Advice to McCain on Tonight’s Debate

Washington – The Club for Growth PAC urges Senator John McCain to seize the mantle of leadership on the economy in tonight’s second presidential debate.

In order to do so, Senator McCain will need to do two things. First, he needs to explain to the American people exactly how we got to this crisis point. There is a temptation to use Wall Street and the free-market as a scapegoat, but this revisionist history is factually wrong and will only lead to counterproductive government responses. Instead, Senator McCain should explain how the federal government caused this debacle with an inflationary monetary policy, legislation pushing banks to lend to un-creditworthy borrowers, and politicians who refused to properly regulate and capitalize Fannie Mae and Freddie Mac.

After all, Senator McCain has long encouraged reforming Fannie and Freddie, while Senator Obama remained silent and his Democratic colleagues actively resisted regulatory reforms. Politicians on both sides of the aisle—led by the Democrats—pushed irresponsible housing legislation including the Community Reinvestment Act and the American Dream Downpayment Initiative. Senator McCain should ask Senator Obama why the American people should trust him and the Democratic Party to fix this crisis when they played such a big role in creating it.

Second, Senator McCain should list specific, targeted steps Congress can take to alleviate the current crisis. These include:

• Call for an immediate and temporary FDIC guarantee of 100% of transaction accounts for all banks that choose to pay the corresponding insurance premiums.
• The Treasury’s recent guarantee of money market funds necessitates this measure to ensure confidence in banks and prevent unnecessary runs on banks
• Insist on new accounting rules for assets without a market.
• In highly illiquid markets, mark-to-market rules are inappropriate, misleading, and damaging to banks as the resulting paper losses pressure them to sell assets at fire-sale prices.
• Eliminate the capital gains tax as a way to spur investment, help the equity markets recover, and help recapitalize banks.
• Eight European countries have already eliminated individual capital gains taxes and more are considering doing so. The United States should be ahead of this curve, not behind it.
• Call for a cut in corporate tax rates to 12.5%.
• McCain’s call to lower this rate to 25% is a good start, but the current crisis calls for bolder measures. Our current tax regime puts us at a large competitive disadvantage vis-à-vis other countries. Countries like Ireland, who cut their corporate tax rate to 12.5%, have experienced an explosion in economic growth. There is no reason why the U.S. should be lagging behind.
• Announce a 5% across-the-board cut in government spending, excluding only defense, Social Security, veteran programs, and Medicare.
• McCain’s call to freeze portions of the federal budget is a huge improvement over the enormous spending increases proposed by Obama, but Americans have come to appreciate how wasteful the federal government is and would welcome a modest spending cut.

“Tonight, Senator McCain has an opportunity to demonstrate to the American people that he has the judgment and experience to tackle the economic crisis,” said Club for Growth President Pat Toomey. “He also has an opportunity to demonstrate that Barack Obama’s Democratic Party has been wrong from the very beginning. We encourage Senator McCain to seize that opportunity.”

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