McCainian economics

The Washington Post takes aim at John McCain's economic agenda -- and scores a couple of hits:

At the other end of the spectrum of responsibility was Mr. McCain's proposal for a summer gas tax holiday -- the kind of pandering to voters that the Arizona senator prides himself on avoiding. This juicy promise would be done and gone before he took office, which makes it awfully easy to dangle. It would drain some $10 billion from the trust fund that pays for maintenance and repair, the opposite of what is needed. It's hard to square with Mr. McCain's commitment to combat global warming and his belief in a cap-and-trade system that would result in higher gas prices. And it might not even do much to reduce prices. Gas prices generally rise in summertime because demand is higher and refineries are already running near capacity. If lifting the federal excise tax of 18.4 cents a gallon reduced gas prices, that would push up demand and -- since supply can't grow -- result in driving prices back up. Think of it as help for the struggling petroleum refiner.

The rest of Mr. McCain's economic plan was more of the same. He had already endorsed cutting the corporate income tax from 35 percent to 25 percent, allowing immediate deductions for new business purchases and entirely eliminating the alternative minimum tax, even for the wealthiest taxpayers. To that, Mr. McCain added doubling the income tax exemption for dependents, from $3,500 to $7,000, at a cost of $45 billion per year. The exemption is twice as valuable to the wealthiest taxpayers as it is to those with modest incomes.

Repealing the gas tax is both ineffective as a means of providing tax relief (Frank Rich notes that it saves $2.75 per 15 gallons of gas) and a silly tax to target, given that gas taxes are (ostensibly) used to pay for road infrastructure improvement and maintenance. Frankly, I wish that almost all taxes were in this vein, with users paying for the upkeep of that particular government function. Leave this kind of pandering to the Democrats.

As for the rest, I am highly in favor of reducing one of the higher corporate tax rates in the world and neutral about business expensing and eliminating the alternative minimum tax (indeed, what I would love is simply apply the AMT to everyone, scrap the rest of the tax code and then, presto, we all have a flat tax). Where I part ways with McCain is on expanding the tax exemption for dependents. In my mind the government should not be promoting certain types of behavior, and having children is one of them. If you want dependents, pay for them yourself.

Update: John Tamny makes some good points about McCain's economic platform:

Looking at the bad in McCain’s tax plan, U.S. News & World Report’s James Pethokoukis wrote last week that the problem with tax “relief,” as opposed marginal cuts that increase the desire to work and save is that “it would mean even fewer people paying any income taxes at all.” Unfortunately, McCain seeks to double from $3,500 to $7,000 the personal exemption for dependents. This act alone would enable many more Americans to avoid paying income taxes, thus making broader reform of the tax code an even more distant object.

The above is why abolishment of the AMT is presently questionable policy. Indeed, with more and more Americans not paying much in the way of income taxes at all, abolishment of the AMT would make taxes on the federal level even less onerous such that major reform would be more difficult politically. A better strategy from the GOP considering the AMT hits blue-state voters the most would be to tie AMT abolishment to broad reform, or at the very least, tie it to making the 2003 cuts permanent.