Tuesday, April 15, 2008

McCain's Economic Speech

Here's the text. My notes as I read:
  • Implies that the credit crunch is causing the housing crisis, rather than the other way around.

  • Disses CEOs for extravagant salaries.

  • "In the end, the truest measure of prosperity in America is the success and financial security of those who earn wages and meet payrolls in this country. Many are waiting for their first homes... their first big break... their first shot at financial security. And helping them will be my first priority in setting the economic policies of this nation."

  • Bad, bad lobbyists!

  • What's a McCain speech without, "By allowing many of the current low tax rates to expire, they would impose -- overnight -- the single largest tax increase since the Second World War." He does make the point that the expiration of the temporary tax cuts will hit lower wage-earners even harder than those rich meanies.

  • Social security, medicare reform.

  • He'll veto all bills with earmarks. Wants line-item veto. Will reform the tax code to remove loopholes. Yawn.

  • One year pause in discretionary spending increases to allow a "top-to-bottom review" of the budget.

  • Promises complete bidding and purchasing transparency.

  • "No subsidies for special pleaders--no more corporate welfare..."

  • He thinks he can get $100B out of program review and earmark elimination. He wants to use that to reduce the business tax rate from 35% to 25%.

  • Wants a complete phase-out of the AMT.

  • Wants to double the child tax credit from $3500 to $7000 per child.

  • First-year expensing capital equipment.

  • Ban on internet taxes and any additional cellphone taxes.

  • Make the R&D tax credit permanent.

  • Wants to institute an optional, alternate, two-bracket tax system.

  • "Americans also worry about stagnant wages, which are caused in part by the rising cost of health care. Each year employers pay more and more for insurance, leaving less and less to pay their employees. As president, I will propose and relentlessly advocate changes that will bring down health care costs, make health care more affordable and accessible, help individuals and families buy their health insurance with generous tax credits, and enable you to keep your insurance when you change jobs."

  • Wants to phase-out Medicare prescription drug coverage for wealthy people. (Note: The NYT appears to have gotten this wrong when they wrote, "Mr. McCain also called for wealthier Medicare recipients to pay higher premiums to qualify for the prescription drug coverage that President Bush and the Congress added to the program a few years ago, over his objections."

  • Dings Clinton/Obama for "economic isolationism." Calls for ratifying the Columbia free-trade agreement. Makes a decent case for free trade in general.

  • A pretty good case for a complete overhaul of the unemployment infrastructure. Wants an individual "buffer account" that can be drawn on if you lose your job. Wants to re-tool the community college system to be able to handle re-training more effectively by feeding it funds from the existing federal training accounts.

  • Supports conversion of loans that would otherwise go into foreclosure into 30-year fixed-rate mortgages with federal loan guarantees.

  • "It's important as well to remember that the foolish risk-taking of lenders, investment banks, and others that led to these troubles don't reflect our free market as it should be working. In a free market, there must be transparency, accountability, and personal and corporate responsibility. The housing crisis came about because these standards collapsed -- and, as president, I intend to restore them." Whaaa?

  • Advocates suspending federal gasoline taxes between Memorial Day and Labor Day.

  • Wants to beef up college loan programs. Pretty vague, though.

  • "These are just some of the reforms I intend to fight for and differences I will debate with whoever my Democratic opponent is. In the weeks and months ahead, I will detail my plans to reform health care in America... to make our schools more accountable to parents and taxpayers... to keep America's edge in technology... to use the power of free markets to grow our economy... to escape our dependence on foreign oil... and to guard against climate change and to be better stewards of the earth. All of these challenges, and more, will face the next president, and I will not leave them for some unluckier generation of leaders to deal with. We are going to restore the confidence of the American people in the future of this great and blessed country. "

There's a little bit to like here, but this speech certainly lacks any semblance of coherence. I'm very happy with the calls for fiscal restraint and I do believe that McCain would have no problem vetoing everything in sight. This is one of his few economically endearing qualities. Given that there's very little that the feds can do to actually affect the economy (other than crisis reaction, which the Fed and Treasury seem to have done a good job on), I'll settle for a grumpy old man saying "No!" to everybody.

There's nothing in here on the debt, which is rapidly becoming a national security problem. We are beholden to too many foreign powers, and we are already beginning to compromise or national interests for fear of pissing them off and them selling their T-bonds. Of course, this is a little bit like mutually assured destruction, but we'd come out the worse for wear in such an event. We've got to get the debt down to under half of GDP. (At about $9.4T, it's currently about 72% of GDP.)

Making all of the tax cuts permanent simply isn't practical, but it would be nice to split the difference and make all the lower-bracket cuts permanent, slide the current 35% bracket up to maybe 37.5%, and maybe install a 40% bracket above $1M. If you could then pass debt service legislation with teeth, we'd be doing well.

I'm not sanguine about McCain's plans for re-regulating the financial industry. First, he doesn't seem to understand that the housing bubble collapse was the first domino in the chain, rather than the over-leveraging of the mortgage derivatives. He's also whipping out the "naughty CEOs" populist claptrap. I hate it when McCain panders--he has no talent for it. I certainly favor increasing capital requirements for those derivatives, but he seems to be implying something a bit more drastic. His calls for transparency are fine, but Sarbanes-Oxley seemed like a nice idea at the time, too. I'd want to see the legislation and I hope somebody more astute than McCain writes it. The guy is a one-man fountain of unintended consequences.

I kinda like walking back Medicare Part D for rich people. But it's a little like bandaging a finger cut when the patient has a crushed larynx.

He may be on to something with the overhaul of the job re-training programs. This is an area that nobody's attempting to think about systematically. There are two problems. First, you can't work and go to school at the same time. So you've got to have a living wage/subsidy coming in for the 12-24 months it takes to train somebody properly. Only then do you get into ensuring that the educational capacity exists to get people trained up to their potential. (We'll leave for another day the problem of ensuring that displaced workers select training that's appropriate for their skills. You want everybody trained up to their potential, but it's worse than useless to attempt to train somebody for a job beyond their capabilities.)

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