When Mr. McCain spoke about his tax plan in April, he cited the faltering economy and said that it might take two terms to balance the budget, explaining that “economic conditions are reversed.” Since then he seems to have refined some of his earlier tax cut plans. While Mr. McCain’s campaign once spoke of repealing the alternative minimum tax, which is aimed at the wealthy but has increasingly ensnared middle-class taxpayers, his advisers now speak of “phasing out” the tax. And they now say that his plan to let corporations write off their equipment expenses more quickly would be temporary.
Mr. McCain, who has been dogged by his own past statements that he does not understand the economy as well as he should, has not always spoken fluently about economic policy during the campaign.
When he was asked at a town-hall-style meeting in Connecticut in April whether he wanted to “raise taxes, cut entitlement spending, cut defense spending, or have a deficit,” Mr. McCain spoke generally about emulating President Reagan, not mentioning that the deficit nearly tripled during the Reagan presidency.
And when Mr. McCain first outlined his tax cut proposals shortly before the South Carolina primary in January, he highlighted his new enthusiasm for supply-side economics. “Don’t listen to this siren song about cutting taxes,” Mr. McCain said then. “Every time in history we have raised taxes it has cut revenues.” Of course, history is full of tax increases that raised revenues, just as planned, and many economists deride the notion that broad-based tax cuts will spur enough economic growth to raise tax revenues over all.
The two pillars of Republican economic thought vying for supremacy in the McCain agenda do not always coexist easily.
Deficit hawks believe that keeping the budget balanced will put downward pressure on interest rates, helping the economy. Many supply-siders believe that balancing the budget is a misguided goal, except to the extent that it shrinks government, which is a somewhat different goal. Supply-siders believe that lower taxes will spur economic growth, and that while lower taxes may lead to bigger deficits in the short term, they will eventually produce more revenue and lead to balanced budgets.
But one of Mr. McCain’s top economic advisers, Douglas Holtz-Eakin, who said on Monday that Mr. McCain’s “plan is to balance the budget by the end of his first term in 2013,” suggested that the two arguments are not incompatible. “You’ll never have successful deficit reduction,” he said, “without strong economic growth.”