- The Washington Times - Sunday, February 3, 2008

In the ideological gulf that divides the Democratic and Republican presidential front-runners on the issues, the economy looms largest of all.

With the economy showing signs of a significant and perhaps lengthy slowdown because of the subprime mortgage and credit crises, voters’ concern about their own economic future “is now as high as it has been in about a year and a half,” the Gallup Poll reported last month.

And there are even signs the economy’s weakness is forcing some candidates to recalibrate their economic proposals. A senior economic adviser to Sen. Hillary Rodham Clinton said she would delay her plan to raise taxes on people in the two highest income brackets because of the severity of the economy’s decline.

“She just thinks we are at a point where we are bordering on a recession, and you want to do everything you can to inject demand into the economy right now,” said Gene Sperling, who also served as President Bill Clinton’s national economic adviser.

As the Iraq war has dropped off the front pages after the decline in the levels of violence there, political and economic strategists say that major economic issues, from taxes to jobs to trade, will dominate the presidential-campaign debate in the weeks and months to come.

“With health care and energy costs skyrocketing, wages stagnating, and unemployment at its highest rate in years, American families have been feeling the strain Republicans have put on their pocketbooks. It’s no surprise, then, that the economy is now the top issue for both Democratic and Republican voters,” the Democratic National Committee said last week in a broadside on the Bush administration’s handling of the economy.

And Republican political and economic strategists readily admit that the economy is going to get worse before it gets better, and that will pose a major political challenge for Republicans.

“If it’s not a recession, it’s going to feel like one,” said David Smick, a Republican economic consultant who advises the White House and global business leaders.

“The problem for Republicans is the lag time. It’s going to take eight months for the stimulus effect to take hold, which means the economy will be improving but it won’t be in the data until later this year,” he said.

But a survey of the issues that separate the two major parties, and in some cases their candidates, shows that vast differences remain in their approach to bedrock economic issues that will affect most Americans.

Republicans, supportive of efforts to quickly stimulate the economy, also are calling for what they consider longer-term solutions, such as making the 2001 tax cuts permanent and enacting deeper income-tax cuts for workers, investors, savers and businesses.

Former Massachusetts governor Mitt Romney wants to further lower income-tax rates across the board, end the tax on capital gains, dividends and interest on savings, slash the corporate tax rate to 20 percent from 35 percent and eliminate the estate tax.

“He is proposing a deeper cut in the corporate rate, which will have a more positive long-term impact on global competitiveness for U.S. companies and goes further on capital gains and dividend tax relief than [Republican rival Sen. John] McCain, eliminating those taxes for people who make below $200,000,” said Cesar Conda, a member of the Romney economic board of advisers. “McCain simply keeps the present 15 percent capital gains where it is.”

“He also plans to provide individual income-tax rate relief, by reducing the bottom tax rate from 10 percent to 7.5 percent, effectively lowering everyone’s taxes by an average of $400 in 2008,” Mr. Conda said.

The front-runner for the Republican nomination, Mr. McCain, of Arizona, has not specified any new plan to reduce income-tax rates further, but he would cut the corporate tax to 25 percent from 35 percent, eliminate the Alternative Minimum Tax and make permanent the Bush tax cuts he initially opposed, saying those proposals would create confidence among businesses and taxpayers to better plan for the future.

“Fundamentally, his policies are small government, pro-market, conservative economics. He opposes tax cuts that are not linked to spending cuts. He’s never voted for tax increases. This is not a guy who is running around saying, ‘Raise taxes,’ ” said economist Douglas Holtz-Eakin, who is advising Mr. McCain on economic policy.

Mr. McCain, however, has confided in the past that he knows very little about economic-policy matters. “The issue of economics is not something I’ve understood as well as I should,” he said in a Boston Globe interview in December.

Democrats for the most part oppose broad tax cuts to boost economic growth.

Mrs. Clinton, for example, would raise income-tax rates on families in the top tax bracket, with incomes of more than $250,000 a year; tax generous health-care plans for wealthy families; and levy higher taxes on other parts of the economy, including the oil industry. She essentially would preserve the estate tax, too, said her campaign advisers.

But the New York senator also would eliminate the marriage tax penalty on two-earner married couples, reduce the Alternative Minimum Tax and, for now, keep Mr. Bush’s tax cuts for low-, middle- and upper-income Americans. She also wants to provide tax deductions for college tuition.

“The senator is for extending the [Bush] tax cuts for families making under $250,000, but she would let the two top rates go back up to their levels under the [Bill] Clinton presidency, though she’s not for doing that now” as a result of the economy’s weakness, said Mr. Sperling, a senior adviser in her campaign.

“She would let the two top rates go back up to 36 percent and 39.6 percent when they expire in 2010,” Mr. Sperling told The Washington Times.

Her chief rival, Sen. Barack Obama of Illinois, also would raise the top tax rate on wealthier Americans to nearly 40 percent from 35 percent and boost taxes on corporations, capital gains and dividends. But his agenda also calls for $80 billion in tax cuts for mostly lower-income workers and the elderly, and reducing, though not eliminating, the marriage penalty.

He would significantly expand the Earned Income Tax Credit to raise the incomes of workers in the bottom tax brackets with refundable tax-credit payments, but few, if any, capital-investment incentives are in his tax policies to lift Wall Street out of its doldrums.

“He doesn’t favor giving special tax breaks for oil companies and for other corporations,” said economist Austan Goolsbee, an Obama adviser at the University of Chicago, “but he would cut capital-gains taxes for start-up firms.

“He is for programs that are about long-term growth, investing in science and technology, improving work-force skills, investing in alternative energy and the transition from school to work,” Mr. Goolsbee said.

On the Republican side, Mike Huckabee, the former Arkansas governor, has the most dramatic proposal. He wants to eliminate the entire income-tax system and the Internal Revenue Service, replacing it with a national 23 percent sales tax on all goods and services, an idea that has received little support in Congress.

McCain, who voted against the Bush tax cuts in 2001 and 2003, only to embrace them in 2006 as he prepared to run for president, is a deficit hawk more focused on ending “pork-barrel” spending and slowing the budget’s growth.

Attacked by GOP tax-cutters for his past opposition to Mr. Bush’s cuts, he has said he opposed them because “I saw no restraint in spending.”

But at the time, he gave a different reason for his two “no” votes: “I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans who need tax relief,” he said.

Asked at the end of last year on the Fox News Channel’s “Hannity & Colmes” whether his previous “no” vote was a mistake, McCain said “No … because spending was completely out of control.”

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