Economic policy often plays a major role in our elections. The 1984 election was largely fought over the tax increase that Walter F. Mondale proposed and Ronald Reagan opposed. In 1980, the issues were inflation and big government. And what may have cost Gerald R. Ford the 1976 election were the double-digit inflation of 1973-74 and the 1974-75 recession.
With about a dozen presidential aspirants in the two major parties, and several more potential candidates, it is interesting that few have made the economy their major issue. Is this because the economy is doing so well? Or because the candidates have no policy suggestions, at least not new ones?
Certainly, the economy is doing well. We are in the fifth year of an expansion. The unemployment rate has dipped below 6% for the first time in eight years. The inflation rate, while up slightly due to the depreciation of the dollar, is still relatively modest. The U.S. performance over the last few years in employment, gross national product growth and inflation is envied by most other countries.
There are major problems, however--most notably the budget deficit and the closely related trade deficit. Despite the substantial decline in the dollar's value, the trade deficit remains stubbornly high. Despite rhetoric from the executive and legislative branches, the budget deficit is not declining very much either. The Gramm-Rudman targets are being honored more by breach than by observance. Moreover, most of the projected decline in the deficit for the next few years is not due to a decline in spending but a surplus in Social Security. That surplus, which will reach $60 billion by 1991, is needed to prevent punishingly high tax rates when the baby boom generation retires.
Other problems with the economy persist too, and no economic policy is likely to solve all of our problems simultaneously. The unevenness of employment growth between regions of the country and sectors of the economy arouses political concerns. For the first time in decades, regional differences in per-capita income are widening rather than narrowing.
Problem for the Vice President
What are the candidates' proposals? It is easiest to start with the Republicans. They all want to share credit with President Reagan for slower federal spending growth and lower tax rates. Most abhor the large budget deficits, but blame someone other than the President for the deficit.
Senate Minority Leader Bob Dole (R-Kan.) played a major role in the early 1980s in preventing the deficit from getting any worse, a position that may be quite useful politically later on. In the meantime, his major problem is to woo Republican conservatives, and hence he has not made budget deficits a major issue.
The problem is even stickier for Vice President George Bush. After campaigning against "voodoo economics" in 1980, the vice president has been part of the team for the last seven years. While he is clearly deeply concerned about the budget deficits, his criticism has been muted. He has campaigned effectively for lower marginal tax rates and shares credit for the success in achieving them. He did play a major role leading a deregulation commission, but the modest deregulation accomplished in the Reagan Administration only continued a trend started under former President Jimmy Carter.
A major Republican candidate who has the most to brag about concerning tax cuts, and who therefore is also the most vulnerable on budget deficits, is New York Rep. Jack Kemp. The original Reagan tax cuts in 1981 lowered personal tax rates 25% over a three-year period and indexed income tax brackets against inflation beginning in 1985. They also accelerated depreciation. These were direct results of the Kemp-Roth tax plan of the late 1970s.
The accelerated depreciation approach toward lowering the cost of capital for American business was blatantly abandoned in the 1986 tax reform, which focuses on lowering personal tax rates still further. Kemp continues to focus on the need for low tax rates, but has at times strayed into discussions of the gold standard, international monetary reform and exchange rate policy, all of which are one level further removed from the consciousness of the typical voter than taxes and government spending.
Turning to the Democrats, it is quite remarkable how muted the criticism of President Reagan's policies has been. Perhaps the lesson of Mondale's quixotic call for a tax increase in 1984 is still firmly in mind. Most of the Democratic candidates want to reduce the budget deficit, slow the growth of defense spending, expand social programs or at least not cut them, and face up to a tax increase only as a last resort. That is much less direct than Mondale's proposed tax increase to deal with the budget deficit.