McCain's Brain

John McCain has said that economics "is not something I've understood as well as I should." Perhaps he's just more honest than other candidates, or has a better sense of humor. But the remark—and others that McCain has made on the economy-could get him into political trouble. It is Douglas Holtz-Eakin's job to head that off. Director of the Congressional Budget Office from 2003 to 2005, Holtz-Eakin worked part-time on McCain's 2000 campaign and joined the current effort at the start of 2007 as senior policy adviser on economics and other domestic issues. He recently spoke to NEWSWEEK's Jeffrey Bartholet about the candidate's platform and clarified some of his more controversial statements. Excerpts:

NEWSWEEK: You've been working without pay since last summer. That must be kind of tough.
Douglas Holtz-Eakin: Yes. [Laughs] It has its interesting moments.

At what point will the campaign start paying you again?
I truthfully don't know the answer to that. What we're doing at the moment is trying to get the nomination locked down; it's the march to 1,200 delegates. At that point, according to the plan [campaign manager] Rick Davis has outlined, we'll rethink the campaign and move forward. But until that moment we're not going to change anything.

The [Democrats] are raising a lot more money than Senator McCain.
That's true, but I think we've proven that [this race] doesn't depend on money. We didn't have the most money in the primary, [but] we have the best candidate. I think we'll raise more money, and we don't have to match them dollar for dollar to do well.

Senator McCain has given some ammunition to his Democratic rivals, even before the general election begins, by saying that economics is not something he understands as well as he ought to. Does he regret that comment? Do you regret it?
I regret what's been made of it. He is a guy who has a sort of self-deprecating sense of humor, and that's an instance of it that has been bandied about far more widely than I think it merits. He [also] has high standards. He is a leading expert on national security, and I think he expects his economic knowledge to be comparable.

You talk to McCain often about economics. What's your assessment of his knowledge?
He's got great instincts; he's got a lot of experience. So the comment does bother me because it's at odds with the facts.

He said on Jan. 10 that the economic fundamentals of the United States are strong, and he believes they will remain strong. And he indicated that he didn't think the country was heading into a recession. Is that your assessment, and does that remain the assessment of Senator McCain at this point?
He's said several things since then as well. Whether we head into a recession or not doesn't really matter. The fact is that we're growing too slowly. People are feeling the effects of that, and we need to grow more quickly. So our focus should be on those policies that improve the economic growth of the United States.

I believe he [at one point] opposed the [short-term] stimulus package that is designed to give the economy a jolt, preferring instead to cut spending.
I don't think that's quite right. He spent about a year talking about what he thought was the appropriate structure for the tax code when he became president. He first talked about how important it was to keep taxes low ... then he talked about making them fair and simpler, getting rid of the Alternative Minimum Tax, which was never supposed to hit the middle class. Then he talked about making it more pro-growth and competitive by cutting the corporate rate by 25 percent ...

Right, but am I wrong in my understanding that he [originally] opposed the stimulus package?
Let me finish, because I think this was misinterpreted in the way it was rolled out. He then said, "Look, this is what I think should happen. It should be paired with controls on spending." He's made that point again and again. So let's do that. And by the way, if we did it right now, it would help the economy. That wasn't in opposition to what has gone on in Congress, and which the president has now signed. He shared those principles: tax relief for American families, business investment incentives, no wasteful spending. So he voted for the stimulus bill when it came through the Senate. The president signed it. That's good.

You mentioned cutting taxes. McCain, as you know, at one point said he could not support the Bush tax cuts "in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans who most need tax relief." He's changed his mind on that. To what extent will those words come back to haunt him in a general election campaign?
I don't think they'll come back to haunt him if people look at the record. He ran in 2000 on a tax cut that he had proposed. It was a tax cut that was not as large as the Bush tax cut had promised to be; it was paired with controls on spending and more money spent on defense. I think that looks wise in hindsight. And it put the middle class first in line for the tax cuts. It was a march to a flat tax from the bottom up.

I think you yourself have argued that tax cuts at a time of increases in mandatory spending on entitlement programs are not sustainable. Is that correct?
I am sure I said that we cannot tax our way out of our current situation. I'm sure I've said that tax cuts don't pay for themselves. We've got to bring the long-term mandatory commitments in line with revenues, period. The only way to do that is to really address the growth of those spending programs.