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McCain's Mixed Fiscal Policy


Republican volunteers from Palos Verdes Estates, Calif., help hammer out the McCain message, July 3, 2008. (Associated Press).

By Dan Balz
John McCain has been around Washington long enough to remember the days when Republicans constantly clashed among themselves over fiscal policy. Were they the party of Jack Kemp, of supply-side economics and big tax cuts, or the party of Bob Dole and the green eyeshade economics of deficit reduction?

McCain today finds himself with a foot in both camps, though tentatively. He remains an unconvincing tax cutter but he is also an unpersuasive deficit hawk, at least on the basis of his latest economic plan. He is a pure reflection of the Republican Party he seeks to lead.

That proposal, unveiled with great fanfare on Monday, moved him back in the direction of deficit reduction after a lurch toward tax cutting designed to make him more acceptable to the party's supply-side devotees.

Budget experts were quick to note that McCain lacks a blueprint to achieve his goal of balancing the budget by 2013. Barack Obama is no more convincing in his approach to deficit reduction. His spending initiatives and tax cuts would come at the cost of more pressure on the deficit.

McCain is attempting to reconcile divided loyalties in a Republican Party that seemingly has lost its way on economic policy, the legacy of nearly eight years of the Bush administration's effort to fight two wars and cut taxes substantially -- and the fallout over losing control of the House and Senate in 2006.

The party's evolution on economics began when Ronald Reagan embraced Kemp's supply-side philosophy during the 1980 presidential campaign. That began the party's dramatic shift away from deficit reduction.

There were many rear-guard skirmishes to follow. They first pitted Dole and the deficit hawks against the likes of Kemp and Newt Gingrich over tax cuts and tax hikes in the 1980s. Dole won an important round in this fight in 1982, but the supply-siders were destined to see their influence rise thanks to Reagan.

President George H.W. Bush provoked another major battle. His 1988 acceptance speech will always be remembered for his stern declaration, "No new taxes." But the domestic side of his presidency will be remembered for his decision to break that pledge as part of budget negotiations with congressional Democrats in 1990.

The eventual deal prompted Gingrich to warn Bush that he risked destroying his presidency. Rather than join the president and other budget negotiators for a Rose Garden ceremony, he walked back to Capitol Hill to organize the opposition to the deal. That signaled an irreconcilable split that, ultimately, contributed both to Bush's defeat in 1992 and to the ascension of Gingrich to the speaker's chair after the 1994 Republican landslide.

From there forward, Republicans were clearly in the supply-side camp. To ward off a potential threat from Steve Forbes in the 2000 Republican nomination battle, Bush embraced a big tax cut just before the primaries. McCain, who actually turned out to be Bush's major opponent, was highly skeptical at the time of the rush to cut taxes. But Bush's victory, in the primaries and the general election, cemented the power of tax cutters in the party.

That is, until 2006, when Republicans once again rediscovered the appeal of deficit cutting. There are many Republicans who believe that the party's failure to prevent spending from ballooning during Bush's presidency -- more than public discontent over Bush's Iraq policies -- cost them control of Congress. McCain is one of them.

Bush proved to be a big government conservative, who allowed the federal government to grow at its fastest pace since the Great Society. He and his advisers blame that on the post 9-11 realities, which saw hundreds of billions poured into defense and homeland security.

McCain's pledge to balance the budget by the end of his first term reflects priorities that long have defined his fiscal policies. But given the entirety of his overall economic plan, making good on that pledge will be extremely difficult. How much would he turn away from Bush's policies, beyond challenging particular earmarks?

Neither party now has a monopoly on fiscal discipline. Unlike Obama, McCain at least has established a marker for his presidency. But his party remains torn between conflicting philosophies and McCain is now trying to straddle those divisions. That may get him through the November election, but if he becomes president, it could be a combustible coalition to try to manage. Bringing harmony to his own party remains one of his biggest challenges.

By Web Politics Editor  |  July 8, 2008; 11:19 AM ET
Categories:  Dan Balz's Take  
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