It's Obama Versus Bush as Growth Slows Before Election

President Barack Obama and fellow Democrats have run out of time and tools to generate growth as a historic government intervention to rescue the economy runs up against the limits of the November election calendar.

So the contest with Republicans for control of the U.S. Congress has reverted to arguments that have traditionally defined the parties: the role of spending and taxes.

Democrats are reminding voters that their economic problems started under President George W. Bush, while Republicans are taking aim at the Obama administration’s handling of record deficits and high unemployment. The Bush administration’s tax cuts, due to expire Dec. 31, will be among the points of contention.

“The Republican Party is going to go to the mat to defend the centerpiece of President Bush’s economic agenda, and we know where it got us,” White House communication director Dan Pfeiffer said in an interview, placing the blame for the financial crisis on the Bush administration. The Obama administration wants tax cuts to remain for households earning less than $250,000. The Republicans want the cuts extended for every income level.

The showdown over taxes and policy comes as the economy shows fresh signs of slowing. The Standard & Poor’s 500 Index fell 0.26 percent to 1,072.83 at 3:34 p.m. in New York, a second day of losses after reports yesterday showed manufacturing in the Philadelphia area unexpectedly contracted in August and claims for unemployment benefits last week jumped to the highest level since November.

July Unemployment

The July unemployment rate in Nevada, where the Senate Majority Leader Harry Reid is struggling to win re-election against a Republican challenge, reached 14.3 percent, a record in Nevada and the highest of any state, the U.S. Labor Department reported today.

“It is just too late to influence how things stand on Election Day,” said Nigel Gault, chief U.S. economist for IHS Global Insight, a macroeconomic research firm in Lexington, Massachusetts. Gault said it can take months for new government spending or tax cuts to affect the economy.

Republicans are concentrating on connecting voter unease to record federal budget deficits and unpopular bailouts of companies including Citigroup Inc. and General Motors Co. They drove home those points and their divisions with Democrats in a debate this month over how to fix budget gaps in their home states.

‘We’re Broke’

“We’re broke,” House Minority Leader John Boehner of Ohio told reporters before a House vote this month on a $26-billion aid package for state and local governments. “We do not have the money to bail out the states. It’s time for them to get their arms around their own problems.”

Former Representative Tom Reynolds of New York, who chaired House Republicans’ national campaign committee in 2006, said the theme has begun to echo across campaign trails.

“From John Boehner to most of his candidates, they are talking about less spending and no taxes and let’s get the economy moving again,” Reynolds said.

Yesterday’s economic data prompted economists at JPMorgan Chase & Co. in New York to lower their growth estimates. The economy will expand at a 1.5 percent annual rate this quarter and at a 2 percent pace in the last three months of the year, a percentage point less than they previously estimated.

Pace of Recovery

The Federal Reserve said Aug. 10 that the pace of the recovery will be “more modest” than forecast as unemployment remained near a 26-year high and lower household wealth and tight credit restrain consumer spending.

The economic impact of the stimulus package that was the centerpiece of the White House’s recession response peaked during the second quarter, according to the Congressional Budget Office. The CBO lowered its projection for the cost of the recovery package to $814 billion from $862 billion in a report issued yesterday.

As of Aug. 13, the administration had committed $649 billion in tax cuts and grants approved, said Ed Deseve, special assistant to the president for recovery act implementation.

Republicans have focused on persistent unemployment to argue that the stimulus was a costly mistake. The Obama administration had to scale back several economic initiatives in order to win votes on Capitol Hill.

Obama used yesterday’s jobless claims figures to attack Senate Republicans for blocking Democratic-backed legislation that would ease terms for Small Business Administration loans and provide $12 billion in tax breaks to small firms. He called it “obstruction that defies common sense.”

Public Approval

As confidence in the economic recovery withered, so has public approval of Obama and the Democrats. Obama’s job approval fell to 41 percent, the lowest level of his presidency, according to Gallup daily tracking poll released yesterday.

In his travels across the country, Obama has been reminding voters of problems from the Bush years, likening the economy to a car driven into a ditch by Bush and the Republican Party.

“What they’re really counting on is amnesia,” Obama said of his Republican opponents at a fundraiser in Austin, Texas on Aug. 9. “They know they messed up, and they know that we pulled the country out of the problems that we were in.”

In a weekly radio address Aug. 14, Obama resurrected the unsuccessful Bush efforts from 2005 to privatize Social Security as a warning that “some Republican leaders” still want to make it “a key part of their legislative agenda if they win.”

Choreographed Battles

Democrats are seeking to depict the congressional races as a time to choose between two political philosophies rather than a referendum on Obama’s performance. They choreographed battles on Capitol Hill to underscore the differences.

A partisan fight over whether to extend unemployment benefits for the long-term jobless wore on for weeks in the Senate as Democrats, who overwhelmingly supported the measure, forced three separate votes on the bill until it passed in July. Republican senators -- except for two who supported the bill -- were seen repeatedly voting against the aid.

This month, House members called a rare one-day session during their August break to pass an aid package to stave off state and government layoffs of teachers and police.

In each case, Democratic leaders were underscoring “mini economic wedge issues” that served their political narrative, said Chris Lehane, a Democratic strategist who worked on Al Gore’s presidential campaign.

Democrats aim to make the November ballot a judgment on the economic policies of the Bush administration, Lehane said, and the Republicans are ready with a familiar comeback.

“Bush is still a very effective bogeyman for Democrats,” Lehane said. “For Republicans, this is a negative brand writ large: Democrats are going to raise your taxes.”

To contact the reporter on this story: Mike Dorning in Washington D.C. at mdorning@bloomberg.net;

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