Commentary: Bush And Kerry: A Tale Of Two Economies

Amid the cascade of disturbing images of death and torment in Iraq, Senator John Kerry's scheduled May 7 speech to a centrist Democratic Leadership Council gathering in Phoenix was unlikely to make big news. The Democratic standard- bearer was set to reiterate his call for a new "Contract with America's Middle Class," the latest in his increasingly urgent attempts to sidestep the Bush campaign's depiction of him as a flip-flopping, tax-hike-loving liberal out of step with mainstream values.

Still, whether or not voters are aware of Kerry's gambit, it's emblematic of an important development on the 2004 campaign trail. From buscapades through the industrial heartland to reams of position papers, the rival candidates are fleshing out opposing approaches to economic policy, from taxes to the role of government. To those paying attention, "the difference between the two is starker than any economic argument in recent history," says Grover G. Norquist, president of Americans for Tax Reform, a tax-cut advocacy group.

Indeed, the gulf between President George W. Bush and Kerry is so deep that the two can't even agree on where the economy is headed. Bush's tone is optimistic, and his speeches brim with good economic news. Kerry laments the loss of millions of manufacturing jobs and suggests that Bush's tax-cut-and-spend approach has damaged the economy for years to come.

But with consumer confidence, employment, and manufacturing on the upswing, the Democrat is also sounding themes designed to resonate in an improving economy. He argues that skyrocketing gasoline prices, health-care costs, tuition bills, and local taxes are squeezing middle-class workers, whose wages have not kept up with everyday costs. "This Administration takes rigid ideological positions that hurt American business and American workers," Kerry told BusinessWeek on Apr. 28. "George Bush has had four years and the only thing he can come up with is tax cuts for the rich."

Courting the Center

That's something of an overstatement. But the President's economic blueprint is well known, and he promises more of the same in a second term: tax cuts, more tax cuts, and make sure they're permanent. His theory: Tax reduction and regulatory relief will provide new capital for companies to expand, thereby creating new jobs. With a growing economy and tight controls on nonsecurity spending, Bush also claims he will cut the nation's deficit in half by the end of his Administration.

Kerry -- who veered to the left to win the Democratic primaries but now is courting centrist swing voters -- walks a fine line between the "people vs. the powerful" mantra of 2000 nominee Al Gore and the unabashedly business-friendly "Third Way" centrism of Bill Clinton and ex-Treasury Secretary Robert E. Rubin. In Phoenix, Kerry planned to talk up his program of middle-class tax cuts and to trumpet his commitment -- under assault in Bush's media barrage -- to fiscal restraint.

At the heart of Kerry's economic vision is more direct government involvement in creating a climate for growth. He would increase federal investment in programs that offer the promise of long-term payoffs: research and development, public-private capital-lending partnerships, and tax breaks for companies that create domestic manufacturing jobs. Notes John Silvia, chief economist at Wachovia Bank (WB): "The fundamental difference is that with Bush, a lot of solutions will come through the private sector. With Kerry, more of the attempted solutions will come through the public sector."

That dichotomy is evident on regulatory policy. Bush vows to save business billions by stepping up his campaign against red tape. Kerry favors new mandates on employers for everything from workplace health to environmental protection. Still, he says Republicans offer a "false choice" between deregulation and re-regulation. Kerry says he wants results-oriented regs that give companies a degree of flexibility. For example, Kerry backs a $1 billion "conversion-tax credit" to encourage industry to become more energy-efficient. And he'd give consumers tax incentives to buy fuel-efficient cars.

Middle-Class Breaks

On the tax front, Kerry would target a different demographic than Bush. More cash would wind up in middle-class wallets through breaks such as a refundable $4,000 tuition tax credit and health-care credits. That means higher taxes for the wealthiest 2% of Americans to pay for costly education and health initiatives. For business, Kerry would tinker with the tax code to penalize companies that outsource jobs overseas -- while lowering the levies on 99% of companies through a 5% corporate rate cut. The Democratic nominee would punish the remaining 1% by ending their ability to defer taxes on international profits.

Both campaigns agree that the economic debate is crucial to the election's outcome. With voters evenly divided, the contest could well be decided by centrist ticket-splitters who, like Kerry, tend to be socially liberal -- but, like Bush, want lower taxes. To win their votes, the Democrat must convince them that he is a Clintonian friend of free enterprise despite a congressional record that ranked him as among the Senate's most consistently liberal lawmakers.

That's one reason Kerry talks about his record as a fiscal hawk who was an early supporter of the deficit- slashing Gramm-Rudman-Hollings Act. "I have a fiscal record beginning in 1985," he says. "I've been there and done that." Despite his long list of promises, Kerry pledges to scale back his spending initiatives if he can't afford to pay for them. He already has trimmed more than $200 billion from the ten-year cost of his health-care plan.

The strategy of the Bush campaign, on the other hand, will be to continue portraying Kerry as a pol who promises anything but cannot be trusted to deliver. "Thus far in the campaign, he has proposed over a trillion dollars in new spending," Bush said on May 4 at a pancake breakfast with backers in Maumee, Ohio. "Either he's going to break his promises on spending, which I doubt, or he's going to raise your taxes, which I believe."

As the economy bounces back, Kerry must convince swing voters that his Contract with the Middle Class offers them more financial security and long-term fiscal stability than Bush's laissez-faire approach. To do that, Kerry has to remain credible on economic issues -- something Bush and his allies are systematically trying to undermine. By Richard Dunham

With Howard Gleckman in Washington

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