Economy looms over vote

Next week’s election is shaping up as a referendum on the Republican way of running government and the economy, thanks to President Bush’s success in securing enactment of most of his economic program.

While some of Mr. Bush’s programs — such as his Medicare prescription-drug benefits — have not been in place long enough to see the full results, the best-known measures, $2.8 trillion of tax cuts, are well along in influencing the economy.

Mr. Bush’s tax cuts have produced both accomplishments and failures. Economists are nearly unanimous in crediting the personal rate cuts and rebates, which buoyed consumer spending during the recession of 2001, for helping to make that downturn one of the mildest on record and nurturing a recovery.

Economists also generally credit the generous tax incentives for business investment in the 2002 round of tax cuts with helping to spark a much-needed revival of business spending — adding a second leg to the recovery.

But the stimulus took place at the expense of record budget deficits that hit $413 billion last fiscal year. And they failed to produce the 5.5 million jobs promised by the White House. So far, only 1.8 million jobs have materialized.

“Under normal circumstances, interest rates at an all-time low and a full-speed-ahead, damn-the-deficits fiscal policy would be enough to keep the American economy afloat” and add about 250,000 jobs a month, said John Williams, a New Jersey economic consultant. “But the times are apparently not normal.”

Job growth decelerated this past summer to around 100,000 a month, according to the Labor Department.

Most economists blame high oil prices for lackluster job gains and the economy’s hesitating response to aggressive stimuli, along with the lingering threat of shocks from terrorist attacks and the conflict in Iraq.

Still, the results of the tax cuts should not have been surprising, economists say, since a large portion was focused on spurring investment through expanded write-offs and cuts in dividend and capital-gains taxes.

Profits, dividends soar

Profits for all U.S. corporations surged to a new record of more than $1 trillion this year, while dividends have grown to more than $400 billion, according to the Commerce Department.

Microsoft Corp., like many U.S. businesses swimming in cash, instead of announcing major new hiring plans or software ventures, said this spring it would provide an unprecedented $75 billion of dividends and stock buybacks for shareholders.

“The explosion in cash has been so intense that even profligate companies haven’t been able to invest it fast enough,” said Richard Berner, chief U.S. economist at Morgan Stanley.

Despite the predictable bonanza for corporate America, the results were disappointing for the White House, which had gambled that the tax cuts for corporations and high-income households would spur more business expansion and hiring.

Corporate spending on investments like computers and other labor-saving equipment did pick up, growing at double-digit rates in the last year. But while that sent productivity soaring, hiring did not keep pace.

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