One thing is clear about John McCain’s economic policies: They won’t be a mere continuation of George W. Bush’s policies. They can’t afford to be. While Bush’s tax cuts have been highly beneficial both to the stock market and to investors directly, the Bush Administration has taken what was a $150 billion federal budget surplus and transformed it into a $400-billion-plus deficit. That’s at a time when stock markets and real estate markets have been ebullient, producing lots of bonuses and capital gains to tax.

Most of the deficit increase has resulted from sloppiness on spending; only about one third of the negative swing has been caused by the Bush tax cuts. Some of those cuts – most notably the 2003 cut in dividend taxes – almost certainly improved the economy enough to pay for themselves. Indeed, the 2003 dividend tax cut alone raised the theoretical value of the U.S. stock market about 10%, putting an end to a dangerously depressing downdraft after the 2000 tech bubble.

If a recession hits, the federal budget deficit is likely to hit $1 trillion, which will be very difficult to finance, forcing up interest rates, weakening the dollar and tending to “crowd out” the private investment that makes the economy grow. In addition, the current surplus on Social Security is likely to turn into a deficit by 2018, the point at which about half the baby boomers will have retired. The “bankruptcy of the trust fund” in 2041 or so isn’t a looming catastrophe, because the trust fund is just a bunch of government debt – the left hand lending to the right. Thus, the trust fund’s bankruptcy means either that Social Security will have to become self-financing (reducing real benefits by about 26% – to around their present level) or taxes will have to be raised. Leave that one to our grandchildren: The important lesson is that Social Security, which has provided more than $100 billion annually to make our budgeting easier since the 1980s, will shortly stop doing so.

The bottom line is that either presidential candidate will have to raise taxes. Democratic candidate Barack Obama will raise them because he wants to (or rather, because he has some “exciting” spending ideas that will require it) and McCain will raise them because he wants to keep the budget within shouting distance of a balanced position. Although McCain has suggested some tax cuts, on that suggested the elimination of the gas tax during the summer period, that proposal was met with universal derision by economists (because it benefit would go entirely to Saudi Arabia and other oil producers). Indeed it suggested that economics was not McCain’s strong suit or greatest interest.