John McCain's Economic Policies

I've just been asked to sign an economists' letter of support for John McCain's economic plan. In general I don't like that kind of letter unless it's on some issue where pretty much all top economists can agree. Possibly there would be a consensus on the policy proposals mentioned in the letter itself, but McCain has some bad economic policy views not mentioned there.

First, what's in the letter. I've omitted the first and last "puff" parts.

His plan would control government spending by vetoing every bill with earmarks, implementing a constitutionally valid line-item veto, pausing non-military discretionary government spending programs for one year to stop their explosive growth and place accountability on federal government agencies.

Vetoing every bill with earmarks is a bad idea. He thereby throws away his bargaining power with Congress, and his ability to buy votes for important national-interest policies. Often a president needs to buy support for his foreign policy or trade policy by using earmarks.

The line-item veto would be good.

Pausing spending is bad. I don't know that most agencies' budgets have been growing too fast-- the big complaint is about earmarks.

His plan would keep taxes from rising, because higher tax rates are exactly the wrong policy to restore economic growth, especially at this time.

His plan would reduce tax rates by cutting the tax that corporations pay to 25 percent in line with other countries, by completely phasing out the alternative minimum tax, by increasing the exemption for dependents, by permitting the first-year expensing of new equipment and technology, and by making permanent a reformed tax credit for R&D.

That's pretty good. I'm not sure about eliminating the AMT, though, because it's a flat tax, which is a good thing.

His plan would also create a new and much simpler tax system and give Americans a free choice of whether to pay taxes under that simple system or the current complex and burdensome income tax.

That's a good idea.

His plan would open new markets for American goods and services and thereby create additional jobs for Americans by supporting good free trade agreements, such as the one with Colombia, and working with leaders around the world to avoid isolationism and protectionism. His plan would also reform education, retraining, and other assistance programs so they better help those displaced by trade and other changes in the economy. His plan addresses problems in the financial markets and housing markets by calling for increased transparency and accountability, by targeted assistance to deserving homeowners to refinance their mortgages, and by opposing so-called reform plans which would raise the costs of home-ownership in the future.

Free trade is good. "Deserving homeowners" shouldn't be bailed out. We DO need reforms to raise the cost of home ownership for the rich. Now for some other things from the Issues section of his website (accessible via http://www.johnmccain.com/Issues/JobsforAmerica/energy.htm.

John McCain will put our country on track to construct 45 new nuclear power plants by 2030 with the ultimate goal of eventually constructing 100 new plants.

Very good.

John McCain will encourage the market for alternative, low carbon fuels such as wind, hydro and solar power. ... John McCain believes in an even- handed system of tax credits that will remain in place until renewable energy has progressed to the point that it is competitive with conventional energy sources.

Bad.

John McCain will commit our country to expanding domestic oil and natural gas exploration. The current federal moratorium on drilling in the Outer Continental Shelf stands in the way of energy exploration and production. John McCain believes it is time for the federal government to lift these restrictions and work with states to put our own reserves to use.

Good.

For every automaker who can sell a zero-emissions car, John McCain will commit a $5,000 tax credit for each and every customer who buys that car. For other vehicles, whatever type they may be, the lower the carbon emissions, the higher the tax credit.

Bad.

John McCain has long supported CAFE standards - the mileage requirements that automobile manufacturers' cars must meet. Some carmakers ignore these standards, pay a small financial penalty, and add it to the price of their cars. John McCain believes that the penalties for not following these standards must be effective enough to compel carmakers to produce fuel-efficient vehicles.

Bad.

John McCain will make greening the federal government a priority of his administration.... By applying a higher efficiency standard to new buildings leased or purchased and retrofitting existing buildings, we can save taxpayers money in energy costs, and move the construction market in the direction of green technology.

Bad

John McCain will lead the fight for medical liability reform that eliminates lawsuits directed at doctors who follow clinical guidelines and adhere to proven safety protocols.

Good.

... John McCain will give every family a refundable tax credit - cash towards insurance - of $5,000 (Individuals receive $2,500). Every family in America, regardless of the source of their insurance or how much they make will get the same help. Families will be able to stay with their current plan, or choose the insurance provider that suits them best and have the money sent directly to the insurance provider.

This sounds crazy, so it's probably not quite as stated. As stated, a family already receiving $8000/year in employer-provided insurance could take the government's $5000 and top up their insurance with superduper coverage--say, for plastic surgery, air fares to exotic hospitals, etc. Probably the plan is limited to basic health insurance, in which case it might not be so bad.

Americans need insurance that follows them from job to job. Too many job decisions today are controlled by a fear of losing health care. Americans want insurance that is still there if they retire early and does not change if they take a few years off to raise the children. John McCain will lead the reform for portable insurance.

I'm not sure about that one. It's a good question as to what that will do to adverse selection.

[to be continued]