*EPF309 10/20/2004
Economic Issues and the 2004 Presidential Campaign
(Bush, Kerry offer plans for economic growth) (790)

By Warner Rose
Washington File Staff Writer

Voters' concerns about their jobs, businesses, government benefits, taxes and general economic conditions are always extremely important in U.S. presidential elections, and polls suggest the 2004 election is no exception. President Bush and Senator John Kerry have both stressed economic issues in the debates and on the campaign trail, offering competing policies on taxes, health care and other government programs.

The 2004 campaign's economic policy debate goes back to 2000, when the U.S. economy reached the end of an extended low-inflation, high-growth expansion. Rising tax revenues -- bolstered by tax revenues from capital gains as investors cashed in on the stock market boom -- had made it possible for the U.S. government to run a surplus from 1998 to 2001, the first in 29 years. By the time President Bush took office, the expansion had run its course and the economy slipped into recession for most of 2001. Unemployment rose and the stock market declined by 15 percent. The September 11, 2001, attacks greatly exacerbated the economic conditions.

The cornerstone of President Bush's first-term domestic economic policy has been to reinvigorate the economy through four successive tax cuts. Bush argues that these tax reductions, by leaving more money with individuals and businesses, will enable them to spend and invest and thereby stimulate job-creating growth, which in turn will produce more tax revenue. The cuts have reduced taxes by nearly $600 billion during Bush's term, according to the Office of Management and Budget. Although the impact of the tax cuts is hard to precisely assess, the cuts, along with the increased federal spending and the Federal Reserve's cuts to interest rates, have contributed to continued economic growth since 2001. The Congressional Budget Office is forecasting a 4.5 percent expansion in 2004, the biggest since the 2001 downturn.

Concerns about the economy continue, however, spurred by slow job creation and slow increases in employee compensation, while the budget deficit grows. Kerry has charged that Bush is the first president in 72 years to preside over an economy that has lost jobs, although the president counters that the most recent Bureau of Labor Statistics figures show increases in jobs.

President Bush has stood by his tax-cut policy as the correct measure to get the economy growing, arguing that the government spends the taxpayers' money and, with tax cuts, the taxpayers can keep more of their money and can spend it as they wish. "It's your money," he said in the October 13 debate in Tempe, Arizona.

Kerry says that the Bush tax cuts have mostly benefited the richest 2 percent of the country, and if he is elected, he will instead adjust the tax cuts so that they go the middle class by retaining a tax cut for Americans who earn under $200,000 a year. He will also increase certain tax benefits for middleclass families for expenses such as childcare and college tuition. Kerry also has pledged to work to stop companies from sending jobs overseas by eliminating tax incentives that he said encourage U.S. companies to ship jobs out of the country. In addition, Kerry said he will protect American jobs by enforcing U.S. trade agreements.

Both Bush and Kerry also pledge to take steps to expand health benefits, get coverage for people who do not have health insurance, implement measures to control costs, and improve access to pharmaceuticals, although their plans to achieve these goals differ.

Reduced tax revenues, the costs of the War on Terror and in Iraq, and other spending increases reduced the surplus, which peaked at $236 billion in 2000, into a $415 billion fiscal deficit in 2004. Even though this is the highest dollar amount ever, the 2004 deficit amounts to 3.6 percent of GDP, well below the worse deficit in 1983, which was 6 percent of GDP. Both Bush and Kerry have promised to cut the deficit in half during the next four years. Bush promises to do so by pro-growth policies and by encouraging "fiscal sanity" in the Congress. Kerry said his plan on the deficit includes ending tax cuts for the wealthiest Americans, ending tax breaks to big corporations, and imposing a real cap on government spending.

The pressures on the U.S. budget will sharply increase by the end of the 2004-2008 presidential term as the first "baby boomers" (those born between 1946 and 1964) start retiring. These retirements will put greater and prolonged pressure on the budget as payments for the Social Security income-insurance program and old age medical programs, such as Medicare, sharply increase even as the number of taxpayers decreases.

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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