Top 2002 issue: tax cut vs. deficit

With midterm elections less than a year away - and control of Congress hanging in the balance - campaign 2002 is already boiling down to a single issue: the Bush tax cut.

In response to polls showing that the economy has now surpassed terrorism as the public's top concern, Democrats are launching a series of attacks blaming the president's tax cut for upcoming budget deficits and current economic woes. Republicans are fighting back, saying the recession is the product of the Sept. 11 attacks, and arguing that the tax cuts are helping the economy recover.

History would give the advantage to the Democrats, since the public typically blames the president for a recession. But in the wake of Sept. 11, President Bush's approval ratings have soared, which may help insulate him and his party from blame. And while polls showed many Americans were lukewarm about the Bush tax cut during the 2000 campaign, they may feel differently when it comes to the question of repealing it - particularly if the economy starts to pick up a little in coming months.

"Democrats are looking to blame Bush for what [are] obviously, for a lot of people, hard times," says Floyd Ciruli, a Denver-based pollster. "Whether that'll click or not, I'm not sure. Both because it appears we've hit near bottom, and we're beginning to see some uptick, and because a lot of people think it's terrorism that caused the depth and seriousness of the recession, as opposed to tax cuts or one year of Republican policy."

A weak economy is almost always a good campaign issue for the party out of power - as Democrats learned in 1992, when Clinton adviser James Carville coined the phrase, "it's the economy, stupid."

With the parties in virtual agreement about the war on terrorism and homeland defense, Democrats may have little else to focus on. After Sept. 11, many domestic issues such as prescription-drug reform, which had dominated the 2000 campaign, moved way down on the list of voters' priorities.

"[Sept. 11] and its aftermath have totally reordered the country's policy agenda," says William Galston, a public policy professor at the University of Maryland and a former Democratic adviser. "Items that seemed likely to dominate the fall of 2001 and indeed the entire political year of 2002 now appear less likely to do so."

In attacking the Bush tax cut, Democrats are attempting to alter their old "tax and spend" stereotype. Recent polls have showed that Americans have greater confidence in the GOP's ability to deal with the economy.

In a speech last Friday, Senate majority leader Tom Daschle tried to reverse this slide, calling for "a return to fiscal responsibility." Evoking the record deficits of the early 1990s, he said, "Sept. 11th and the war aren't the only reasons the surplus is nearly gone. They're not even the biggest reasons. The biggest reason is the tax cut."

Over the weekend, at a town-hall meeting in Ontario, Calif., Mr. Bush fired back. He stated that if Congress decides to repeal the tax cut, that would be "a tax raise," adding, "not over my dead body will they raise your taxes." He also laid the blame for the recession squarely on Sept. 11, saying, "there's no question" the terrorist attacks hurt the nation's economy.

One factor that could weaken the Democrats' argument is that the bulk of the Bush tax cut has not yet taken effect - and so its impact is largely seen on future federal budgets, not the current one (although Democrats also contend that the projected deficits are helping to keep long-term interest rates high, thereby hurting the current economy).

"The problem is, there's a distinction between the short term and the long term," says Mr. Galston.

"In the short term, the Republican argument that the recession and necessary defense and security measures in response to 9/11 are principally responsible for the evaporation of the surplus is, I believe, accurate. In the long term, more than half the decline in the surplus over the 10-year projection is attributable to the tax cut that was enacted last spring."

Even Democratic strategists concede that it may not be easy to get voters to grasp such long-term implications. "Most people probably don't understand yet that we've turned from surpluses to deficits," says Al From, head of the Democratic Leadership Council. "It's not an argument that you win tonight. But it's an argument you have to win by November 2002 or 2004."

Ultimately, the outcome may hinge on whether or not the economy revives at all. If it does, Democrats may well have trouble convincing voters that deficits still lie ahead. But if it doesn't, the public may latch onto the party's message.

"As much as anything, it's going to be a question of timing on this economy," says Mr. Ciruli. "Because I don't think the [Democratic] message itself is all that salient - it's way too mixed. I think a lot of people are not going to blame the president for the recession, or are going to like the tax cuts."