Most important issue for Election 2008: It’s still the economy, stupid!
Americans have been slammed every day for the last several weeks with a new headline or concern related to the impending recession or constantly increasing economic struggles. The economy has overtaken the War in Iraq in recent months as the most important issue in the 2008 Election, and with increasing costs of just about everything and the uncertainty in the major markets, everybody seems to be in agreement.
A recent study shows that the average price of a gallon of regular gasoline has increased $0.16 in the last 2 weeks alone. Average prices are at about $3.38 a gallon nationwide. In addition, the price of groceries has also increased in recent months, with chicken up 10% from last year, a gallon of milk now averaging 20% higher than last year, and eggs up 30%. With gas and food making up roughly 20% of a household budget, higher prices are making that piece of the pie increase more, forcing families to conserve in other areas of their spending.
“There’s nothing really worse than having a job, making money and forking most of it over just so you can have the same amount of food. You’re running in place, and it really weighs on you.” said Rich Yamarone, director of economic research at Argus Research Corp. in New York.
Increasing health care costs, drug premiums and co-pays, cost of credit and retail prices are also weighing down on consumers. To make matters worse, some experts are predicting that once all data is tallied we will see little to no rise in average household income from last year to this year. Unemployment also rose at the end of 2007 to nearly 5%.
Rising prices, stagnant incomes, increasing unemployment, and to top all that off, fear of depreciating home prices and uncertainty in the stock markets doesn’t make for a rosy outlook on the economy. So, with a presidential election in the coming months, what are the candidates saying they will do to fix it?
Barack Obama and Hillary Clinton both took a vow to make sure there would be no tax increases on those making under $200,000 a year in a debate last week in Pennsylvania. According to both Democratic candidates, the middle class will not see a single tax increase, and will actually see some middle class tax cuts, according to Obama at least. To make up for the tax revenue shortfall they both feel that those making over $250,000 should carry more of the burden through higher payroll taxes, higher capital gains taxes and a slew of other increases. With additional tax revenues, the candidates hope to ease some of the higher costs consumers are feeling by making health care and prescription drugs cheaper, and by subsidizing certain industries to help drive costs down.
However, Obama and Clinton are in direct contradiction to themselves and have already vowed to break their vow. They both are in support of letting the Bush tax cuts expire in 2010, thus putting a higher tax burden back on our shoulders that we all have been free of for the last 5-7 years. The tax revenue that was supposedly “lost” from the tax cuts are what Obama and Clinton are after, however studies show that the Bush tax cuts shifted a majority of the tax burden to the wealthy but did not necessarily decrease the revenue base. Actually, tax revenues in 2006 were higher than in the pre-cut levels of 2003.
While the Democrats are looking to reduce higher costs and ease the pain, John McCain is doing the opposite. After a self confession that the economy was not his strong suit, McCain has reached out to many conservative economic experts and has put together a plan to help the economy turn around. Rather than assuming the economy will not recover and that the government should reach out to help American’s cope with higher costs, McCain’s plan is to make the tax cuts permanent and have the government encourage economic growth, which would lead to higher salaries and job growth. More jobs and higher pay would bring the higher costs to again manageable levels. To help cope with current costs in the here and now, he is also proposing to double the tax exemption for dependent children to $7000 per dependent from $3500, thus keeping more money in the pockets of parents paying costs for more than just themselves.
Borrowing from the Democrats playbook, McCain is also calling for government intervention to help struggling homeowners keep from going upside down in their homes due to declining values and adjustable rate mortgages beginning to increase. He proposed a “HOME” plan just this month to offer extensive help to homeowners who want to refinance into a government backed fixed rate mortgage in alternative to losing their homes. His plan calls for the homeowner, the bank who holds the mortgage, and FHA (run by HUD, a department of the government) to share the financial loss on the bad investment decision, which implies accountability to the homeowner and the bank for their poor decision to lend on and accept an ARM loan.
John McCain is also proposing a “gas tax holiday” that would temporarily suspend federal tax on gasoline to help ease the prices at the pump during the already pricey summer driving season. Both Hillary Clinton and Barack Obama agreed in their most recent debate that this was a good idea and they would support it as well.
The choice voters will have to make in November is that of either taking a helping hand from the Democrats to cope with higher costs of living through increased taxes and more government, or taking temporary relief and allowing for government encouragement for economic growth and future prosperity for all from the Republicans.