McCain plan favors middle class, Social Security

He wants some cuts and would return chunk of surplus to pension fund

January 12, 2000|By Jonathan Weisman | Jonathan Weisman,SUN NATIONAL STAFF

WASHINGTON -- Sen. John McCain unveiled an economic plan yesterday that focuses modest tax relief on the middle class and saves most of the budget surplus for Social Security, reckoning that "fiscal responsibility" will hold more appeal for Republican primary voters than deep tax cuts in a roaring economy.

His rival for the presidential nomination, Gov. George W. Bush of Texas, charged that McCain's plan would leave too much tax money for politicians to spend while offering scant help for the working poor.

With the crucial New Hampshire primary less than three weeks away, Bush and McCain have used taxes to draw their candidacies in sharp relief. McCain's five-year, $237 billion tax plan is less than half the size of Bush's $483 billion plan.

Instead of offering broad tax cuts, as Bush does, McCain would use only part of the projected budget surplus, mainly to expand the lowest tax bracket of 15 percent to couples earning up to $70,000. Like Bush, he would devote all $2 trillion of the projected surplus generated by Social Security taxes over the next decade to shore up the Social Security system. But McCain would also devote 62 percent of the non-Social Security surplus -- more than $700 billion over 10 years -- to extend the life of that program.

An additional 10 percent of the projected $1 trillion non-Social Security surplus -- about $118 billion over 10 years -- would be devoted to the Medicare system, and 5 percent -- or $59 billion -- would go toward retiring the federal debt.

McCain's plan would give little help to wealthy Republicans and appears calculated to appeal to independent voters, who would be key to a McCain victory over the front-running Bush in early primary states such as New Hampshire and South Carolina.

Echoing Democratic candidates, McCain told the Concord, N.H., Chamber of Commerce, "We have promises to keep and a fleeting opportunity to keep our word without imperiling the economic future of our children and generations to come."

McCain's plan also would raise the $500-a-child tax credit to $1,000 and create accounts in which those in the expanded 15 percent bracket could save up to $3,000 tax-free each year.

The Arizona senator would expand the standard deduction for married couples to eliminate the so-called marriage penalty for most couples. He would also expand tax-preferred education and medical savings accounts, eliminate income taxes for military personnel, and boost the amount of money that workers can save in their 401(k) plans.

McCain said more than half of his tax cut would be financed by closing dozens of corporate loopholes worth more than $150 billion over five years. His targets include a tax credit for facilities -- some of them being considered for Maryland's Eastern Shore -- that use chicken waste to generate electricity, tax credits for the corn-based fuel ethanol and tax breaks for gas-station convenience stores.

"Let the warning go out to the army of lobbyists who so stoutly resist our campaign," McCain said, "every tax dollar now wasted on special breaks for oil companies, ethanol giants, insurance companies and the multitude of other special interests with their armies of lobbyists is now at risk."

Under current budget projections, Bush's tax plan would spend every penny of the non-Social Security surplus, and then some. The Texas governor proposed no offsetting spending cuts or loophole closings. Ari Fleischer, a Bush spokesman, suggested that a real remedy for the long-term problems of Medicare and Social Security should come from politically sensitive reforms of the systems, not from tax money from general government revenue.

Bush aides argued that their tax platform is the only plan helpful to the middle class. The centerpiece of McCain's plan would expand the 15 percent tax bracket from the current cutoff of $43,050 for couples to $70,000.

Lawrence Lindsey, Bush's chief economic adviser, noted that a taxable income of $43,050 is an actual income of $61,000, once exemptions and deductions are factored in. Therefore, Lindsey contended, the McCain plan offers tax cuts only for families earning at least $61,000.

Not until annual income reaches $88,000 would a family receive the full tax cut offered by McCain, Lindsey said. And families now in the 15 percent bracket would get no tax cut under the McCain plan.

By contrast, Bush's tax plan would drop the 15 percent tax bracket to 10 percent, ensuring that most of the working poor receive a tax cut. Unlike McCain's plan, Bush's program would cut the tax rate in all five brackets, spreading tax cuts to virtually all income levels, even the wealthiest taxpayers.

Robert Litan, director of economic studies at the Brookings Institution, said Bush's aides are correct that McCain's plan gives short shrift to the lowest rung of the work force.

By spreading the largess to the wealthy as well as to the working poor, Litan said, Bush has constructed a far more expensive plan that would balloon to more than $1 trillion in its second five years.

"The virtue of McCain's plan is that it's cheaper, a lot cheaper," Litan said.

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