Whose Plan Is Better?

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In most elections in which the incumbent enjoys an economy with a healthy 3% annual growth rate, home ownership at record levels, and inflation and interest rates that are well within control, the economy's performance wouldn't be a problem. But despite the positive indicators, George Bush continues to be under attack, with economists decrying everything from his tax cuts to the gaping budget deficit.

What's more, in a new TIME poll, 62% of Americans call economic conditions "only fair" or "poor." What's really going on here? Bush's problem, as anyone in Ohio or Pennsylvania will tell you, is jobs. Even after recent gains, company payrolls have 913,000 fewer workers than when Bush took office. The worst hit came right after 9/11, with 1 million jobs lost, but the slide persisted throughout the recovery. Most voters don't watch GDP numbers, but they know how many of their neighbors are home watching TV on a Wednesday afternoon. "They just look around and see what's going on and use that to decide how to vote," says Ray Fair, a Yale University professor who has made a name for himself predicting presidential elections using economic indicators. And so when the government announced Friday that 144,000 jobs had been added in August, both candidates jumped. Bush crowed to supporters at a minor league baseball stadium in Pennsylvania that the new jobs proved "our growing economy is spreading prosperity and opportunity." The John Kerry camp, meanwhile, argued that the number didn't even keep up with population growth. Said the Democratic challenger: "Bush is now certain to be the first President since Herbert Hoover and the Great Depression who didn't create a single new job." According to the poll, the economy is tied with terrorism as the most important campaign issue. So which candidate has the better plan?

The August job growth was not quite enough to indicate real momentum. What's holding employment down? Each party has its whipping boy. Republicans like to blame lawsuits and regulation; Democrats point to offshore outsourcing. Economists aren't buying either explanation.

They say that orange alerts and a steady stream of bad news from the Middle East make CEOs wary of any bold hiring moves; instead companies use temps and contractors, cutting them loose whenever sales look shaky. Rising health insurance premiums make it cheaper to buy better equipment than hire a new employee. "Businesses are more interested in using technology," says Sung Won Sohn, chief economist of Wells Fargo. "They want to hire people only as a last resort."

His economic plan relies on one of the bedrock principles of conservative thinking: cut taxes, and the economy will grow, bringing jobs along with it. But Bush has softened that position a bit with support for worker-retraining programs.

He tries to take on health-care costs and offshore outsourcing in a single bound. In industries affected by outsourcing, Kerry would give companies a tax credit to offset the cost of worker benefits, making it cheaper to hire them.

Economists give Kerry credit for addressing the heart of the problem: workers are expensive. But economists have doubts about whether this limited policy will make a real difference. They are much less excited about Bush's tax cuts, which could fire up some consumer spending, but not enough to add jobs, and would worsen the deficit. "We can't afford them anymore," says Diane Swonk, chief economist at Bank One. Shrinking the deficit or making big changes to the health-care system, the experts say, would do more to shore up business confidence and boost hiring.

Few economists doubt that the current Bush tax cuts, $290 billion in this year alone, helped stimulate the economy at first. Those rebate checks that arrived in the fall of 2001 helped prop up the economy during a dark period, and consumer spending helped the U.S. make its way to recovery. Now that the economy is improving, the calculus for tax cuts is different. Will cutting taxes further make a meaningful difference to the economy? And even if it does, can we afford to increase the deficit for the sake of tax relief?

He wants to make existing tax cuts for individuals and corporations permanent. Bush argues that with reduced income taxes, families have more to spend, and with lowered corporate taxes, businesses can invest in equipment. Laura Bush gave an example in her speech at the convention: the owner of an Iowa tow-truck company who used the credits to modernize her fleet.

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