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[URL="http://www.pbs.org/newshour/bb/politics/july-dec08/gopeconomy_09-02.html"]PBS NEWSHOUR[/URL]

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PAUL SOLMAN, NewsHour Economics Correspondent: In the past four presidential elections, we've asked an economic adviser from each campaign to take us on an early tour of their convention city to outline their economic program.

The McCain campaign was unable to send anyone to St. Paul, so they met us instead outside our offices for a local tour of Northern Virginia.

Nancy Pfotenhauer is a top McCain economist. First stop she chose: the station where our own camera crews gas up. The reason: to highlight a key part of Senator McCain's economic program, which begins with an 18.5-cent tax cut, she says, ends with energy independence.

NANCY PFOTENHAUER, Adviser, John McCain Campaign: In the short term, what Senator McCain wants to do is, of course, give us a gas tax holiday, like we've had before in this country, like Japan has tried.

PAUL SOLMAN: Every economist I know says that's exactly the wrong way to dampen energy use and, if it's ever even conceivable, make us energy independent.

NANCY PFOTENHAUER: But you now know an economist who advocates a gas tax holiday, because that would be me.

PAUL SOLMAN: In the past, campaigns have set up the issues, providing local folks to help make the case. Pfotenhauer made most of it herself, the reporter playing devil's advocate to highlight her arguments.

The first thing we learn in economics is the supply-and-demand curves. And that is that, if the price is high, there's less demand and, if the price is low, there's more quantity demand.

NANCY PFOTENHAUER: So are you in favor of higher gas prices? I mean, the point is American consumers are suffering under this burden, and it's having a very real impact on them, low-income particularly.

PAUL SOLMAN: In the past year or more, American consumers at all income levels have felt themselves to be suffering. The famous filmmakers of "Naked Gun 2 1/2," "Airplane!", and other satires, the Zucker brothers have even made a video for the Internet, "Nozzle Rage," encapsulating the anger.

McCain would supposedly assuage some of that rage short term with gas tax repealing.

NANCY PFOTENHAUER: He's not talking about repealing it forever; he's talking about a gas tax holiday.


Long-term energy policies
PAUL SOLMAN: And, indeed, he's talking more about a much longer-term fix.

NANCY PFOTENHAUER: He also wants to increase domestic production, and that's drilling for oil and natural gas.

PAUL SOLMAN: With respect to drilling, one of the things that's been pointed out to me is how long it takes.

NANCY PFOTENHAUER: If it's going to take five years to get the oil out of the ground -- and we've heard people in the industry say it's much shorter than that, but assume five years is a good-faith estimate -- you need to -- you know, flip the switch immediately.

PAUL SOLMAN: Another McCain energy solution is nuclear power.

NANCY PFOTENHAUER: It's zero emission. It's supported by Patrick Moore, who's the co-founder of Greenpeace. Many other countries do it. It's a clean energy source.

PAUL SOLMAN: It's also a controversial source, especially with regard to nuclear waste, how to keep it from terrorists, how to store it. The McCain response?

NANCY PFOTENHAUER: Clearly, we need to get Yucca Mountain up, functioning, and we need to get to a point where we can make reprocessing part of the mix, the way it is in other countries that really rely on nuclear energy.

PAUL SOLMAN: Senator McCain has other proposals: a tax credit up to $5,000 for buying low-emission vehicles; getting tough on current emissions standards; pushing flex-fuel vehicles.

NANCY PFOTENHAUER: He's also established the $300 million battery prize. It's structured so that technology has to be delivered at 30 percent of the current cost.

PAUL SOLMAN: I just hate to have to tell you this, because it makes me seem so old, but I've been hearing about that little extra investment in battery technology that will suddenly make things different since I was a -- since I had hair.

NANCY PFOTENHAUER: I understand where that comment comes from. I think the big challenge has been to get the private sector doing it rather than the public sector.


Agricultural tariffs questioned
PAUL SOLMAN: Energy plan complete, we moved onto our second stop, the blue-collar community of Herndon, Virginia.

NANCY PFOTENHAUER: So we're here at Main Street, USA, because energy costs and transportation costs are really the thread that's woven through all of this.

PAUL SOLMAN: And higher energy costs mean higher food costs, Pfotenhauer points out, which McCain wants to combat with freer trade policies.

NANCY PFOTENHAUER: In a market, you want the most competition you can get in order to drive prices down and give consumers the most options.

PAUL SOLMAN: And so a place like Jimmy's Old Town Tavern here buys sugar. We have quotas on sugar, imported sugar, to protect the domestic mainly sugar beet industry in this country. And that means they have to pay more for sugar, we have to pay more for sugar at home.

NANCY PFOTENHAUER: And, to make matters worse, because the government stepped in and set a certain amount of corn, basically made corn's highest and best use for ethanol, that means there's less corn available for other agricultural uses.

PAUL SOLMAN: Plus, there's a tariff on ethanol from abroad, much of it made from sugar. But back to Herndon and on to Total Auto Parts for a quick stop, where Larry Porch, who employs 19, was Pfotenhauer's example of the health care problem.

LARRY PORCH, Business Owner: The health care costs over the past few years have been rising 18 percent, 20 percent, 22 percent a year. I help my employees with the health care, but many have opted out because it's just gotten too expensive. Either they find something with their spouse or they're going without. And that's not good.

PAUL SOLMAN: And how does the McCain plan address that?

NANCY PFOTENHAUER: The anchor of it, if you will, is a refundable tax credit. It's $2,500 per individual, $5,000 per family. And so that will enable folks -- say you're a part-time employee and don't qualify for an employer's health insurance or you've got a small business owner who can't afford to underwrite the whole cost. This allows you to go out and find an insurance, pay -- use this money towards health insurance.


Tax plans for businesses
PAUL SOLMAN: With that, it was on to the next stop. ObjectVideo in Reston, Virginia, where Ed Trotta is the marketing manager.

ED TROTTA, Marketing Manager, ObjectVideo: We develop and market software to extract really relevant information from video surveillance.

PAUL SOLMAN: For example, it's not -- is it just the -- oh, no, what's that?

ED TROTTA: We have a new alert from someone crossing the trip wire.

PAUL SOLMAN: Oh, that's that camera up there?

ED TROTTA: Correct. And you can see us standing here, as he crossed the trip wire, which was just moments ago.

PAUL SOLMAN: So what are we doing here? I assume it's not because you're explaining the economic efficacy of Senator McCain's security strategy.

NANCY PFOTENHAUER: No. We're here to talk about Senator McCain's tax policy and how it will help companies like ObjectVideo continue to be successful in an ever more competitive world.

Specifically, we want to lower the business tax rate from 35 percent to 25 percent. We also want to make permanent the R&D tax credit and tie it to 10 percent of wages.

We want to keep the capital gains rate low at a low 15 percent. We want to keep the tax on dividends and investment low, as well. We also want to allow for immediate one-year expensing of capital and technological equipment.

PAUL SOLMAN: Not surprisingly, perhaps, Trotta was all in favor.

ED TROTTA: Any time there is the opportunity to save in any area -- taxes are certainly one of those -- we have potentially more money with which to work to put into our R&D program. That's going to help us, bottom line.


Net effect of McCain's plan unclear
PAUL SOLMAN: We ended the day under the watchful gaze of the so-called Intelligent Camera in ObjectVideo's parking lot.

So corporate tax rate down, dividends, capital gains tax no more than they are now. What about personal taxes?

NANCY PFOTENHAUER: We want to keep the personal rates where they are right now, as well. In times of economic downturn, if you will, the worst thing you could do is increase taxes.

PAUL SOLMAN: But doesn't Senator McCain want to make the Bush tax cuts on personal income permanent? And that doesn't just stimulate the economy in the short run.

NANCY PFOTENHAUER: No, we don't want to just stimulate the economy in the short run. We want a track change, if you will, and we want to have long-term economic growth, and economic expansion, and job creation.

PAUL SOLMAN: This is the familiar Republican supply-side argument: Lower taxes induce harder work, and more investment, and ultimately more growth, to which we felt obliged to offer the familiar response, citing the Tax Policy Center, run by directors from both parties, set up for independent analysis.

They say the larger future deficits would reduce and could completely offset any positive effects.

NANCY PFOTENHAUER: OK, first of all, Tax Policy Center is not without its philosophy. Having said that, the Tax Policy Center, when they analyze the two tax plans side by side, said that Senator McCain's would promote economic growth and job creation and that Senator Obama's was going to be progressive, but not create economic growth.

PAUL SOLMAN: The report does say that the Obama tax plan is more progressive, since it raises taxes on higher incomes, only lowering them on those making less than $250,000 a year. But it doesn't say that would damper growth or productivity.

About McCain's tax cuts, it reads, "Some of these tax cuts would have positive economic benefits. But adverse effects of the resulting increased deficits may make the net effect of the plan economically harmful."

But the deficit charge is unfair, says Pfotenhauer.

NANCY PFOTENHAUER: They do not take into consideration the reduction in the growth rate of spending. They simply say they don't believe it's going to occur. Well, the bottom line is, it has occurred in the past.

PAUL SOLMAN: And Senator McCain is betting that spending cuts would occur again if he were president, offsetting his tax cuts. It's a bet the American public will get to vote on once more this fall.
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