The 2004 Donkey Race Has Already BegunCommentary by Pete du Pont
November 20, 2002
As Democrats inside the beltway dust themselves off from their Election Day shellacking, they began an inevitable tug of war about the ideological direction of the party. While Democrats in the House have decided to place their chips with the far-left wing, a more difficult decision awaits those who want to challenge President Bush in 2004.
The presumptive frontrunner, former Vice President Al Gore, has apparently decided to follow the House's lead and has begun to roll out policy initiatives, like nationalize health care - a move that would make old-school liberals like George McGovern proud.
Taking the opposite tack is fresh faced Senator John Edwards, the first term former trial lawyer from North Carolina. In a speech before a gathering of corporate executives and policy makers sponsored by Fortune magazine, Edwards began his unofficial campaign for the Democratic nomination by rolling out his vision for economic recovery. It was a speech best described as the good, the bad, and the ugly.
First the good: Fiscal responsibility. Look for this to be the catch phrase and overriding theme of the early Edwards campaign. In his speech, Edwards asked rhetorically, "You know why Americans think many Democrats want to spend too much money? They do." Calling fiscal discipline "an absolute requirement for long-term growth" Edwards proceeded to call for reinstating budget caps, cutting the size of government by 10 percent over the next 10 years, closing tax loopholes, closing outdated agencies and opening up government procurement to competitive bidding. One could almost see Edwards donning a green tinted visor, furiously crunching numbers until the balance sheets added up.
Now the bad. Economic policy deals with both spending and collecting (taxing). In his own version of triangulation, Edwards both derides and embraces tax cuts as a way to spur economic growth. On the one hand, he echoes the party line that the Bush tax cuts are bad and need to be put off. At the same time, however, he says the economy needs an immediate shot in the arm through a series of short-term tax cuts and credits, such as a $500 per family refundable energy credit and increasing the depreciation bonus by 50 percent for the next six months.
While there is some merit to some of these ideas, most of it will do absolutely nothing to spur economic growth. Only the depreciation bonus has the potential to spur capital investments, but the window he proposes is too short. The energy credit, on the other hand, is essentially the same concept as the rebates offered last year, only on a larger scale. These one time checks do nothing to change economic behavior, however, which is what the economy needs for growth. Most people used their rebates to pay bills, instead of increasing their spending or investing it in the market. With Edward's energy credit idea, they would have no choice but to use it to pay energy bills. How does this stimulate growth?
It won't. Cuts in the marginal rates and in the taxes on investment, such as capital gains and dividends, are what stimulate growth. The only reason the Bush rate cuts haven't had their desired effect yet, is that most of them have not been realized yet. That's why they need to be sped up and made permanent, not put off as Edwards suggests.
Now the ugly. In opposing the rate cuts for the top incomes, Edwards retreats to the outdated class warfare rhetoric and ignores the simple fact that the percentage of overall taxes paid by the top ten percent continues to increase, and did so even under the Bush rate cuts. Further, his plan belies the fact that it is precisely these taxpayers that are the ones we are counting on to do the things needed to get the economy moving again.
Overall, Edwards' first foray into presidential politics does not bode well for his ambitions. To reach the White House, he needs to do two things. First, he needs to appeal and energize the base of his party, which will not be excited by the call for budget cuts and fiscal restraint. Second, he needs to offer a grand optimistic vision capable of convincing enough swing voters to reject a popular incumbent. The good news for Edwards is that he has two years to improve his economic plan.