McCain offers 'new fiscal conservatism' with tax plan
January 11, 2000
Web posted at: 2:54 p.m. EST (1954 GMT)
CONCORD, New Hampshire (CNN) -- Republican presidential candidate John McCain offered a "new fiscal conservatism for the new century" on Tuesday as he outlined a tax plan that would use the federal budget surplus to bolster Social Security and Medicare, reduce the national debt and pay for a tax cut aimed at low- and middle-income Americans.
McCain, a U.S. senator from Arizona, emphasized that all the elements of his tax plan could be defined as conservative and fiscally responsible, but his plan goes against current Republican orthodoxy by dictating that the majority of the federal budget surplus should not be used for a massive tax cut.
McCain, speaking before the Chamber of Commerce in Concord, the capital of the first-primary state, said it was irresponsible to use the surplus for new spending or for tax cuts before shoring up Social Security for the looming retirement of the so-called baby boom generation.
Some want to use the surplus to fund more government programs, while others suggest using every penny for tax cuts, the Arizona senator said, adding that both sides are "forgetting that 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."
"Surpluses are a tempting thing for politicians," he said. They are easily spent or promised away, often before they even, if they ever, materialize."
McCain's plan would assume that the government would have a non-Social Security surplus of $500 billion over the next 10 years, and would dedicate 62 percent of that surplus to shoring up Social Security, which is forecast to begin running a deficit in 2014 as the baby boom generation begins to retire.
Sen. John McCain unveiled his tax plan Tuesday
"If we do nothing, we are handing our children a ticking time bomb that will require they pay ever greater payroll taxes just as they are beginning their careers, starting their own families and staking their claim to the American Dream," McCain said.
It is essential that both parties stop using Social Security as a partisan issue, he said.
"Democrats will have to stop using the issue to scare seniors into voting against Republicans," he said. "Republicans will have to resist using Social Security revenues to finance tax cuts, and both parties must stop raiding retirement dollars from the trust fund to waste on new spending."
McCain would dedicate another 10 percent of the surplus toward preserving the Medicare program, and 5 percent would go to national debt reduction.
The remaining 22 percent, coupled with closing various corporate tax loopholes, would provide the revenue for a tax cut targeted at low- and middle-income Americans, who he said have been "overcharged by the federal government for years."
McCain's plan also includes:
A permanent ban on Internet sales taxes and an increase in the child tax credit from $500 to $1,000 over two years
An increase in the standard deduction from $7,200 to $8,600 per year to reduce the so-called "marriage penalty," and a reduction in the Social Security earnings penalty and inheritance taxes.
The creation of a "family security account," modeled on an Individual Retirement Account (IRA), that would allow taxpayers to invest up to $3,000 individually and $6,000 jointly into tax-deferred accounts that can be used after one year for any purpose without penalty. The accounts are aimed at encouraging savings.
Allowances for taxpayers to invest up to 20 percent of their Social Security payroll taxes into private accounts, and,
An expansion of existing medical savings accounts and educational savings accounts.
McCain has sparred for weeks with GOP presidential front-runner George W. Bush over the role tax cuts should play in a time of prosperity and a federal budget surplus.
The Texas governor has proposed a tax cut twice the size as that of McCain, and McCain has made the case that Bush's proposal simply promises too much. McCain's total tax cut -- $240 billion over five years -- is about half of Bush's $483 billion, five-year tax cut.
McCain also said his tax plan was intended as another demonstration that he is a politician willing to take on entrenched special interests in Washington.
"It is far, far easier to promise huge tax cuts based on the hope of never-ending surpluses than it is to end the special interest spending spree that raids our federal budget year after year," he said.
McCain would help pay for his tax cuts by raising some $150 billion by closing a long list of corporate tax loopholes and shelters.
"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," he said.
On Monday night, Bush wasted no time in taking a shot at McCain's plan, noting McCain put forward a tax plan last year. McCain aides said Tuesday's speech was McCain's official tax proposal, while his tax comments made last year were in conjunction with the ongoing congressional debate over tax cuts and the federal budget.
"I look forward to hearing what version two is and perhaps we ... need to quote Regis to him and say, 'Senator, is this your final tax plan,'" Bush said Monday to reporters in New Hampshire, referring to the popular television game show "Who Wants To Be a Millionaire."
In a statement issued Tuesday, Bush said he and McCain "have a fundamental disagreement" over taxes and how to use projected surpluses. "I believe surpluses should be passed back to hardworking Americans," Bush said. "Senator McCain's plan would leave more money in Washington to be spent on more government."
Bush's tax plan reduces the existing five marginal tax rates down to four, with the highest rate being 33 percent rather than the current 39.6 percent. McCain advocates a "bottom up" flat tax that would allow taxpayers with incomes up to $70,000 to file at the 15 percent rate -- an increase of some $28,000 from current law. McCain advisers say the move will provide tax relief to an additional 25 million taxpayers.
"Under my plan, 85 percent of America will pay no tax or have a flat tax at our lowest rate of 15 percent," McCain said.
Both Bush and McCain have disagreed over whose plan offers more relief to working Americans. Bush says that under his plan, some 6 million people will no longer pay any income taxes. McCain argues that his plan would offer greater relief to more Americans, without rewarding high-income earners with increased tax relief, as he claims Bush's plan would.
McCain used three examples to compare his proposal and Bush's plan. For a single mother with two children earning $40,000, McCain said his plan would reduce her taxes from $2,810 to $1,212, while the same mother would pay $1,310 under Bush's plan
For a married couple with two children and a stay-at-home mother, McCain said his plan would lower their taxes from $2,270 to $610, assuming they put $3,000 into the tax-free savings account he wants to create. Otherwise, they would pay $1,060. Under Bush's plan, McCain said the couple would pay $670.
But for a "lucky millionaire,"McCain said his plan would cut the $325,000 tax bill of a person earning $1 million by $3,500 while Bush's plan would cut their bill by $50,000.
Bush's plan would cut taxes for the rich, giving the wealthiest 1 percent of Americans a 15 percent cut. But Bush's plan also includes cuts for low- and middle-income earners, as he noted during last week's GOP debate in South Carolina.
Bush is fighting back with a brand new television commercial that warns against giving politicians too much control of the budget surplus. The ad never mentions McCain by name, but it is clearly directed against him.
In the ad, Bush says the budget surplus may even be larger than anticipated. "That makes the idea of having a paltry tax cut even more risky," he said.
Bush also supports the current moratorium on Internet taxes but has not yet said whether he would favor a permanent ban, which is opposed by many of his fellow governors, who fear a drop in state taxes as online shopping becomes more popular.
Bush also has historical baggage with which to contend. Bush's father, former President George Bush, was roundly criticized for breaking his famous "read my lips, no new taxes" promise in 1990.
But that was at a time of deep recession. The junior Bush hopes the budget surplus will help him keep his promise, which he reiterated last week. "This is not only no new taxes, this is tax cuts, so help me God," Bush said during a previous GOP debate in New Hampshire.
McCain also referred to a promise in his speech.
"Make no mistake, we can afford a tax cut and American taxpayers deserve one, but it must be a tax cut promise a leader can keep," he said.
CNN's Beth Fouhy and Frank Sesno contributed to this report, which was written by Douglas S. Wood.