A firestorm that erupted this week over President Bush’s position on Social Security underscores deep differences between the two presidential candidates on nearly every aspect of economic policy.
From taxes to health care to education, Sen. John Kerry and President Bush offer sharply different plans for boosting the economy, expanding job growth and restoring fiscal discipline over the next four years.
In a near-replay of the 2000 presidential election, Kerry has seized on Bush’s proposal to partially privatize Social Security, using campaign rhetoric and television advertising that appear calculated to frighten retirees. Bush campaign aides have been trying to quell the furor, insisting that benefits for current recipients will not be reduced.
The uproar over Social Security demonstrates that even in the final days of a campaign focused largely issues of war and terrorism, pocketbook issues have the power to touch a nerve with likely voters. Here is an overview of what the candidates are proposing on Social Security and other economic issues.
Social Security
In the third presidential debate, Bush described his proposal for voluntary personal retirement accounts that would partially replace Social Security for younger workers.
“It'll be a vital issue in my second term,” Bush said. “It is an issue that I am willing to take on, and so I'll bring Republicans and Democrats together.”
Kerry described that idea as “an invitation to disaster” and has said he will never support a plan that would allow Social Security funding to be diverted into the stock market.
The flames were fanned a few days later when the New York Times reported that Bush told a private meeting of Republican donors that he plans to “come out strong” for privatization after being sworn in for a second term. The Kerry campaign then launched a television advertisement warning that Bush plans a “January surprise” that would cut Social Security benefits by 30 to 45 percent.
Kerry’s implication that senior citizens will see their benefits cut is misleading. Bush has promised to leave benefits unchanged for workers who are retired or near retirement.
But Bush’s top economic advisers have implicitly endorsed a plan that would allow younger workers to divert some of their payroll taxes into a personal account that could be invested in stocks or bonds. Workers born in 1980 or later could see Social Security benefits reduced by 30 to 45 percent under such a plan, according to the Congressional Budget Office. Presumably at least some of the shortfall could be made up by the market-based returns of an individual account.
Bush has not explained how he would make up for the diverted payroll taxes, estimated at $2 trillion over 10 years, which would be unavailable to pay benefits for current retirees. Bush supporters say the reform plan would begin paying for itself sometime after mid-century and ensure the long-term viability of the system.
Kerry has no rival plan, probably because he does not believe the Social Security system is in any imminent danger. Kerry supporters say current Social Security funding is adequate to pay full benefits through 2042, according to its trustees, and 2052 by the CBO’s estimate.
“If later on after a period of time we find that Social Security is in trouble, we'll pull together the top experts of the country,” Kerry said in the third debate. “We'll do exactly what we did in the 1990s. And we'll make whatever adjustment is necessary.”
Taxes
Bush has made extending the tax cuts of 2001 and 2003 the top economic priority of his second term. “This tax relief must be made permanent so families and businesses can plan for the future with confidence,” according to Bush’s “Agenda for America.”
Kerry has proposed rolling back the Bush-era tax cuts on the top 2 percent of earners, restoring higher federal income tax rates in taxpayers who make more than $200,000 a year. The Kerry plan also would restore higher tax rates for the wealthy on capital gains and dividends from stocks.
Kerry would restore the federal estate tax but with new, higher exemptions of $2 million for an individual and $10 million for a family-owned business or farm. Bush would permanently eliminate what he and other conservatives call the “death tax.”
The budget deficit
Under Bush, the federal budget has gone from a record $236 billion surplus in 2000 to a record $413 billion deficit in the fiscal year that ended Sept. 30. Bush argues the reversal was virtually inevitable given the recession that began in March 2001 and the rising cost of military and homeland security after the terrorist attacks of Sept. 11, 2001. Kerry places much of the blame on Bush’s tax cuts, which he contends have done little to stimulate the economy.
Both candidates propose halving the deficit within four or five years, although they would get there by very different routes. Bush would achieve his deficit reduction by restricting federal spending increases to no more than 1 percent a year for anything other than defense and homeland security. That would be less than the rate of inflation and a sharp slowdown from the past four years, which have seen non-defense spending rise by about 36 percent.
In addition to restoring higher tax rates on wealthier Americans, Kerry has called for a return of the pay-as-you-go budget system that prevailed in the 1990s. Under that regimen the cost of any new federal program would have to be offset by cuts elsewhere or increased taxes. Kerry says he already has shelved some plans included a proposed national service initiative because they would worsen the deficit.
Many analysts have expressed skepticism about the plans of both candidates. Bush’s plans to cut spending on some discretionary items are seen as unrealistic. Kerry, meanwhile, would use any gains from raising taxes on the wealthy to fund new programs. “Neither of them seems to give a very high priority to deficit reduction,” said Nariman Behravesh, chief global economist for Global Insight, a forecasting firm.
Health care
The rapidly rising cost of health care insurance is a central economic concern of both candidates, in part because of the chilling effect on businesses, which have been extremely hesitant to add workers despite a growing economy.
Kerry offers a sweeping proposal including a tax credit to help employers buy insurance for low- and moderate-income workers. The plan also would reimburse businesses for 75 percent of the cost of catastrophic care. And Kerry would expand funding for state Medicaid programs to cover about 26 million of the nation’s 45 million uninsured adults and children.
Bush’s health-care reform plan is built around expanded use of health savings accounts, which combine a high-deductible, catastrophic health care plan with a tax-deductible savings plan. Bush proposes tax credits for small business and low-income individuals to encourage broader use of these accounts, part of his drive for an “ownership society.”
Education
Both candidates agree that better education is crucial to ensure that workers can meet the demands of a global economy. The heart of Kerry’s plan to make higher education more affordable is a proposed $1,000-a-year tax credit for college tuition. Kerry also would offer incentives for students and teachers to focus on science and math. And he would offer $10 billion in relief to states to keep down the cost of tuition at public colleges.
Bush also would offer incentives for teachers who specialize in math and science, and he would boost Pell grant funding for low-income students who complete a rigorous high school curriculum. Bush proposes making it easier for adult students to get federal aid, and he would invest $250 million a year to boost the role of community colleges in workforce development.
Small business, outsourcing
Kerry launched his economic platform in the spring by pledging to add 10 million jobs in four years, a sharp contrast to the Bush presidency, which has seen the economy shed a net 600,000 jobs. The Kerry plan would aim to stimulate the economy up front by offering a two-year payroll tax credit for manufacturers and selected other businesses that add jobs. In an effort to reduce outsourcing, Kerry would eliminate a tax break for companies with operations abroad while lowering the corporate tax rate for most businesses.
Bush says he would continue working to reduce what his campaign call the “onerous” regulatory burden stifling small businesses. And he says he would work to “level the playing field” with China and other trading partners by enforcing global trade rules.
Behravesh, of Global Insight, believes the prospects for economic growth would be roughly the same under either candidate. He projects that no matter who wins, the economy will add about 9.2 million jobs over the next five years or about 150,000 a month. But under Bush most of the job growth would come from increased capital spending, he said, while under Kerry it would come from increased government spending.