Six years ago it was almost impossible to get the public or the media, let alone the presidential candidates, to take foreign policy seriously in the election campaign. Then, eleven months later came the 9/11 attacks and the spotlight has been on terrorism and war ever since. In the today mid-term election campaign, it is the topic of the economy that is being underplayed.
A political adviser once told me that the three permanent vote-deciding issues are always jobs, taxes and peace. If so, in the current campaign season we are suffering amnesia on items one and two. The reason is that since the 2003 tax cuts took hold the economy has been expanding handsomely. So why worry?
The valid worry, in truth, is that it won't last. If you think the relatively conservative Congress turned out to be spendthrift, look out if a more liberal one takes over. If you think you don't care about further tax cuts, ask yourself if you are willing to let the 2003 tax cuts lapse--as they will without Congressional action--and watch as your taxes go back UP? Even though the drop-dead date technically is not until 2010, failure to act in the next Congress will have long-term consequences for economic expectations.
President Bush is understandably exasperated. The economic downturn he inherited began (statistically) only a couple of months before he took office. Among other things it ballooned the deficit. Even by the 2004 election, a year after the supply side cuts in marginal tax rates were implemented, the recovery was still mainly a stock market phenomenon that hadn't taken hold very impressively in the "lagging economic indicator" that is the job market. Many candidates railed against free trade and globalization as the culprit.
Today the picture is stunning in comparison with either a few years ago or, according to the polls, many people's current perceptions. The stock market, with participants that include a majority of all Americans, is at a record high. There have been 37 months of job increases in a row, adding 6.6 million new jobs. The tax cuts themselves have benefited all taxpayers, with the average family getting to keep a couple of thousand dollars more a year, and with investment capital freed to promote not only new jobs, but higher productivity and--finally, at long last--wage increases.
Families have enjoyed an increased tax credit for children. The marriage penalty was reduced.
Home ownership is close to an all time high. Inflation remains at a near record low, which means the real cost of making major purchases is far lower than it was a generation ago. The price of existing homes finally has dropped after an unrealistic surge, though new home construction remains strong. The high energy prices of last year have abated.
Fears that we could not compete in an era of global free trade have proven to be exaggerated, despite the inevitable pains of change and adjustment. New enterprises continue our national trait of leadership in innovation. Overall, we have an economy of historic strength.
Some conservative and moderate voters are justifiably agitated that federal spending has increased thanks to Congressional earmarks and a big new Medicare entitlement program for prescription drugs. But despite the "bridge to nowhere" stories, most earmarks were for a badly under funded transportation infrastructure that deserved more support anyhow. (The only question was whether to let elected officials direct some of the money or leave it all to bureaucrats.)
Regardless, most new spending has been for defense and homeland security. As Peter Beinart of the liberal New Republic writes, "To listen to Bush's critics, you would think that discretionary, nonsecurity-related spending has exploded on his watch. But it hasn't...When you take account of inflation and population growth, it grew a mere 2 percent between 2001 and 2006. And, as a percentage of GDP, it actually fell."
The reason it fell is that the tax cuts worked spectacularly well to increase economic activity and boost tax revenues. The Administration expected progress, but even it has been surprised at the extent of success. Whereas last February the Treasury predicted a $423 billion deficit, the current year deficit is now expected to come in at $250 billion. If the trend continues, the Bush Administration will eliminate the deficit altogether in the next few years.
The reason again--and the lesson for policy makers--is that the stimulus of supply side tax cuts was so powerful that it offset much of the increase of the deficit. The same national boom also has been a boon to state governments whose budgets were strapped only a few years ago.
You don't hear a lot about this record I've just described, do you? More importantly, you don't hear nearly enough about which members of Congress now demanding massive but vague change in Washington, D.C. voted against the tax cuts that made the current economic expansion possible.
In the remaining days of the Congressional elections, here is a simple question for candidates for House and Senate everywhere: Will you pledge to vote in the coming term for continuation of the lower tax rates enacted in 2003 that turned our economy around, or are you prepared to let them lapse--and effectively raise taxes?