Flat Tax during the 2000 race, the Senator responded:

Sure, I’m for a flat tax. I’m for a tax system where average Americans can fill out their tax return on a postcard and send it in and not have the fear of an audit. But do you know why the tax code is 44,000 pages long? Do you know why it’s a nightmare, a chamber of horrors for average citizens and a cornucopia of good deals for the special interests? It’s because every time we pass a tax bill we add another special loophole and a special deal for the special interests.

Overall, McCain’s tax cut plan was smaller than Bush’s. It was more focused on the middle class with its focus on expanding the 15% bracket while Bush’s focused on cutting rates even at the high end. Both were very defensible tax cut plans and had different benefits and costs.

The Bush Tax Cuts

Senator McCain opposed the Bush tax cuts for various reasons. Some suggest he was being petulant after losing the primary to the Governor-turned-President. McCain had offered his tax plan outlined above as an alternative. McCain’s plan including spending cuts along with the tax cuts. However, at the same time, Sen. McCain adopted divisive, liberal rhetoric with respect to the tax cuts that went against what had been a great tax record so far in his political life:

I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans who need tax relief.

In the end, the only Republicans to vote against the tax cuts were Sens. Chafee and McCain.

Since the passage of the tax cuts, Senator McCain has voted to extend them. During the current campaign, Senator McCain has endorsed making the tax cuts permanent in line with his pristine record on opposing broad based tax increases.

Estate Tax

Estate (or Death) Taxes affect a very small number of people and do not bring in much money for the government. Due to successful efforts of demonizing these taxes, it is possible Republicans may banish this tax to the dustbin of history. That is always a tough feat and would be a good thing, but overall the Estate Tax is small beans in the general tax discussion.

Bob Novak discusses Sen. McCain’s views on the Estate Tax. Senator McCain has opposed getting rid of the wealth tax, but has come around to supporting a substantial cut in the tax rate. The Senator supports changing the base rate of 55% on all wealth over $1M to 15% on all wealth over $5M.

McCain’s position on the Estate Tax is an interesting one because it pits two strands of conservatism against one another. Let it be said, that I come down on the other side of this issue. On one side, taxing someone’s wealth when they die seems wrong because the money was taxed when it was earned (either as income or as capital gain). Furthermore, the incentive to pass on wealth to one’s family helps keep money in family hands rather than government hands. Finally, the tax affects some small businesses such as farms, although in numbers, these are not very numerous.

On the other hand, by putting a high limit on the tax, this does not affect the vast, vast majority of families. There is a conservative impulse to value work for wealth rather than other ways of accumulating money. Inheritance creates Trust Fund babies who don’t work for their wealth. As if that is not enough, they are disproportionately liberal. People who don’t have to work for a living often focus their politics on social issues, spend their money on non-profits/charities that push their social issues, and fund the Great Democratic Machine. Most importantly, the Estate Tax forces each generation to work for what they own.

I come down on the side of getting rid of the tax because it is avoidable by the utterly rich, hits only the lower upper class, and it is always good to get rid of a tax with how many new ones appear each year (i.e. Trans Fat Tax!). The Senator comes down on the other side, but supports cutting the rate substantially to end the punitive nature of the tax and bring it in line with the Capital Gains Tax.

Social Security Tax

I hope to address entitlement reform in another thread. For brevity’s sake, Sen. McCain supports personal retirement accounts and promised in 2000 to implement them within a year of being elected. He generally opposes raising the social security (payroll) tax rate. Further, the Senator has not proposed raising the cap of $90,000. However, Tim Russert asked Senator McCain if he would support "as part of the solution to Social Security's solvency problem, that you lift the cap so that you would pay payroll tax, Social Security tax, not just on the first $90,000 of your income, but perhaps even higher?" Senator McCain answered, “As part of a compromise I could…”

For those who aren’t aware, social security reform is a huge issue to me and I was a big advocate of President Bush’s reform. On this, I agree with the Senator that you start with the position of no increase on the cap. But it is a negotiable aspect. In fact, part of what doomed the Bush efforts was taking every negotiable issue off the table before anyone agreed to sit down at the table. I will cover this in more detail in a separate entry.

The 2008 Election and Tax Cut Plan

From Sen. McCain’s issue page, we find his promises to voters on tax issues:

Overall, Sen. McCain says that “taxes should be low, simple, and fair.” The Senator’s tax cut plans includes the following provisions:

* Repeal the Alternative Minimum Tax (AMT)
* Require 3/5th majority vote in Congress to raise taxes
* Keep current (Bush tax cut) rates on dividends and capital gains
* Ban internet taxes
* Ban new cell phone taxes
* Permanent Research and Development Tax Credit

There is also some reassuring rhetoric in his tax plan:

Entrepreneurs are at the heart of American innovation, growth and prosperity. Entrepreneurs create the ultimate job security -- a new, better opportunity if your current job goes away. Entrepreneurs should not be taxed into submission. John McCain will make the Bush income and investment tax cuts permanent, keeping income tax rates at their current level and fighting the Democrats' plans for a crippling tax increase in 2011. Left to their devices, Democrats will impose a massive $100 billion tax hike, almost $700 per taxpayer every year.

The Senator puts his spending plans and other fiscal issues on the same page, but I will address them in a later entry. Nevertheless, it should be said that the Senator definitely sees spending and taxing as integrally related.

Endorsement

Senator McCain endorsed Phil Gramm in 1996 for President. Sen. Gramm has endorsed Sen. McCain in 2008 and would probably play a major role in economic policy in a McCain administration. Also, Rep. Jack Kemp, a well known tax-cutter, has endorsed Sen. McCain and helped his brandish his tax cutting credentials. Sen. Coburn and Sen. Kyl are two of the biggest tax hawks in Washington and both are helping Sen. McCain in 2008.

Conclusion

Senator McCain’s tax record is not perfect, but it is far better than some other issues. His biggest black mark is not supporting the Bush tax cuts in 2001 and 2003. This error was compounded by his adoption of rhetoric that emphasized the distributional aspect of the tax cut rather than the growth aspects. Whether this opposition was for petty reasons or because of a change of perspective on taxes is an important but probably unanswerable question.

That being said, the Senator has never voted for a broad based tax increase, even when it has been pushed by Republicans such as President George H.W. Bush. McCain has supported the vast majority of Republican efforts to get rid of taxes (AMT, marriage penalty, etc). And the difference between McCain and the major Democratic candidates is pretty stark.

The Senator would probably be open to negotiations with Democrats on tax issues, but he will begin with a belief in small government and low tax rates. It would be good if the Senator knew more about economics and understood dynamic growth and how low tax rates stimulate the economy, but his instincts point him in that direction. McCain detractors will see his opposition to the Bush tax cuts as the “real McCain.” I think a reading of his full record shows a rather strong commitment to fundamental tax reform and simplification, which is why Gramm and McCain get along so well. Hopefully for Republicans, McCain’s black mark was an aberration and his strong inner circle of fiscal conservatives can make sure no other aberrations occur.