Sen. John McCain moved decisively to the supply-side Tuesday in a strong speech to the National Small Business Summit in Washington, D.C. For investors, small-business owner-operators, and the vast majority of middle-class Americans who go to work every day and are concerned about Sen. McCain’s tax vision, this speech is good news. Big Mac is the taxpayer-friendly candidate.

The Republican candidate for president embraced low-tax-rate incentives to grow the economy, promising a combination of pro-growth tax reform and simplification along with significant spending restraint. He has called himself a foot soldier in the Reagan revolution. This tax speech clinches it.

McCain pledged to keep taxes low for families and employers, putting himself squarely in Ronald Reagan’s camp and offering to extend the long prosperity wave started by the Gipper over twenty-five years ago. In contrast, McCain charged Obama -- who gave his economic speech on Monday -- with proposing the single-biggest tax hike in the entire post-WWII period.

McCain asserted that “no matter which of us wins in November, there will be change in Washington. The question is what kind of change?” Obama says a McCain victory will hand Bush a third term. McCain says an Obama victory gives Jimmy Carter a second term.

I think McCain gets it right.

Getting down to specifics, McCain said he will maintain the low income and investment tax rates put in place by President Bush. He singled out the need to keep the capital-gains tax rate at a low 15 percent, so that businesses will have the investment necessary to expand jobs, productivity, and real wages.

Completely unlike Obama, McCain is saying you can’t have capitalism without capital. And he recognizes that investors must have high after-tax returns in order to take risks and fuel entrepreneurial activity. On this point, think high-risk energy technologies for clean coal, natural gas, oil shale, and nuclear and cellulosic power.

McCain repeated his plan to reduce the corporate tax rate to 25 percent from 35 percent. This could be his single-most-important tax reform. Not only will it enhance America’s global competitiveness, since we have the second highest corporate tax among large countries. But a number of studies show that roughly 70 percent of the benefits from a lower corporate tax will flow to the workforce in the form of higher real wages and more jobs.

McCain also pledged to keep the estate tax low to reward family businesses. Overall, he would seek a flatter and simpler tax system, probably modeled on Rep. Paul Ryan’s idea of two rates of 25 and 15 percent. McCain also discussed several middle-class tax cuts, such as doubling the child tax exemption and phasing out the alternative minimum tax. For businesses, McCain added a first-year cash-expensing provision for the write-off of new equipment and technology.

McCain coupled all this with a pledge to veto earmarks and pork-barrel spending. He held out as an example the outrageous $300 billion farm bill that drew Obama’s vote. McCain would go after corporate welfare and freeze discretionary spending outside of the military. And he made an especially strong case for the free-trade policies that have been so important to U.S. economic growth. Continued...