Oct. 29 (Bloomberg) — There are six days left until the election, so maybe voters have six minutes to spend on what is still a big issue: the economy. Or, more specifically, Republican John McCain's economic plan.
Many voters, even the non-Bloomberg types, are spending their spare minutes staring at screens, trying to determine how much money General Motors Corp. is going to get from the government. Or trying to figure out when Russia and China are going to shut out the dollar and create the petro, the world's next reserve currency. Or trying to pinpoint on their 2010 calendar the date when recovery will finally come. McCain? Pronounce those two syllables at your peril.
For those willing to endure the derision, it is worthwhile to take one last good look at the McCain economic program. You will find a serious agenda. McCain deserves his six minutes. Allocating 60 seconds per component, we can review his plan and find much that would doubtless contribute to a recovery.
Minute One: Cutting the corporate tax by 10 percentage points, to 25 percent. A lower corporate tax rate would be a compelling reason for foreign money to want to stay here. It would help ensure that the dollar rally endures. It would drive the cash sitting around in what proved to be unprofitable investments — subprime mortgages, for example — into potentially profitable ones, many of which are as yet unidentified.
Minute Two: Preserving the 15 percent tax rate on capital gains and dividends. McCain also has said he will make permanent President George W. Bush's income-tax cuts.
What today's financial crisis has revealed is that there are a lot of mediocre companies slumbering in portfolios. Many people are getting out of those companies now. More will want to make their exit in coming years, but the capital gains rate increase promised by Barack Obama and the Democrats might deter them. The result will be that cash will not flow as often to new companies that may be developing superior products.
McCain's rates would not only speed a recovery but also improve its quality and durability. In response to the crisis this month, McCain suggested cutting capital gains taxes in half in 2009 and 2010. It's not the ideal proposal, temporary as it is, but still McCain is heading in the right direction.
Minute Three: Letting businesses expense technology and equipment in the same year they buy it. Under the current expensing provision, companies can write off half their equipment outlays in the first year and must depreciate other costs over a longer period.
Expensing 100 percent of equipment costs is a prospect that warms hearts in Cleveland, or Detroit, or any other place where machinery is a big part of business. Unfortunately, McCain is interested in restricting this break to three- and five-year asset classes. His reform would yield more dramatic results if it allowed all equipment to be expensed in the first year.
Minute Four: Building nuclear plants. This is the kind of infrastructure the U.S. really needs, and it would even be fine to use Treasury bonds to finance it. Less dependence on foreign oil means less instability in domestic markets. We also would spend less time riding the Vladimir Putin-Beijing rollercoaster.
Minute Five: Freezing government spending overall. A superb notion, even if most of us believe Washington isn't capable of passing it into law. After all, it takes more than Republican Senator Ted Stevens's conviction to restore sanity on spending in Washington. Here, McCain's temperament is a great advantage. We can imagine him saying "No" to new spending.
Minute Six: Taking the long view. McCain's advisers talk about dynamic — not static — analysis, looking at the growth and competitive environment generated by tax cuts. The Institute for Research on the Economics of Taxation finds that the McCain tax plan would add 0.5 percent to the annual growth rate for the private sector for five years. Obama's plan would subtract 0.7 percent a year in growth for the same period. As Steve Entin of IRET notes, politicians have hurt growth before by ignoring such effects.
The Obama vision is all static. It's better to redistribute, he says, because we sure aren't going to grow. This attitude ignores the possibility of expansion, and it's one that many lawmakers share, seeing only belt-tightening in the future. On some days, these gloomsters even include McCain.
Cost of Repeating
The philosopher George Santayana said that those who can't remember the past are condemned to repeat it. Entin puts a Washington twist on that line: "Politicians who cannot remember the past condemn us all to repeat it."
Sure, there are reasons not to consider McCain's plan as important.
One, as he has said, economics isn't his strength. So perhaps his plan may be merely theoretical, a construct that waits on the shelf while he pursues projects such as overhauling the military or cleaning up Congress.
Another, as John Tamny of realclearmarkets.com has pointed out, is a rising dollar. A stronger dollar functions as a tax decrease, meaning that any Obama tax increase may matter less.
Those of us with Santayana in our ears nonetheless do take McCain seriously. For McCain does remember a lot of the economic past. He is the candidate who can do the most to prevent us from repeating it.
(Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations and author of "The Forgotten Man: A New History of the Great Depression," is a Bloomberg News columnist. The opinions expressed are her own.)
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