Think Iraq Will Decide the 2008 Election? Maybe Not

With housing in the dumps and economic growth slowing...and fewer fresh ideas on Iraq...it may well be the economy, not the war, that dominates the next campaign.

By Richard Sammon, Senior Associate Editor, The Kiplinger Letter

October 4, 2007

A change in campaign rhetoric is underway. The presidential candidates are zeroing in on the economy, reviving the old Bill Clinton mantra, "It's the economy, stupid," and wondering if they can ride it to success next year.

The economy could easily rival the war discontent as a hot issue in the 2008 campaigns. Or more precisely, the perception voters have of the economy and how it affects them personally, whether on the mark or not, will be a decisive factor.

The slowing economy will help Democrats. They'll play up every angle, from the credit crunch to the housing slump to high gasoline prices to manufacturing layoffs. It's a natural move. Fair or not, voters usually blame the party in control of the White House when they are worried about where the economy is heading. The fact that President Bush will not be on the ballot may not matter much to independents, moderates and other swing voters. They may still register their disapproval of Bush's economic record by voting Democratic in both the presidential and congressional races. Undoubtedly the economy will be a major factor in some big swing states where times are tough. In places like Michigan, Ohio and Pennsylvania, manufacturing job losses and other layoffs, with a resulting rise in home foreclosures, are already weighing heavily on people's minds.

Red flags on the economic horizon could give some oomph to Democrats' proposals to pass low- and middle-class tax cuts to ease voter anxiety -- and put more money in their pockets at the expense of wealthier taxpayers who Democrats say got most of the benefits from the earlier Bush tax cuts (and who tend to vote Republican anyway). Most Democratic candidates would also target a variety of corporate tax loopholes as a way to make up for the revenue lost through tax cuts for individuals. They might even stage votes on such plans next year, even if it is clear they couldn't pass, just to put Republicans on the hot seat.

Republicans will insist on tax breaks for everyone as a way to spur economic growth and create jobs. Almost all of the Republican presidential candidates favor making the Bush tax cuts permanent rather than letting them expire as scheduled within a few years. Both parties will support estate tax reform, with most Republicans favoring repeal and most Democrats seeking to keep it, but with big exemptions -- about $3.5 million -- so that only the largest estates get hit with a tax.

A sweeping overhaul of the tax code to simplify it and to fuel economic growth will be touted, too. But passing such plans would take years of debate. Still, figure on tax code reform to be part of the rhetoric, especially on the Republican side.

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