Politics & Government

Who's got John McCain's back on the economy?

Sen. John McCain speaks to students in Virginia.
Sen. John McCain speaks to students in Virginia. Chuck Kennedy / MCT

WASHINGTON — As the commanding officer of a Navy fighter squadron in Florida during the 1970s, John McCain learned something about management, though he says it taught him more about leadership. And as a long-serving member of the Senate Commerce Committee and twice its chairman, he learned about the challenges that various industries face, including railroads and telecommunications.

After more than a quarter-century in Congress, however, McCain has frankly acknowledged that he lacks a command of economic issues.

"I'm going to be honest: I know a lot less about economics than I do about military and foreign-policy issues. I still need to be educated," he told The Wall Street Journal in November 2005.

Today the economy is voters' top concern. The nation may be entering a recession of uncertain depth and length. The global economy, technology, energy, the environment and other issues present a host of challenges and opportunities that the next president will have to confront.

McCain's economic views are a work in progress, but as he does on the war in Iraq, McCain identifies with President Bush's market-oriented views on the economy. He still supports the personal retirement accounts that Bush proposed to change the Social Security system. And he supports Bush's efforts to have lenders voluntarily rework distressed mortgages that are facing foreclosure, rather than have the government guarantee home loans that have been modified, as Democrats propose.

In the past, McCain opposed President Bush's tax cuts, which expire in 2010, but he now vows to preserve them. In February, he made a no-new-taxes pledge, but has since softened it. He unsuccessfully pushed to overhaul immigration law last year, a move popular with U.S. businesses in need of workers, but now he emphasizes border security and downplays other aspects.

McCain's campaign Web site boasts 37 economic advisers, representing a wide spectrum of viewpoints.

"There's not a whole lot that we need to do in terms of going to outside advisers," said Douglas Holtz-Eakin, McCain's chief economic and policy adviser, adding that there's "a wide range of views, characteristic of McCain."

Holtz-Eakin was the chief economist on President Bush's Council of Economic Advisers for 18 months before heading the nonpartisan Congressional Budget Office from 2003 to 2005. At the CBO, he researched the complexities of everything from tax policy and trade agreements to projected shortfalls of revenue for Medicare.

McCain also takes counsel from a wide range of thinkers and former Republican power players. He's very close to former Texas Republican Sen. Phil Gramm, an economist by training who engineered budget revisions for fiscal discipline in the mid-1980s.

Gramm and McCain have been critical of how Republicans sharply boosted federal spending from 2001 through 2006, which voters punished by giving Democrats control of Congress in 2006. Gramm is frequently mentioned as a likely treasury secretary should McCain win the White House.

All Republican economists champion low taxes. They disagree, however, on whether reducing taxes produces enough economic stimulus to pay for itself — a doctrine called "supply-side economics" — or creates worrisome federal budget deficits. McCain listens to tax-cutters on both sides.

Among his tax-slicing advisers are former New York Rep. Jack Kemp, a champion of supply-side tax cuts, and billionaire publisher Steve Forbes, who like Gramm has championed a flat tax to replace the income tax.

McCain also has a long-standing friendship with Arthur Laffer, one of the original theorists of supply-side economics.

Yet Holtz-Eakin, his chief adviser, is no supply-sider. While he was the director of the CBO in 2005, Holtz-Eakin conducted a study into whether a 10 percent reduction in personal taxes could pay for itself by spurring so much economic activity that more revenue would flow into the Treasury even at the lower tax rate. The study concluded that 22 percent of lost revenue could be replaced in the first five years and 32 percent over the second five-year period, but lower tax rates wouldn't come close to paying for themselves.

Another top McCain adviser is Martin Feldstein, a Harvard University professor and the head of the National Bureau of Economic Research, the official arbiter of declaring when the nation is in recession. Feldstein headed President Reagan's Council of Economic Advisers. He quit the post in opposition to Reagan's high budget deficits, caused when the president failed to reduce spending to match his tax cuts.

As for dealing with the global economy, McCain is firmly in favor of free trade.

"McCain is very clearly pro-trade, open borders, more globally oriented," said Mark Zandi, an unpaid McCain adviser and chief economist of Moody's Economy.com, a forecaster in West Chester, Pa. "Philosophically, I think McCain is more reluctant to turn up the regulatory dial to solve the problem" than Democrats are.

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