Page last updated at 09:13 GMT, Friday, 20 June 2008 10:13 UK

McCain adviser in Republican attack

By Steve Schifferes
Economics reporter, BBC News

Doug Holtz-Eakin
Doug Holtz-Eakin is ex-director of the Congressional Budget Office

John McCain's top economic adviser has attacked Congressional Republicans, saying they have brought "shame and disgrace" on the party.

In a BBC interview, Doug Holtz-Eakin accused them of busting the budget with profligate spending programmes.

The comments are part of a strategy by Senator McCain's camp to distance themselves from the Republicans and avoid blame for the economic downturn.

Mr McCain will stick to his principles even if it costs him votes, he said.


The US economy is in freefall, facing the sharpest housing slump on record and rising unemployment and prices.

And with economic conditions continuing to deteriorate, it is likely to dominate the US presidential election in November.

The Democrats are widely perceived to have a huge advantage on the economy.

Senator Obama has already begun campaigning on the issue, accusing Senator McCain of offering no hope for millions of people who fear losing their homes, their jobs and their health care.

Mr Holtz-Eakin said that in the end, voters would trust Mr McCain more on the economy because of his straight talking to the public on issues like free trade and social security reform.

In the battle for the middle ground of American voters, Mr McCain's camp is doing its best to distance itself both from the Republicans in Congress and from Mr Bush's economic policies.

Economic issues dominate

With the vast majority of the public believing that the US is in recession, it does not seem to be a good year to be a Republican running for office.

The assembly line at Dana Corporation's automotive parts manufacturing plant in Lima, Ohio
Mr McCain's straight talking to American workers was controversial

In the last national opinion poll, carried out by ABC News and the Washington Post last week, only 29% approved of the way Mr Bush was handling the job as president, while 84% of voters think the country is going in the wrong direction.

The economy is considered the most important issue by 33% of voters, and it has stayed the top issue since the beginning of the year.

And 50% of the public trust Mr Obama more to handle the economy, as opposed to just 36% who trust Mr McCain.

Even more back Mr Obama on health care, gas prices, and the environment.

Free trade battle

But Mr Holtz-Eakin believes that Senator McCain's support for free trade and globalisation could actually gain him votes, because of the disarray in the Obama camp over this issue.

He accused Mr Obama of flip-flopping on this issue, and said that it was "better to have a view and stick to it than change your view every time you show up at a new location".

Indeed, the appointment of Mr Obama's new economic adviser, Jason Furman, has dismayed trade unions because they believe he backs free trade.

However, free trade is not that popular among the American public.

When Mr McCain told car workers in Michigan they would have to retrain because there were not going to be any jobs left in the car industry, he lost the primary.

Social security fears

Senator McCain has also taken a controversial position on reforming the US government pension system, known as social security.

US workers depend on government-funded social security in retirement
US workers depend on government-funded social security in retirement

It is facing a potential financial crisis as the large number of baby-boomers start retiring around 2015, and is predicted to run out of money within a generation.

Doug Holtz-Eakin refused to be drawn on the details of how Senator McCain would reform social security, but he did accept that his plan would bear some resemblance to Mr Bush's proposal to partially privatise social security by allowing people to put some of their social security taxes into special private investment accounts.

This proposal was soundly defeated when it was proposed by Mr Bush, and any such talk is bound to mobilise the millions of members of the strongest lobby group in the US, the AARP, which represents retired people.

Tax and spending cuts

Mr McCain has also done a U-turn on tax cuts, moving from criticising the first set of tax cuts introduced by Mr Bush in 2001 for not helping the poor, to endorsing further tax cuts for small businesses in the future in an attempt to preserve jobs.

Barack Obama speaks in Raleigh, North Carolina
Mr Obama is campaigning hard on the economy

But "any tax cuts need stringent fiscal controls", says Mr Holtz-Eakin.

And that implies pretty swingeing cuts in Federal government spending.

He said that a McCain administration would aim to balance the budget in his first four years in office, by reducing government spending by 1.5% to 2% of GDP.

That cut would amount to nearly $200bn - equivalent to a substantial chunk of the whole of the Federal discretionary budget, excluding social security and defence.

Gas prices at the pump

Mr McCain does have one populist measure he has proposed however - a temporary suspension of the 18 cents per gallon federal gasoline tax, to help drivers and truckers over the summer to cope with the "increasing distressed economic conditions".

Woman checks gasoline bill in Chicago
Drivers across the US are facing higher gasoline bills

And gas prices have a mythical significance in American political life, as the queues at petrol stations and high prices during the 1980 election campaign are widely believed to have led to the defeat of President Jimmy Carter and the election of Ronald Reagan.

But on the broader state for the economy, it is perhaps another famous question by Mr Reagan during the debate with Mr Carter - "Are you better off now that you were four years ago?" - that was more decisive.

With the US economy in freefall, few voters will be able to answer this question in the affirmative.

The issue for Mr McCain is whether he will be tarred with the same brush as the Republican administration for the economic hardships that are likely to intensify by the time of the election in November.

Mr Holtz-Eakin, however, said that the key question should be forward looking rather than backward looking.

"Who do you believe will make you better off in four years' time," he said.

"The government doesn't create jobs. Only the private sector does."

Uniquely among most Western countries, America tends to mistrust its government and believe it is more likely to be part of the problem, rather than part of the solution, to the country's economic problems.

So Mr McCain's appeal to rely on the private sector to get the US out of recession could just fall on fertile ground.

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