Jackson Free Press

October 28, 2004

"It's the Economy, Stupid," is the famous line posted on the Clinton campaign's war room wall during the 1992 campaign. The conventional wisdom is that in most election years, people vote with their pocketbooks—if the economy has been good under an incumbent, he'll often be re-elected; if it's been bad, then the incumbent faces an uphill battle.

The situation faced by the Bush administration has been anything but typical. There has indeed been a recession, and there's been wartime spending. The economy was declared to have been in recovery as early as 2001 by many academics, although there was fighting over that until mid-2003. In the past year, about 1.7 million private -sector jobs have been created; while this is good news, job growth seems to have slowed in the summer of 2004. Economists say about 1.6 million jobs must be created per year to keep up with population growth, meaning unemployment levels remain flat or, when adjusted for "discouraged" workers, actually continue to rise somewhat. The Bush administration will face the election with a net job loss—the first administration to do so since the Hoover administration in 1933.

But jobs have been added, right? According to the Bureau of Labor Statistics, many of those jobs have been in the service and professional support industries, and a significant batch of those are temporary jobs; few manufacturing jobs have been created (about 70,000 since the beginning of the year, including a loss of 18,000 in September) ,and the tech sector has a net loss in jobs in 2004, with 302,000 jobs lost since 2001.

In terms of how people perceive the economy, things aren't in great shape. The stock market is sharply lower in recent weeks, gas prices are high, oil and home energy prices are rising, and wages are stagnant. A lot of people feel like the economy isn't going anywhere. Consumer confidence is down a third straight month.

‘Give Back the Surplus'

The bulk of the Bush administration's overt attempts at helping the economy have been to cut taxes. The Bush administration has shepherded through four major tax-cut measures, including two in October 2004. These tax measures have lowered the tax brackets for many Americans, closed the gap in the "marriage penalty" (where, in certain circumstances, a married couple filing jointly pays more than would those same two adults filing separately) and eliminated the estate tax accessed on large estates when the owner dies. The Bush administration touts these as incentive measures to grow the economy, and credits them with keep the recession relatively shallow.

It's perhaps worth noting that the Bush administration had planned the tax cuts prior to the official beginning of the recession in March 2001—Bush ran in 2000 on a tax-cutting platform—and, at the time, said the tax cuts were designed to "give back the surplus" to the American people. When the budget surplus disappeared rather quickly the following year, the administration changed its justification to that of spurring growth in the economy, both thanks to the money put in the hands of middle-class workers and the potential trickle-down effect of tax breaks on wealth and for investors.

The Bush tax cuts are generally criticized for contributing to the overall budget deficit in the country, which reached an estimated $413 billion in 2004. While Bush blames much of the debt on a war-time economy and emergency spending that resulting from terrorism, the Congressional Budget Office says that the tax cuts are to blame for about 75 percent of the deficit; with the pre-Bush tax codes in force, the deficit would be considerably smaller. Critics of the administration—including conservatives—point out that it's been rare in history to cut taxes during a time of war. House Majority Leader Tom Delay said famously in April 2003 just as troops were taking to the ground in Iraq, "Nothing is more important in the face of a war than cutting taxes." This appears to be the Bush administration's position as well, although the bulk of economists are at a loss to fully explain it.

Wealth v. Income

John Kerry and supporters criticize the Bush tax cuts for having concentrated on the upper incomes in America. In fact, a number of the tax cuts focused on taxes on wealth instead of income. For instance, tax cuts that focus on dividend earnings, capital gains and estate taxes cut the taxes on money earned by appreciation of the assets themselves, not as as direct result of work by individuals. While those tax cuts may spur growth—and they might help some middle-class seniors and families that hold blue-chip stocks—they do not offer the direct benefit to families and workers who live paycheck-to-paycheck. For that reasons, many middle-class and working poor Americans have perceived little direct benefit from them. The middle class, according to the non-partisan Congressional Budget Office, now shoulders more of the federal tax burden than it did prior to the tax cuts.

Bush's plan for the future includes a $500 million fund for the "Jobs of the 21st Century" initiative, unspecified tax reforms and the promotion of comp-time and flex-time as an alternative to overtime pay. His Web site says that Bush will "provide assistance" with the goal of creating 7 million new homeowners, and will help small businesses by allowing them to "band together" to create health care insurance pools.

Kerry's economic plan is largely theoretical; he hasn't had an opportunity to shape it. In fact, if a Kerry administration is faced with a Republican Congress he may still have trouble; Bush has had relatively few economic fights on Capitol Hill, particularly in the past two years, when Republicans have controlled both the Senate and House.

Kerry's plan focuses on taxes as well, rolling back the tax cuts for the richest ($200,000-plus Americans), while using targeted tax cuts to hit hot button issues for many families—health care, childcare and education. He says the plan is to pay for those cuts by closing "corporate tax loopholes" and increasing taxes on the wealthiest Americans, returning them to Clinton-era rates. Likewise, Kerry-Edwards plan to offer a tax credit in 2005 and 2006 that offsets an employer's payroll tax contribution for employees who are added to payrolls in manufacturing, outsource-likely sectors and small businesses. (Kerry appears not to have any proposal for a "gas tax," although the Bush Web site includes a "Gas Tax Calculator" to tell you how much you would pay under Kerry if, in fact, Kerry had such a proposal.)

See the JFP PoliticsBlog 2004 on our Web site at jacksonfreepress.com/politics with more issues, bios and discussion about this election. Updated daily.