The economy is deteriorating so quickly and dramatically that it threatens to overtake many proposals the presidential candidates have been offering for months.
Democrat Barack Obama and Republican John McCain are suggesting tax, spending and regulatory plans in response to soaring gasoline prices, a home lending crisis and other woes hitting consumers. But it is far from clear that their ideas can seriously improve matters or even pay for themselves without expanding the deficit, as the candidates claim.
A year ago, the Iraq war and terrorism dominated the campaign, and that was reflected in candidates’ rhetoric and poll results. Obama’s opposition to the war helped propel him to the Democratic nomination, while McCain’s national security credentials swayed some GOP voters.
The landscape has shifted. New problems are cropping up almost daily, and voters will be demanding answers.
"I don’t think either candidate has really spelled out how they would get us out of the mess we’re in," said Rea S. Hederman Jr., who tracks the economy and campaign for the conservative Heritage Foundation.
Inflation has rarely been mentioned in the presidential contest, but that seems likely to change soon. The government reported Wednesday that consumer prices rose in June at the second fastest pace in 26 years.
Bank failures suddenly are front-page news as well. The FBI is looking into possible fraud related to home loans made by IndyMac Bancorp Inc., which was taken over Friday by the FDIC.
Polls show that voters are clearly more concerned about the economy and gas prices than about the Iraq war and national security. McCain and Obama undoubtedly will return to these issues and offer new proposals, but perhaps the voters’ chief question should be: Can they really help?
"The president doesn’t have that much impact on the short-run fluctuations of the economy," said Alan D. Viard, an economist at the right-of-center American Enterprise Institute. The candidates will continue to talk about plans to help ease Americans’ pain, he said, but voters should be wary.
For example, Viard said, McCain’s proposal to temporarily suspend the federal tax on gasoline would do little more than encourage people to keep driving instead of conserving fuel. Obama has called McCain’s plan a gimmick.
An Associated Press-Yahoo News poll conducted in June found that voters give Obama a slight edge over McCain in handling economic matters.
Democrats love to note that McCain said in December, "the issue of economics is not something I’ve understood as well as I should." And last week, McCain had to cut ties with a top economic adviser — former Sen. Phil Gramm — when Gramm called Americans a nation of "whiners" about the economy.
The two candidates offer fundamentally different approaches to the economy. McCain wants to cut taxes at virtually all income levels, although high-earners would reap the biggest benefits. Obama would raise taxes on the wealthy and pour more spending into subsidies of education, health care and other programs.
Obama says all his programs would be paid for with tax hikes or savings elsewhere. McCain says he would balance the federal budget by 2013. Economists are dubious of both claims.
The candidates’ specific non-health tax proposals would reduce tax revenues by $3.6 trillion in McCain’s case, and $2.7 trillion in Obama’s, over the next 10 years, says the Tax Policy Institute, a joint venture of the liberal-leaning Brookings Institution and Urban Institute.
"Including interest, the tax cuts would increase the national debt by $4.3 trillion (McCain) or $3.3 trillion (Obama) by the end of 2018," the institute said.
The candidates diverge on tax policies. McCain would continue President Bush’s first-term tax cuts (which he initially opposed); increase the tax exemption for those with dependents; reduce the corporate income tax; exempt the great majority of estates from the estate tax; and eliminate the gas tax for this summer.
Obama would end the Bush tax cuts for high earners; eliminate income taxes for elderly people making less than $50,000 a year; reduce taxes on people making less than $75,000 a year; keep the estate tax on estates worth more than $3.5 million; and raise the capital gains tax.
Obama calls for a "second stimulus" package of tax rebates amounting to less than a third of the $168 billion package approved last year. "The sooner we can get money into people’s pockets, the sooner that we can stabilize the housing market," Obama said last week.
McCain says he would consider a stimulus package.
On Social Security, Obama calls for a new payroll tax on annual incomes exceeding $250,000. McCain says he would place "everything on the table" in discussions of how to improve the program’s long-term viability. Critics say the possibilities would include partial privatization of Social Security accounts, which Obama opposes.
Obama and McCain routinely criticize each other’s economic plans, although not always with precision. McCain has said Obama’s call for a higher capital gains tax would hurt those with stocks or mutual funds in retirement plans. But most retirement accounts are not subject to the tax.
McCain supporters, meanwhile, say Obama underestimates the government savings that McCain’s plan would stimulate with proposals such as ending "earmarks" in spending bills and rooting out waste and duplication.
Voters seem likely to press the two candidates for more details in the coming weeks.
"There has been a great deal of empathy and concern from the campaigns, but not a lot of details about how to solve the problems," said Hederman of the Heritage Foundation. "It shows how complicated things are that neither campaign has really laid out how they would handle the economy if they were president."