The Presidential Race II Jude Wanniski September 8, 2004

The best news Senator Kerry has had in several weeks came yesterday with the report that former President Bill Clinton will probably have to convalesce between now and November 2 and will not be able to campaign for Kerry. The Zogby Survey last month found Kerry losing 6 points to President Bush if Clinton was active on his behalf. John Zogby said he was surprised to find that 26% of voters who identify themselves with "the investor class" more likely to vote for Bush if Kerry was identified with Clinton. Even with Clinton staying out of sight, Kerry is now trailing in all the match-up polls. In my last assessment July 19, I wrote: "How do things stand now? I am still not sure how I will vote in November, but if I had to bet money today, it would be that Senator Kerry would win rather easily in the popular and electoral balloting, that the Senate would turn over to the Democrats, and that the Republicans would increase their current 208-to-205 hold on the House. My reasoning is that while the economy will continue to expand, it will not be as robust as I expected it to be going into November, and Senator Kerry will continue to inch his way to a less-threatening economic platform."

In a sense, President Clinton has already damaged the Kerry campaign by supplying the economic advisors who have moved the Massachusetts Senator away from a less-threatening economic platform. Here is this Monday's Washington Post reporting on the President`s swing through West Virginia Sunday, playing with his new campaign pledge of a simplified tax system:

PARKERSBURG, W.Va., Sept. 5 -- President Bush reasserted his call Sunday for a simpler tax system, and aides said he is considering pushing for a flat tax, which would set the same income-tax rate for most taxpayers, as a major priority if he were to win a second term. In arguing for a rewrite of tax laws, Bush said that they are "a complicated mess" and "full of special-interest loopholes."

"Americans spend about 6 billion hours of paperwork and headache every year on the tax code," he said. "In a new term, I will lead a bipartisan effort to reform and simplify and make fair the federal tax code"…

Sen. John F. Kerry`s campaign contends that because many such proposals do not tax investment income like interest, capital gains and dividends, such a move would have the effect of shifting the tax burden from the wealthy to the working class. "This is the ultimate embodiment of what they`ve done the last four years," said Jason Furman, Kerry`s economic policy director. A revision of the tax code was one of the major planks of the second-term agenda Bush announced in his acceptance speech at the Republican National Convention on Thursday, and the idea is a new applause line in his stump speech.

It should have been a no-brainer for Kerry to get in front of a tax-reform parade. It would have pre-empted the idea as a way of finessing his unwieldy pledge to raise taxes on the highest-income Americans -- to close the deficit, pay for social programs and finance middle-class tax cuts. It`s not so bad that the numbers don`t add up; neither do the President`s when you take into account his spendthrift habits. Ten billion a month for wars as far as the eye can see soon adds up to real money. What really messes up the Kerry economic agenda are those vows to increase taxes on capital. Mr. Clinton only remembers raising taxes in 1993 amidst GOP warnings of recession to follow, and the economy doing just fine. In our August 9, 1993 client letter, assessing the tax hikes, I said "the legislation is wrongheaded, but in its final version hardly calamitous." There were no increased taxes on capital, which is why its slightly depressing effect could be offset by a mildly inflationary Fed policy.

Kerry still might have been able to get by with this unwieldy economic platform if President Bush stayed put with his, with the dismal outlook in Iraq weighing in Kerry`s favor. The commitment to simplify the tax system via a bipartisan effort, though, has put the President in a much stronger position with the undecided, including me, knowing the nation`s financial problems cannot be solved without fundamental reform. Saving a big chunk of the 6 billion hours spent on paying federal taxes is just a piece of the gains, if indeed the final product taxed capital as lightly as possible. I`m frankly surprised that former Democratic Senators Bob Torricelli, Gary Hart and Bill Bradley, who have been close to Kerry and know how sensitive the markets and economy are to capital taxation, have had so little influence. Kerry`s top political hand, Bob Shrum, also appreciates the issue, but the Clinton influence seems to have shut them all out.

In my mind, there is no way Mr. Bush can justify his actions in the Middle East, although he tried to do so in his acceptance speech: "After more than a decade of diplomacy, we gave Saddam Hussein another chance, a final chance, to meet his responsibilities to the civilized world. He again refused." If he had refused, the whole world would have been with us, but Saddam was finished and neither the President nor his speechwriters seem to know that or to care. It would be a dangerous precedent to allow this major error to go unchecked as it really does lead to "an imperial presidency." But there is at least in Congress and in the news media, which watched the war unfold as it did so little to prevent it, a sense that it will not be repeated if the President is re-elected. When Senator Kerry announced his pledge Tuesday to bring all the troops home in his first term, though, the Bush team loudly complained, as in their minds an imperial outpost in Baghdad, more or less forever, is what this has been all about.

Of course, I would no longer bet that Kerry will win easily in November, and I do find myself trying to justify a vote for the President`s re-election. As the Zogby Survey indicates, Wall Street and the investor class have clearly made up their mind for Bush, with yesterday`s rally perhaps tied to the fervor he is showing for tax reform.  If Kerry is to make a move, it had better come soon. The campaign officially began yesterday, and as Adam Nagourney pointed out in the NYTimes yesterday, Kerry still has not located "an overarching theme." His latest is to sell the idea that "W" stands for Wrong, but that doesn`t work either. Mr. Bush may be wrong about some things, but not everything.