McCain proposes consumer tax cuts to boost economy

PITTSBURGH (Reuters) - U.S. Republican presidential hopeful John McCain proposed a summer gas tax reduction and other tax cuts on Tuesday in a bid to reassure voters he would help them navigate an ailing economy.

McCain, the expected Republican nominee for the November election, proposed the steps to boost the struggling U.S. economy, which has surpassed the Iraq war as voters' top concern.

The Democratic candidates quickly denounced the Arizona senator's ideas as a continuation of the economic policies of unpopular Republican President George W. Bush.

"I don't think America can afford four more years of the failed Bush policies, and that's what he's offering," Illinois Sen. Barack Obama told a gathering of construction labor unions in Washington.

Obama and his rival for the Democratic nomination, New York Sen. Hillary Clinton, have accused McCain of being economically illiterate and out of touch with ordinary Americans' pocketbook concerns.

While the Democrats presented plans to boost the economy and help stave off home foreclosures early this year, McCain had not outlined specific ideas until recent weeks.

On the day when U.S. income taxes are due, McCain proposed a simpler tax code and a phase-out of the alternative minimum tax, which has increasingly snared middle-class taxpayers along with the wealthy.

With gasoline prices expected to climb beyond a new high of $3.39 per gallon, he asked Congress to suspend the 18.4 cent federal gas tax and 24.4 cent diesel tax from the Memorial Day holiday at the end of May to Labor Day in early September.

"The effect will be an immediate economic stimulus -- taking a few dollars off the price of a tank of gas every time a family, a farmer or trucker stops to fill up," McCain said.

McCain also said he would suspend U.S. purchases of oil for the emergency stockpile known as the Strategic Petroleum Reserve because he believes the purchases are contributing to higher gas prices.

STUDENT LOAN, TAX RELIEF

McCain proposed relief for student loans and a doubling of the tax exemption for dependents to $7,000. He also proposed increased funding for the federal government's Medicare prescription drug program by requiring higher payments for couples who earn more than $160,000.

The gas-tax holiday would cost $8 billion to $10 billion, McCain later said at a news conference.

McCain economic adviser Doug Holtz-Eakin put the total cost of the cuts at $195 billion, which he said would be offset largely by spending cuts and closing loopholes as well as increased tax revenue from a rise in economic growth as a result of his policies. He said McCain believes he can balance the budget in eight years.

The Democratic Party estimated the tab at $4.68 trillion over 10 years when previously proposed tax cuts are included.

"It's really extraordinary how fiscally irresponsible Sen. McCain's policies are," said Harvard University public-policy professor Jeffrey Liebman on a conference call organized by the Democratic Party.

Obama, who is battling Clinton for the right to represent the Democratic party in the November election, said McCain's new plans represented a shift from his earlier resistance to tax cuts.

"Somewhere along the way to the Republican nomination I guess he figured he had to stop speaking his mind and start toeing the line," he said.

A Clinton aide denounced McCain's plan as a repeat of Bush policies, but Clinton herself did not mention McCain in a speech to newspaper publishers. Instead, she touted her proposals to create millions of new jobs through spending on alternative energy and construction.

"We've got to start rewarding work instead of wealth," she said.

McCain used his speech not only to put some distance between him and the Bush administration but also to say both Democrats and Republicans are guilty of spending excesses.

He said his Democratic rivals would hike taxes by $1 trillion over a decade.

"They have the audacity to hope you don't mind," he said in a poke at the title of Obama's book, "The Audacity of Hope.

(Additional reporting by Ellen Wulfhorst, Deborah Charles and Andy Sullivan, writing by Andy Sullivan, editing by David Alexander and David Wiessler)

(To read more about the U.S. political campaign, visit Reuters "Tales from the Trail: 2008" online at http:/blogs.reuters.com/trail08/)