Cezary Salad

It’s no coincidence that Sen. John McCain chose April 15th to give a major economic policy speech.

The Senator’s speech (see the full-length C-SPAN video, read the New York Times transcript), delivered at Carnegie Mellon University in Pittsburgh, gave voters the clearest indication yet that, come November, a vote for Sen. Obama or Clinton is a vote for higher taxes, whereas a vote for him is a vote for lower taxes.

Among the laundry list of tax cuts that Sen. McCain solidly put his support behind were: reducing corporate taxes from 35% to 25%, making the Bush income tax cuts permanent, eliminating the alternative minimum tax and doubling the exemption for dependents from $3,500 to $7,000. And if that’s not enough, a President McCain would also ban the government from taxing your cell phone and the internet - though he wouldn’t stop short of telling you to read his lips.

Among the tax policy differences that he correctly identified between himself and Senators Obama and Clinton is the fact that both of them favor rolling back the Bush tax cuts once they sunset in 2010, ostensibly to pay for Medicare and Social Security. It is a strategy which he implies would only buy time and leave “the great challenge of entitlement reform for others to deal with.”

(Combine that with the fact that Sen. Obama - the (current) Democratic front-runner - is on the record stating a preference to raise the capital gains tax as high as 28%, and all of a sudden the Republican siren call of supply-side economics begins to sound even louder).

But, sharp as these differences on tax policy may be, history has taught us that it is wiser to look to a Presidential Candidate’s governing principles than his or her promises. And in that sense, the most insightful comment that Sen. McCain made in Pittsburgh was his proposal to suspend the 18.4 cent per gallon Federal gasoline tax between Memorial Day and Labor Day this year (see excerpt below).

Suspending the gas tax, Sen. McCain argues, would provide “an immediate economic stimulus.” And gas prices would certainly trend lower, he argues, because we would combine the gas tax holiday with a suspension in the government’s buying of petroleum for the U.S. Strategic Petroleum Reserve.

When I heard the Senator say this, I immediately thought of this chart that I saw in a 2006 GAO report on U.S. Highway Trust Fund (statement of Katherine Siggerud, director of physical infrastructure assets, before the House Subcommittee on Highways, Transit, and Pipelines, Committee on Transportation and Infrastructure):

Current Highway Trust Fund Year-End Balance Estimates

Since 2006, this picture hasn’t gotten any less bleak: the U.S. Highway Trust Fund - whose primary source of income (64%) is the paltry $18.4 cent gas tax that no politician has the courage to even tie to inflation - is projected to run out of money as early as next fiscal year. In testimony before the House Committee on the budget on the same topic in October of last year, Congressional Budget Office Deputy Director Robert Sunshine confirmed the bleak realities of the 2006 GAO report and made it clear that we had two options: raise revenues (i.e. raise, not lower, the gas tax) or cut costs (i.e. give less money to states to maintain our nation’s highways). Doing solely the latter, of course, is reckless public policy, given that gridlock on our nation’s highways is only getting worse and our highways are badly in need of maintenance and expansion. But no politician wants to do the former or even some combination of the two, so Congress has chosen to conveniently do neither and leave this challenge - to borrow Sen. McCain’s terms - for others to deal with.

On top of that, Sen. McCain ignores the fact that the other other trends driving oil prices higher - nascent supply pressures in Russia, geopolitical instability in the Middle East, financial speculation, higher demand from developing countries - will likely continue to drive gas prices toward the $4 mark that the Department of Energy predicted some areas in the U.S. might see this summer. Or that a short-term gas tax holiday would likely be offset by a predictable spike in demand. Or that the non-inflation indexed 18.4 cents is now such a paltry percentage of the total cost per gallon that it would really only take “a few dollars off the price of a tank of gas every time a family, a farmer, or trucker stops to fill up,” as Senator McCain put it, diminishing any multiplier effect we might expect from it.

Suspending the gas tax in the middle of all this is thus, at best, reckless and, at worst, dangerously irresponsible - especially at a time when the U.S. is spending $3 billion dollars a week on a war in Iraq. Where is the money supposed to come from? The fiscal responsibility that Sen. McCain promises once he maybe enters office next year? At best, that’s wishful thinking; at worst, it is doing exactly what he charges the Democrats of doing: putting difficult spending issues off for the future generations to deal with.

But I don’t point this out to say - “aha! here’s a contradiction!” That’s irrelevant because we can find plenty of them on either side of the aisle. Rather, I point it out because it evinces a very unhealthy ideological path in Sen. McCain’s thought: cutting taxes is always good, and I’m sure we’ll pay for things by shrinking the size of the government.

Sens. Obama and Clinton, on the other hand, cognizant of the financial strains that higher entitlement spending under their plans is likely to cause on the Federal Budget, seem to be taking a much more pragmatic, less ideological approach toward tax policy. In fact, Sen. Obama has repeatedly said that the governing principle that he would adhere to as president would be pay-as-you go. Sen. Obama wants to pay as the ship of state sails by raising some taxes (while, he insists, lowering others - most notably, middle-class income taxes); Sen. McCain wants to pay as we sail by hoping that Congress will be able to control pork-barrel spending and that entitlement spending and the Iraq War won’t get in the way of the fiscal responsibility he promises to bring to the White House. While governments under both Republicans and Democrats have proven equally capable of derailing both approaches, the former is admittedly more pragmatic and realistic than the latter.

So while, admittedly, the higher-tax, lower-tax distinction between the Republicans and Democrats during this election couldn’t be more clear, the same could be said about the underlying philosophies that influence it and are likely to influence much of how this country is governed in the next 4-8 years. And in the end - if we have learned anything from the Bush years - that is what really matters.