McCain calls for a summer 'gas-tax holiday'

updated 4:05 p.m. ET April 15, 2008

PITTSBURGH - Republican Sen. John McCain on Tuesday called for a summer-long suspension of the federal gasoline tax and several tax cuts as the likely presidential nominee sought to stem the public's pain from a troubled economy.

Timed for the day millions of Americans filed their tax returns, McCain offered some immediate steps as well as long-term proposals in a broad economic speech. The nation's financial woes have replaced the Iraq war as the top concern for voters, and McCain, who has said economics is not his strongest suit, felt compelled to address the problems as he looks ahead to the November general election.

"In so many ways, we need to make a clean break from the worst excesses of both political parties," McCain told an audience at Carnegie Mellon University. "Somewhere along the way, too many Republicans in Congress became indistinguishable from the big-spending Democrats they used to oppose."

To help people weather the downturn immediately, McCain urged Congress to institute a "gas-tax holiday" by suspending the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day. By some estimates, the government would lose about $10 billion in revenue. He also renewed his call for the United States to stop adding to the Strategic Petroleum Reserve and thus lessen to some extent the worldwide demand for oil.

Combined, he said, the two proposals would reduce gas prices, which would have a trickle-down effect, and "help to spread relief across the American economy."

Aides said McCain's Senate staff was drafting a bill on the proposal. It's likely to face strong opposition not only from Congress but the states. The federal gasoline tax helps pay for highway projects in nearly every town through a dedicated trust fund. In the past, such proposals for gas tax holidays have not fared well as lawmakers and state and local officials prefer not to see changes in their revenue source.

McCain's effort to set his own economic course — and court independents — comes as the public is craving change. A new television ad airing in parts of Pennsylvania and Ohio says "McCain will take the best ideas from both parties to spur innovation, invest in people and create jobs."

Credit crunch fears
McCain has faced criticism — fueled by Democrats as well as his own previous comments — that his policy strength is not economics. Democrats have argued that his free-market approach is out of step with people feeling the pinch. And, McCain has taken heat on taxes; he twice voted against cuts President Bush championed, but now advocates making them permanent because, he says, doing otherwise would amount to a tax increase.

Shortly before McCain's speech, the Labor Department reported another worrisome sign for the economy: Inflation at the wholesale level soared in March at nearly triple the rate that had been expected as the costs of energy and food both climbed rapidly. Oil prices hit a new high, rising over $113 a barrel.

To immediately address concerns about gas prices and the fallout from the credit crunch, McCain offered the gas-tax suspension proposal and said the Education Department should work with governors to ensure that each state's guarantee agency — nonprofits that traditionally back student loans issued by banks — is able to be the lender of last resort for student loans.

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In the long-term, McCain offered plans aimed at helping the middle class and eliminating wasteful spending, saying he wants to:

— Raise the tax exemption for each dependent child from $3,500 to $7,000. Aides estimated it would cost $65 billion over one year to double the tax exemption, but argued that McCain would offset such expenses by cutting federal spending.

— Require more affluent people — couples making more than $164,000 — enrolled in Medicare to pay a higher premium for their prescription drugs than less-wealthy people.

— Offer people the option of choosing a simpler tax system with two tax rates and a standard deduction instead of sticking with the current system.

— Suspend for one year all increases in discretionary spending for agencies other than those that cover the military and veterans while launching an expansive review of the effectiveness of federal programs. Aides estimated a one-year freeze would save $15 billion.

While he touched on a wide-range of issues, McCain did not discuss the soaring federal deficit or enormous war costs. He also offered few details for his new proposals and did not include estimated price tags. Later, aides said if all of McCain's tax plans are implemented, including those previously announced, the total cost would be $195 billion as changes are phased in. They said McCain has found — or would find — the same amount of spending reductions to match.

Voted against cuts
McCain also sought to draw a contrast with Democratic rivals Barack Obama and Hillary Rodham Clinton, saying they would impose the single largest tax increase since World War II by allowing tax cuts enacted in 2001 and 2003 — and that McCain, himself, opposed — to expire.

"All these tax increases are the fine print under the slogan of 'hope:' They're going to raise your taxes by thousands of dollars per year — and they have the audacity to hope you don't mind," McCain said, playing on the title of an Obama book.

McCain, who has lagged behind his Democratic rivals in fundraising, made the same argument in an e-mail appeal for money.

Obama campaign spokesman Bill Burton said McCain's proposals offer "no change from George Bush's failed policies by going full speed ahead with fiscally irresponsible tax cuts for the wealthiest Americans." Clinton policy director Neera Tanden called it "a George Bush-redux of corporate windfalls and tax cuts for the wealthy that will bankrupt our government and leave working families with the bill."

McCain made his remarks a day after he said he believes the country has already entered a recession.

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