Tax Notes Today on September 18, 2008.
Mark October 3 on your calendar. At 8:30 a.m. that day — the morning after the scheduled vice presidential debate — the federal government will release the unemployment figure for September. That report, the last before the November 4 election, will be our first solid indicator of how much the blood spilled in this month's Wall Street crisis has soaked through the mainstream economy. It will also determine the track conditions for the homestretch of the presidential race.
The last unemployment report showed a sharp rise from 5.7 percent to 6.1 percent. That marked the first time the unemployment rate topped 6 percent in five years. White House press secretary Dana Perino called the news "absolutely unwelcome." Another rise in the unemployment rate would be absolutely unwelcome, too, for the presidential hopes of Arizona Republican Sen. John McCain.
Such a grim scenario would impose more than the usual burden borne by the incumbent party's candidate whenever the economy sours. The bigger problem is that the McCain campaign is boxed into a corner. Its Democratic opponent, Sen. Barack Obama of Illinois, has proposed a second economic stimulus. McCain has not. McCain doesn't want to look like President Hoover in 1932, insensitive to issues of economy on the eve of the election. Nor does he want to change his mind and implicitly concede that Obama was right.
Democrats in Congress staked out the high ground on this issue when they starting calling for a second economic stimulus package before the IRS had even begun mailing rebate checks from the first stimulus. That first package was enacted in February with strong bipartisan support. The centerpiece of the $162 billion plan was 130 million rebate checks mailed over a four-month period beginning at the end of April.
The new plan from Democrats in Congress calls for increases in government spending on infrastructure, heating subsidies, and food stamps. It is easy for the Bush White House to besmirch the value of the Democratic plan. They need only point out that this stimulus proposal is a spending program targeted at favored Democratic constituencies: It's a big-government solution.
But out on the presidential campaign trail, the stimulus debate has a different trajectory. It will not be so easy for McCain to dismiss Obama and the Democrats' proposal.
Obama, unlike some of his fellow Democrats in Congress, favors a second stimulus that calls for tax rebates instead of government spending. It is easy for the campaign to convey the message that the Obama stimulus is about tax cuts for the middle class.
How can McCain and Republicans respond? After all, those Obama rebate checks sound a lot like the rebate checks the president and Congress began seeking in January. Back then the unemployment rate was 4.8 percent. What's wrong with more of that same type of stimulus with unemployment at 6.1 percent?
So far, McCain and congressional Republicans have largely sidestepped the issue of a second stimulus. During the summer it seemed reasonable for them to say, "Wait and see how the first stimulus works out before we have a second." But as time passes and the economy sours, this approach becomes riskier.
There is no mention of an economic stimulus plan on the McCain campaign Web site. The Wall Street Journal on September 11 reported that McCain is open to such a plan but hasn't committed to a specific proposal. And McCain's track record is equally fuzzy: He missed a critical vote on the first stimulus package in February.
A business downturn is not a sure thing. The investment banking crisis on Wall Street may be offset by lower fuel prices and mortgage rates. But in any case, the drama and visibility of the collapse, bailout, and buyout of U.S. financial giants has breathed new life into Democrats' effort to pass a second stimulus bill. And it could breathe a second wind into the Obama campaign.
The McCain team doesn't want to run that risk. They are probably already drafting a policy response to help the economy if it continues to stumble. It's hard to predict whether conditions will materialize to warrant release of a new plan so late in the game.
Of course, all this chatter about stimulus is mostly posturing before a tight election. Given the crowded legislative calendar, there is little chance — barring a deeper economic emergency — that a second stimulus could be enacted before Americans go the polls.
So mark November 7 on your calendar, too. At 8:30 a.m. that morning — three days after the presidential election — the government will release another round of unemployment data. Then, with a clearer view of the political and economic situation, maybe we can get down to the business of what the nation really needs for economic renewal.