- The Washington Times - Monday, September 2, 2002

In many ways, the midterm elections have turned into a race between the calendar and the nation's meandering economic recovery.
Perceptions are everything in politics. So the question of the day is: Which will come first the Nov. 5 elections or a broad-based belief among most voters, especially pivotal swing voters, that the economy has shaken off its lethargy and the stock market is on an upward trajectory?
If the economy continues to rebound, the Democrats' dream of controlling the House and Senate will be history. If the economy shows new signs of weakness, the Democrats can start measuring for new drapes in the speaker's office.
With two months to go before voters head for the polling booths, the economic signs are hopeful, but mixed.
Two important economic reports that preceded this Labor Day weekend had the White House cheering. Housing sales, both new and existing homes, rose sharply in July, setting a new monthly record. And durable goods orders also increased impressively in the same month, giving the manufacturing sector a much-needed boost.
Fueled by a 30-year, fixed-rate mortgage that averaged close to 6 percent last week a 32-year low new home sales jumped by 6.7 percent in July. Resales increased by 4.5 percent. The numbers point to a record year for the housing industry.
Consumer-confidence survey indexes may be falling (after all, they are only polls about one's mood at the time), but housing sales are a tangible and more accurate expression of confidence in the future. The economy may be sluggish, but people are not only buying homes, they are improving them, adding on, and most important, furnishing them.
This is boosting the building trades industry, manufacturing and the banking sector, too. Falling mortgage rates have also accelerated a refinancing craze that is leaving more money in checking accounts, and that bodes well for future consumer spending.
Add to this the Commerce Department report that orders for manufactured goods big-ticket items like computers, communications equipment, trucks and commercial aircraft shot up by 8.7 percent in July. This follows a 3.8 percent decline in June, but it was the biggest increase since October, when durable goods orders rose by 9.2 percent.
What is especially encouraging is that a lot of these orders came from nondefense businesses, showing that companies were investing for the future. The administration's stimulus package, which contained business tax breaks to spur equipment purchases and plant expansion, is finally kicking in.
Of course, these are only one month's figures, following dips the month before. August often a month of slow activity could show a further third-quarter retreat. Unemployment is relatively low at 6 percent, but if the jobless numbers due out this Friday go up, that could reinforce voter and investor perceptions that the economy is stalling and remains weak.
Then, there is the bearishness and volatility of the stock market. Stocks have rallied since July, but they retreated near the end of August in a wave of profit-taking. This, more than anything else, perhaps, has cast a pall of frustration and uncertainty throughout the electorate.
Two-thirds of all likely voters now own stocks, either directly or through their Individual Retirement Accounts or 401(k) plans. They will be getting their third-quarter statements on those accounts in early October, one month before they vote. Unless there is a surprising rebound in the market this month which is very possible these investor-class voters are going to be unhappy campers.
The Democrats will try again to make the economy's weakness an issue in this campaign. But will investor-class voters believe Democrats' claims that the Bush tax cuts are to blame for the economic downturn and rising budget deficits?
I don't think so.
The bulk of the tax cuts have not kicked in yet and won't until 2004 and 2006. Besides, how can letting businesses, workers and investors keep more of what they earn to save and invest more weaken the economy?
Blaming everything on the tax cuts is not a politically marketable pitch in the investor-class age of Individual Retirement Accounts and 401(k)s.
Still, the White House is worried that voter nervousness and uncertainty could turn to anger on Nov. 5. That's why Bush economic advisers are working on a package of tax cuts aimed at investors raising the amount of stock losses you can deduct from your income taxes is one idea to inoculate Republicans from Democratic attacks over the next two months.
This package could also include cutting taxes on dividends and capital gains, raising the limit on retirement account contributions and the age that seniors must begin withdrawing income from their IRAs.
The oldest rule in politics is to stay on offense. and nothing would be more welcome in these uncertain times than a pro-growth package of proposals aimed at helping beleaguered investors to secure their future retirement.
Especially when the Democrats will be suggesting the answer to our troubles is to raise taxes on what we have left.

Donald Lambro is chief political correspondent for The Washington Times and is a nationally syndicated columnist.

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