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US Economic policy and the 2006 Election

Author: Roger M. Kubarych
October 4, 2006
Market Eye on Nikkei Financial

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The race for control of the US Congress is in the final lap, but the outcome is still too close to call. Recent public opinion polls ask “what is the most important issue facing the United States?” The war in Iraq and terrorism usually finish first. But the economy is close behind. Likely voters say that several other issues with an important economic dimension will also influence their decision, including immigration, health care, and gasoline prices.

Paradoxically, however, the election results will not have a profound impact on US economy policy. If the Republicans hold on to reduced majorities in both the House of Representatives and the Senate, they will continue to have the upper hand on the budget, on tax issues, and on regulatory matters. If the Democrats manage to recapture even one of the houses of Congress, the dynamics of the legislative process will change. But only a handful of Democratic initiatives will actually become law. That is because the White House will remain Republican, and the Bush administration will continue to set priorities that will limit Congressional action. Only those proposals that can attract sizable Republican support in Congress will be able to overcome White House opposition.  

The Democrats understand this and will avoid issues on which the Republicans are unified. For example, a Democratic Congress will not be strong enough to roll back the Bush tax cuts. Instead, the Democrats will emphasize those few issues where they agree among themselves and where enough Republicans might be wooed to join a bipartisan majority.

One way to detect what economic policy initiatives might emerge under a Democratic Party-ruled Congress is to look at the positions candidates have been taking in the closest Senate contests. Five states are considered toss ups: Missouri, New Jersey, Ohio, Tennessee, and Virginia. The Democrats need to win all of them to take over the Senate. More difficult would be to pick up the fifteen seats needed to recapture the House of Representatives.

Here’s what Senate candidate Clair McCaskill is saying in Missouri, a pivotal state that has the reputation of always voting on the winning side in presidential elections:

“The way Washington is run right now hurts Missouri's economy and its workers. Insane budget deficits, record debt levels, out of control spending, gigantic trade deficits with China, are all making our state weaker.” Her key proposals are close to the mainstream: Block the Outsourcing of Missouri Jobs. Support Fair Trade Policies. Raise the minimum wage. Support renewable energy and alternative fuels. Support small business. Provide a tax credit for first-time homebuyers. Double the tax break for child care expenses.

A different tone is evident in Ohio, where Congressman Sherrod Brown is running neck and neck with incumbent Senator Mike DeWine. Rep. Brown is the author of “The Myth of Free Trade”, a populist polemic that one reviewer described in these terms: “In Brown's view, no one benefits from unregulated trade except corporations and rich investors, eager to deploy their assets wherever labor and the environment are most profitably exploited.”

None of the other Democrats in close races comes close to an outright protectionist stance. For instance, a moderate such as Rep. Harold Ford Jr., who is running for the Senate in Tennessee, host to several major Japanese investments, is in favor of a balanced budget amendment, social security and health care reform, renewable energy, upgrading education for engineers, and tax credits for US firms creating jobs domestically. These views are nearer to those of many Republicans than to protectionist Rep. Brown.

Perhaps the thorniest topic in this election season is immigration policy. Congress failed miserably to deal with this emotional issue earlier this year, despite conscientious efforts by the Bush administration to craft a livable compromise. Opposition to illegal immigrants cuts across both main political parties and across regional lines. Dedicated free-market advocates (whether Republicans or Democrats) prefer highly liberal approaches that let in large numbers of foreign workers. Labor unions, normally to the left of center on most social issues and bedrock of the Democratic Party, are normally opposed to unrestricted immigration. But in ethnic communities where voters give large majorities to Democratic candidates, immigration is a highly personal matter, because it involves reuniting families.

If the Democrats win back the Congress, President Bush may shrewdly throw the issue back at them, daring them to come up with a compromise solution that can get strong bipartisan support while meeting the requirements he laid out in his own proposals. It would be a stern test of whether the Democrats can use Congressional power in a constructive way, rather than as mainly a prelude to the 2008 presidential campaign.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here (Subscription required).

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