On stimulus, Sen. McCain, Bush divided

Sen. John McCain’s (R-Ariz.) split from the White House and leading presidential candidates on how to stimulate the economy is a move that could help the freshly crowned GOP front-runner claim to be the true conservative in the race.

McCain has not joined calls for immediate fiscal stimulus, setting him apart from all his leading opponents in the presidential race except for former New York Mayor Rudy Giuliani.

{mosads}On Wednesday, a top economic adviser to his campaign sharply criticized the stimulus plans floated by the White House and the leading presidential candidates, declaring that they amount to “borrowing money from the Chinese and dropping it from helicopters.”

“Just raining cash down — which seems like what Congress wants to do—is not going to have much of an effect,” declared Kevin Hassett, a senior McCain adviser, who appeared on a panel at the New America Foundation alongside the economic advisers to the leading Democratic candidates. Hassett is the director of economic policy studies at the American Enterprise Institute.

Hassett’s remarks suggest that the Arizona Republican, a long-time critic of wasteful government spending who has bucked Bush and the GOP on economic policy in the past, might vote against a potential stimulus package  — particularly if it grew too large.

It also made it appear that McCain might use his famous “straight talk” to address voters’ fears about a recession, rejecting measures to put cash into people’s hands just after the economy has eclipsed the Iraq war as the top issue in the presidential race.

McCain himself has suggested he is skeptical that short-term economic relief, such as rebates to taxpayers, will benefit the economy. Asked about calls by Federal Reserve Chairman Ben Bernanke for a temporary program of tax relief, McCain said, “It’s not that I’m skeptical of short-term stimulus, I’m skeptical of any time you take taxpayers dollars without having a real good purpose and an object, Because somebody’s got to pay it back.

“I want to see where that money’s coming from,” McCain said, according to a report by The Associated Press.

Douglas Holtz-Eakin, a McCain advisor more involved in the day-to-day campaign than Hassett, insisted that the Arizona Republican hadn’t made up his mind on  any stimulus plan.

“We will evaluate the package when and if Congress gets specific,” said Holtz-Eakin, who is the former director of the Congressional Budget Office.

He said McCain had been advocating a number of “pro-growth” policies in the past year, and that the Arizona Republican would combine tax cuts with spending cuts “like Reagan did” to spur the economy.

As Hassett put it at the New America Foundation, “Sen. McCain realizes that the financial thing is going to work itself out and is focused more on long-term solutions.”

The conservative Club for Growth praised McCain’s stance on stimulus.

 “John McCain is 100% right on this. Short-term packages aren’t going to do anything. We need permanent tax reform,” said a spokeswoman for the group, Nachama Soloveichik.

She added, however, “The troubling thing is that McCain in the past has voted against the exact things that helped the economy then and will help the economy now.”

McCain voted against the Bush tax cuts of 2001 and 2003, arguing that the White House hadn’t done enough to rein in spending. He also opposed the 2003 Medicare bill, which added a costly prescription drug benefit.

With the sharp global sell-off in stocks earlier this week, both Republicans and Democrats are clamoring to pass a stimulus package.

President Bush supports a roughly $150 billion package of business and individual tax relief to buoy the slowing economy. Though the White House has been mum on the details, it has privately told lawmakers that it favors issuing $800 rebates to certain taxpayers.

McCain last week proposed permanently slashing corporate tax rates and boosting business incentives, billing it as his economic stimulus plan. But he offered no temporary measures for businesses or individuals to lift the slowing economy, setting him apart from his rival former Massachusetts Governor Mitt Romney (R), who proposed $400-rebates for taxpayers.

In the GOP presidential field, Giuliani also did not propose any temporary stimulus measures, whereas former Arkansas Governor Mike Huckabee called for a short-term fiscal boost but did not give any details.

The strategy could be risky. According to a Gallup poll conducted over the weekend, three in ten respondents judged the economy to be in “poor” condition — the highest share since 2003. And the failure to act — or propose to act  —boldly to raise voters’ confidence in the economy has been known to sink presidential campaigns.

Former President George H.W. Bush lost reelection to the White House in part because he was seen as responding too tepidly to what turned out to be a mild recession.

Asked how McCain would talk to voters about the economy on the campaign trail in coming weeks, Holtz-Eakin said, “He’s going to tell people the truth. He’s going to say, ‘Look, this economy is going to grow more slowly than people would like.’”

 Insisting on permanent tax reform rather than short-term stimulus may appeal to many conservatives. Since the talk of stimulus has erupted in Washington, many conservative lawmakers have voiced bitterness at what they view as the Bush White House’s rush to work with Democrats on a bipartisan package at the expense of pursuing long-term goals, such as the extension of the Bush tax cuts.