The Magazine

The McCain Economic "Team"

Intellectual diversity, for better and for worse.

Feb 25, 2008, Vol. 13, No. 23 • By ANDREW FERGUSON
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McCain came to the House of Representatives in 1983. He was a standard-issue Republican of the day--an adherent of the newly minted Republican orthodoxy of Reaganism, which made rapid economic growth, rather than a balanced federal budget, the chief goal of fiscal policy. He supported deep cuts in the marginal tax rate on income and capital gains. At the same time (like Reagan himself) he maintained a mostly theoretical advocacy of a balanced budget, pushing such hopeless nostrums as a balanced budget amendment to the Constitution and a presidential line-item veto. When he bucked the party's leadership, it was on the side of a smaller government and lower taxes. After Congress approved Reagan's plan for a government-run catastrophic-care insurance program, financed by a tax increase on wealthy seniors, McCain led the successful effort to repeal the new tax a year later, in 1989. Like many Republican senators, he voted against President George H.W. Bush's 1990 budget because it contained multiple tax increases that violated Bush's famous read-my-lips campaign pledge. Three years later, he joined in his party's unanimous rejection of President Clinton's 1993 proposed increase in marginal tax rates on capital gains and income.

By the time McCain announced for president in 1999, he had built a consistent roll call of conservative votes on fiscal issues--a record that was, however, largely indistinguishable from those of his Republican colleagues. In an interview at the time, he said that "tax reform--i.e., a flat tax," would be one of his signal issues during his coming presidential campaign. But it was clear his intellectual interests lay elsewhere, in foreign policy and military affairs. In the interview he was asked which of the various flat tax proposals he favored.

"No preferences, really," he said. "We'd have to sort them out through a process of examination, discussion, and debate. If the American people thought we were serious about cleaning up the tax code, then we'd get a lot of expert advice. There are a lot of experts out there, you know. A lot of smart people. We could get the best and listen to them. I don't have the expertise really to be very knowledgeable about it. I read a lot about it, but it depends on who you read."

McCain's reading evidently led him in an unexpected direction, to a position opposite the one he'd held a few months earlier. By the time the 2000 campaign began in earnest, McCain had abandoned the flat tax in favor of a "deficit-reduction" plan that provided small tax breaks to middle-income taxpayers but otherwise left untouched the increases in marginal rates that had been imposed under Clinton and Bush the Elder. "In fact," he said in another interview in 2000, "the program that I have gives them [rich folk] a slight tax increase." From this revised position it was a short hop to what free marketers and tax cutters consider his most unforgivable act of deviationism: his vote against President George W. Bush's tax-rate cuts on capital and income in 2001 and 2003. He was one of two Republican senators to defy Bush in 2001, and one of three in 2003.

Today McCain explains those votes in terms that would please Pete Peterson's school of balanced-budgets-first. The Bush tax cuts were unacceptable, he says in hindsight, because the revenue lost wasn't matched by reductions in federal spending. Even Kemp, the happy supply-sider who considers federal deficits a mere annoyance, agrees that this line of reasoning has a long and honorable pedigree in traditional Republican economics. But in 2001 and 2003, McCain scarcely mentioned the budget deficit in interviews explaining his votes. Back then he said he opposed the cuts in marginal tax rates because they were "regressive" and "unfair," redistributing income from the poor and middle-class to the rich.

This was the reason nearly all Democrats gave for opposing Bush's tax cuts, of course, and at times it seemed as though McCain was simply reaching for the rationale nearest at hand, which happened to be the Democrats' rationale--though in his case it was framed, in typical McCain style, as a matter of his own scrupulosity: "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."

His public reasoning surprised even some of McCain's budget-balancing allies. Peterson's Concord Coalition opposed the Bush tax cuts, too, but not because they "benefited the rich." "Our argument was never about the distributional aspects," says Concord's executive director, Robert Bixby. McCain's opposition was particularly perplexing from someone who only two years before had advocated a flat tax--which entails a sharp cut in rates at the top of the income scale to encourage the flow of capital into private investment.