By Matthew Benjamin

Feb. 13 (Bloomberg) -- John McCain, who acknowledges that the economy isn't his strong suit, elevates two economic objectives above all others: He wants to slash spending and open markets.

Though McCain, 71, has become the Republicans' presumptive presidential nominee, the battle has tested some of his principles. He is campaigning on sweeping new tax reductions, yet the Arizona senator consistently has opposed tax cuts he said were fiscally reckless or tilted toward the rich.

McCain, a national-security expert by inclination, has voted for free-trade agreements and fought protectionism. On the domestic front, he tried to kill many federal programs and opposed President George W. Bush's 2003 Medicare prescription drug plan, which may cost almost $400 billion over 10 years.

``I expect that McCain would be more concerned about budget deficits and would be less inclined to accept supply-side rhetoric,'' said Robert Bixby, executive director of the Washington-based Concord Coalition, a group that advocates budget restraint.

Supply-side theory emphasizes the growth-spurring potential of slashing income tax rates and makes budget-balance a secondary concern.

McCain, who last night won primaries in Maryland, Virginia and the District of Columbia, promises to veto spending on lawmakers' pet projects, and would seek line-item veto authority to cancel wasteful programs.

Tax-Cut Advocate

In recent months McCain has styled himself as a tax-cutter. He said he supported President Ronald Reagan's tax reductions, though he wasn't in Congress when Reagan pushed through his 1981 package. Adviser Douglas Holtz-Eakin said McCain was referring to the 1986 tax overhaul, which lowered rates by eliminating deductions and exemptions and raising corporate taxes.

In 2000, when he first ran for the White House, McCain backed tax relief for working families, contrasting his plan with Bush's, which provided more help for upper-bracket taxpayers.

McCain said his tax cuts should be accompanied by spending restraint. Bush's cuts, which trimmed top marginal rates and levies on investment income and weren't offset by spending reductions, helped to swell annual deficits. In fiscal 2004, the red ink set a record of $413 billion.

McCain Votes No

After Bush's election, McCain opposed the new president's 2001 tax plan. ``I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans,'' he said. He was one of two Republican senators to vote against the cuts.

Two years later he voted against a second round of tax cuts, arguing that a nation at war couldn't afford them. ``We've gone from a $127 billion surplus to a $300 billion deficit,'' he said. ``Republicans used to be against deficits.''

Those defections hurt McCain with conservatives, and now he vows to extend the president's tax reductions, which expire by 2011, and push for others.

``We need to make the Bush tax cuts permanent. We need to abolish the alternative minimum tax,'' he said last week in Wichita, Kansas. ``We need to have a corporate tax cut from 35 to at least 25 percent.'' The cost of those proposals would exceed $5 trillion over 10 years, according to the Center for Budget and Policy Priorities in Washington.

Revenue Losses

McCain's specific spending cuts wouldn't offset those revenue losses, however, as money set aside for lawmakers' projects in fiscal 2006 was $29 billion and $13 billion in fiscal 2007, according to Citizens Against Government Waste, a watchdog group. McCain also seeks larger spending reforms, including cutbacks in Medicare, though he hasn't provided details.

On the stump, McCain seems uncomfortable with economic prescriptions, preferring to talk about the war on terror. In December, he told the Boston Globe that economics ``is not something I've understood as well as I should.''

McCain's discomfort with the issue surfaced recently when a consensus emerged in Washington for a stimulus package to avert a recession. Bush will sign a $152 billion stimulus measure today. McCain's initial reaction was to slash spending, a measure most economists say would actually slow growth.

Subsequently, McCain endorsed a stimulus plan that provides tax rebates for individuals and incentives for business. McCain says his campaign package of tax cuts would spur long-term growth.

Some former critics accept McCain's turnaround on taxes. ``It's not just expedient rhetoric,'' said Grover Norquist, president of Americans for Tax Reform, a Washington organization that backs lower rates.

`Profoundly Disturbing'

Others remain unconvinced. McCain's tax record is ``profoundly disturbing and antigrowth,'' proclaims the Club for Growth, a Washington group that supports limited government. It ``should make economic conservatives very worried.''

McCain's advisers are an amalgam of tax-cut enthusiasts and advocates of spending discipline. Former Texas senator Phil Gramm, considered a potential Treasury secretary in a McCain administration, sponsored the 1985 Gramm-Rudman-Hollings Balanced Budget Act, which restrained spending.

Another deficit hawk is senior policy adviser Holtz-Eakin, former director of the Congressional Budget Office.

Yet McCain is also counseled by supply-side champion Jack Kemp, former Secretary of Housing and Urban Development from 1989 to 1993. Kemp once declared that Republicans ``no longer worship'' at the altar of balanced budgets.

Kemp said his role in the inner circle is to ``help expand on John's economic views,'' which he says were ``less exposed to kind of the tax-rate reduction school from which I came.''

To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=a4IADiMl4KIY&refer=home