McCain Says $7,000 “Credit ” for Each Child; Let’s Hope He Meant “Exemption”

August 18, 2008

If this campaign has taught us much of anything, it’s that tax policy is not Sen. McCain’s area of expertise. That’s hopefully why if elected he will rely on advisor Doug Holtz-Eakin regarding all things tax policy. His lack of knowledge on the topic was evident on Saturday night when asked to “define rich” by Pastor Rick Warren (a very good question yet one that a more confrontational interviewer should ask in order to follow-up/pin-down both Obama and McCain ). Here’s what McCain said (emphasis added):

“Some of the richest people I’ve ever known in my life are the most unhappy. I think that rich is — should be defined by a home, a good job and education and the ability to hand to our children a more prosperous and safer world than the one that we inherited. I don’t want to take any money from the rich. I want everybody to get rich. I don’t believe in class warfare or redistribution of the wealth. But I can tell you for example there are small businessmen and women who are working 16 hours a day, seven days a week that some people would classify as, quote, ‘rich,’ my friends, who want to raise their taxes and raise their payroll taxes. Let’s have — keep taxes low. Let’s give every family in America a $7,000 tax credit for every child they have. Let’s give them a $5,000 refundable tax credit to go out and get the health insurance of their choice. Let’s not have the government take over the health care system in America.

“So I think if you’re just talking about income, how about $5 million. But seriously, I don’t think you can — I don’t think, seriously that — the point is that I’m trying to make here seriously — and I’m sure that comment will be distorted, but the point is — the point is — the point is that we want to keep people’s taxes low and increase revenues. And my friend, it was not taxes that mattered in America in the last several years. It was spending. Spending got completely out of control. We spent money in a way that mortgaged our kids futures. My friends, we spent $3 million of your money to study the DNA of bears in Montana. Now I don’t know if that was a paternity issue or a criminal issue, but the point is — but the point is it was $3 million of your money. It was your money.

“And you know, we laugh about it, but we cry and we should cry because the Congress is supposed to be careful stewards of your tax dollars. so what did they just do in the middle of an energy crisis when in California we are paying $4 a gallon for gas, went on vacation for five weeks. I guarantee you, two things they never miss, a pay raise and a vacation. And we should stop that and call them back and not raise your taxes. We should not and cannot raise taxes in tough economic times. So it doesn’t matter really what my definition of rich is because I don’t want to raise anybody’s taxes.”

Let’s ignore the question of what constitutes “rich” for now. We’ll come back to that in another blog post.

Regarding giving every family a $7,000 tax credit per child, I think McCain meant to talk about his personal exemption doubling for dependents, which is much different (less costly). In fact, a $7,000 exemption per child is more fiscally responsible than a $7,000 credit, but it’s a worse policy than a tax credit that would cost the same amount. Why is it worse policy? Because at the core of the issue is the answer to the question of why a family should get a “payment” from government based upon the number of children they have anyway. And if so, why it should matter how much income they make and be based upon other factors like the amount of their other deductions. The fact of the matter is that an extra dependent exemption would be worth more to higher-income individuals (especially under McCain who eliminates the personal exemption phaseout), and it cannot be claimed by those families who have no income tax before credits.

Regarding the second bold statement above, it appears to be nothing more than McCain claiming that cutting taxes will raise revenue (i.e. the classic right side of the Laffer Curve argument). If he believes that, then his next sentence doesn’t really matter because if cutting taxes raises revenue, spending doesn’t need to be restrained. It’s, in effect, a free lunch.


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