Campaign-Promises.com

By U.S. Budget Watch

September 2008

The candidate’s policies are broken into four categories: tax, health care, energy, and other spending/savings. To show the effect when programs are fully in place, estimates of budget effects are for 2013. Policies that would enlarge the deficit (or reduce the surplus) are shown as negative numbers, and those that would reduce the deficit (or increase the surplus) are shown as positive numbers.

Tax Policy: -$294 billion

Senator McCain supports renewing and making most of the major tax cuts enacted in 2001 and 2003 permanent, which will otherwise expire at the end of 2010. The cuts include lower individual income tax rates, the expanded child tax credit, reduced tax rates for capital gains and dividends, reduced marriage penalties, the elimination of the estate tax (which Senator McCain would restore in part), and various other provisions. This estimate is the cost of making all of the tax cuts permanent.

Reinstate a Smaller Estate Tax: +$10 billion.

Under current law the estate tax will disappear completely in 2010 and then reemerge at 2001 levels in 2011, taxing estates worth over $1 million at a top rate of 55%. Senator McCain supports supplanting this policy with a permanent estate tax with a top rate of 15% and a $5 million exemption ($10 million per family).

Reform the Alternative Minimum Tax: -$107 billion.

Senator McCain would reform the Alternative Minimum Tax by extending the current patch, indexing the exemption amount for inflation through 2013, and indexing it by inflation plus five% thereafter until it reaches $143,000. Over time, the AMT would be significantly reduced, though not eliminated, under this policy.

Double the Personal Exemption for Dependents: -$30 billion / -$15 billion.

Rather than allowing the dependent exemption to grow with inflation, as provided by current law, Senator McCain would increase the $3,500 exemption by $500 per year until it reaches $7,000, and thereafter index it for inflation. He would immediately double the exemption for families making under $50,000 a year, rather than phase in his change. The personal exemption would remain $3,500 and indexed by inflation, as under current law.

Reduce the Federal Corporate Income Tax Rate: -$68 billion / -$55 billion.

Senator McCain would lower the top corporate income tax rate from 35% to 25%. This would be phased in, with the top rate reduced to 30% in 2010 and 2011, to 28% in 2012 and 2013, to 26% in 2014, and to 25% thereafter. Senator McCain would also repeal the domestic production activities deduction, which would no longer be necessary under his proposal.

Allow Expensing: +$25 billion / -$15 billion.

Senator McCain would temporarily allow corporations to immediately deduct the cost of three- and five-year investments in equipment, rather than depreciating the costs over a longer time period. He would also disallow the interest deduction on expensed equipment. The policy would expire in 2013.

Reform the Research and Experimentation Tax Credit: -$13 billion.

The Research and Experimentation Tax Credit (commonly referred to as the R&E or R&D credit), which provided a 20% tax credit for qualified expenses, expired on Dec. 31, 2007. Senator McCain has proposed replacing it with a permanent tax credit worth 10% of all wages spent on research and development.

Eliminate Preferential Tax Treatment for Oil Companies: +$2 billion.

Senator McCain has called for the repeal and reform of a number of tax preferences for oil companies including expensing of exploration and development costs, and other tax credits and accounting advantages.

Close Corporate Tax Loopholes: +$30 billion.

Senator McCain has proposed cutting “corporate welfare,” namely the preferential tax treatment of certain industries. Although he has not enumerated the specific parts of the tax code this would include, McCain’s campaign has pointed to tax breaks for life insurance companies, credit unions, and exporters. It has also said it would repeal Last In, First Out (LIFO) accounting rules.

Create an Optional/Alternative Individual Income Tax System: $0.

Senator McCain has proposed an optional, alternative tax system with two rates and a single large standard deduction to replace most existing deductions, exclusions, and credits.

According to the McCain campaign, this alternative system would be designed to ensure revenue neutrality. On the other hand, outside experts think that because most taxpayers will choose the system in which they pay lower taxes, significant revenue would be lost.

Total Budget Effect of Tax Policies in 2013: -$417 billion to -$485 billion.

Health Care

Create a Refundable Health Insurance Tax Credit: -$288 billion/ -$364 billion.

Senator McCain would offer a $2,500 refundable tax credit for individuals ($5,000 for families) who purchase health insurance. Credit amounts exceeding premium costs could go into a health savings account. The net costs of the policy (cost of the new refundable credit minus savings from eliminating the tax exclusion for employer-provided health insurance) would decline over time.

Eliminate Tax Exclusion for Employer-Provided Health Insurance: +$201 billion/ +$274 billion.

Senator McCain’s health insurance tax credit would replace the current exclusion that allows companies to offer health care benefits to employees free from taxation. Under the McCain plan, employer-provided health insurance benefits would be taxed as normal income for individual income tax purposes. Health insurance would not be subject to the payroll tax, however; and employers would continue to deduct health insurance coverage costs.

Expand Health Savings Accounts: -$1 billion / -$9 billion.

Senator McCain supports expanding health savings accounts, which allow people to save money, tax free, to finance health care costs.

Establish a “Guaranteed Access Plan”: -$8 billion.

Senator McCain has said he would work with states to create institutions that would expand insurance access to high-risk or traditionally uninsurable individuals. Under this plan, state governments and nonprofit institutions would pool individuals who want coverage and contract with insurers for them, while offering limits on premiums.

Impose Higher Medicare Premiums for the Wealthy: +$2 billion.

Senator McCain supports charging higher premiums for wealthy individuals enrolled in the Medicare prescription drug program (Medicare Part D).

Reduce Overall Health Care Costs: +$40 billion.

Senator McCain has proposed a number of measures to slow the growth of health care costs, including the promotion of information technology in health care and the facilitation of national standards for measuring and recording treatments and outcomes. He would encourage more transparency within the health care system and more coordinated care and disease management. Additionally, among other measures, McCain supports legalizing prescription drug re-importation, reforming the medical malpractice liability system, and encouraging states to experiment with cost-cutting tools. He would also reform the Medicare and Medicaid payment systems to ensure that the programs do not pay for preventable medical errors or mismanagement, and he would reduce Medicare fraud.

Total Budget Effect of Health Care Policies in 2013: -$54 billion to -$65 billion.

Energy Policy

Implement a Cap-and-Trade System: +$5 billion.

Senator McCain supports the creation of a cap-and-trade system to limit greenhouse gas emissions. Some permits would be auctioned while others would be distributed freely to market actors. According to the Congressional Budget Office, if all permits were auctioned they could be worth between $50 billion and $300 billion annually by 2020. However, only a small portion of these permits is likely to be auctioned and we assume they would raise $5 billion. Whatever the revenue amount, according to the campaign, all revenues would be spent funding energy-related policies.

Invest in Green Technology: -$5 billion.

Senator McCain supports a number of initiatives to increase energy independence and expand clean energy technology. These include “clean coal technology,” tax credits and prizes for the use and development of clean transportation technology, and the creation of 45 new nuclear power plants by 2030.

Total Budget Effect of Energy Policies in 2013: $0.

Other Spending/Savings

Offer Targeted Assistance to Older Workers: -$4 billion.

As part of a comprehensive reform that would add private Lost Earnings Buffer (LEB) accounts to the current unemployment system, Senator McCain would offer Lost Earnings Supplements for older workers who take lower-paying jobs. Workers over 55 years old would be eligible for the supplement and would be paid up to 50% of their lost earnings (up to $10,000) for two years.

Eliminate Earmarks +$35 billion

Senator McCain has promised to end earmarking, the practice that allows members of Congress to direct funds to a specific (and often local) project during the legislative process. He has promised to veto bills with earmarks in them, and to cut spending from earmarks already enacted.

Freeze Domestic Discretionary Spending: +$21 billion.

Senator McCain has proposed a one-year period during which all discretionary spending, except for certain military and veterans programs, would be held constant. During this year, the effectiveness of all government programs would be reviewed.

Fully Fund No Child Left Behind: $0 billion (current levels) $0/ -$13 billion (fully funded).

Senator McCain has called for full funding of No Child Left Behind. There has been disagreement within the campaign about whether the program would be funded at current levels, which would not increase the budget beyond the baseline, or whether the maximum amount of funds authorized for the program would be requested.

Increase the Size of the Military: -$10 billion.

Senator McCain has proposed increasing the size of the Army and the Marine Corps. We assume that he would continue to add the 65,000 soldiers and 27,000 Marines, currently being implemented.

Reduce the Troop Presence in Iraq -$5 billion

Senator McCain has suggested that the United States will be able to withdraw some of its troops from Iraq by 2013. We assume that he would reduce the total number of troops in Iraq and Afghanistan to 75,000 by 2013. This policy would cost money compared to the current baseline assumptions that do not fully fund the war.

Implement Unspecified Cuts to Balance the Budget: +$159 billion.

The campaign has said a McCain administration would reduce spending by enough to balance the budget by 2013. Although the campaign has not announced many specifics, it has stated that McCain would slow discretionary spending by cutting or ending nondefense and Pentagon procurements such as the airborne laser, Globemaster, Future Combat System and reduce mandatory spending by decreasing agricultural and ethanol subsidies and enacting other reforms. They would also conduct a review of government programs and propose a plan to modernize, streamline, consolidate, reprioritize or terminate those programs found to be redundant or underperforming.

Total Budget Effect of Other Spending/Savings Policies in 2013: +$183 billion to +$196 billion.

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