the diff: The Economy

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There’s nothing like a credit crunch and murmurs of recession to push “the economy” front and center of a presidential campaign. In recent months, the three top contenders in Election 08 – McCain, Obama and Clinton – didn’t have to be reminded “it’s the economy, stupid” to spell out their recipes for economic fitness and, at least in the case of the Democratic frontrunners, detail plans for propping up a teetering mortgage market.

But while presidential hopefuls – in general – like to assure supporters they have the smarts to steer the nation to safe economic harbors (McCain, to the befuddlement of some, prefers to defer to his advisors), the economy may be the issue a president has least influence over. That’s particularly true in the short term, where increasingly globalized markets pay less and less heed to Congress’ and the Fed’s attempts at monetary tweaks and tunings.

Still, most economists will agree that US leadership can have some effect on long term economic growth and stability – by setting the right tax rates, budget levels and trade policies. It’s there we’ll peek into our (two year) future ball.

Spending

  • The diff: A few billion bucks.

With Congress temperamentally averse to putting the brakes on the runaway costs of Social Security, Medicare and ever-expanding Pentagon spending requests, there isn’t a whole lot of room for a president to make a dent in federal spending. Non-defense discretionary spending (money that’s not written into entitlement formulas), which is where Congress and the White House traditionally battle over pricetags, accounts for less than a fifth of the total budget pie.

That’s not to say that a McCain presidency won’t try to shave that slice down; as an anti-earmark crusader, the Republican candidate could make it difficult for any pork to squeeze itself into future budgets, saving governmental coffers $10 - $20 billion a year. But what a McCain presidency would save in earmark spending, it could easily add back in Iraq funds, as the pro-surge candidate isn’t wont to draw troops home anytime soon.

As for those ballooning entitlement spending programs, Obama or Clinton would for sure tackle Social Security reform differently than McCain, who supports private retirement accounts as part of a package solution – but it’s not likely any president will get a chance to take a swat at Social Security reform, given that Congress sees Social Security as a smallish crisis that’s best avoided. Only half the same can be said of Medicare; while everyone agrees it’s a spending tsunami in the making, no one’s politically suicidal enough to do anything about it just yet.

Taxes

  • The diff: Dems in the White House could spell higher taxes for the rich.

Since getting back in the majority saddle, congressional Dems have been waiting for a president to help them roll back a Bush tax cut or two, while putting the dreaded Alternative Minimum Tax (AMT) finally to rest.

Set up in the 60’s to make sure a handful of uber-rich didn’t duck their taxes, but now reaching millions of middle class families, the AMT is the bane of every politician; they all want to ditch it but don’t know how to without blowing a $1 trillion hole in the budget (over 10 years). Democratic plans in the works would pay for axing the AMT in part by raising taxes on the wealthy, which would jive with Clinton or Obama, both of whom support raising taxes on the $250,000 plus households.

Whether McCain would sign off on a tax raise is a question mark. On the campaign trail, McCain is a loyal GOP anti-tax foot soldier, but given that he was one of two GOP senators to vote against the Bush cuts in ’01, some of his conservative brethren wonder just how strong a stand he’d take against a congressional tax hike.

Corporate America, meanwhile, may catch some favorable tax winds – especially if McCain lands the number one spot. Congressional leaders are talking about bringing down corporate rates 5%, which is not as far as the Republican candidate would like – he’d cut rates fall from 35% to 25% - but farther than either of the Dem candidates are talking (their plans are mum on the issue).

Trade

  • The diff: No prez can shake Congress from its anti-free-trade mood, though McCain is more likely to block China trade slaps.

In 2007, the newly Democratic Congress threw a wet-blanket on free-trade fervor, preferring to refashion bilateral agreements into “fair trade” deals that add in environmental and labor safeguards. Clinton and Obama, who both talk about retooling NAFTA, won’t stand in their way. Free-trader McCain probably wishes he could, but only able to play veto defense, he’ll have little luck warming Congress back up to the free-trade heyday of the Clinton and Bush early years.

Where a Democratic or Republican president could make a difference is on trade relations with China; lawmakers have been grumbling about unfair Chinese trade policies – particularly an undervalued Yuan they say distorts the trade balance – for years and keep threatening to slap the growth-spurting economy with retaliatory measures. Whether the Dems would go along with Congress is unclear; McCain is more likely to block their way.

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