Bush or Kerry? A Pocketbook Rating

By Amey Stone

Still undecided about who to vote for on Nov. 2? One way to decide is to simply vote your pocketbook. While it may be hard to judge which Presidential candidate would be more likely to improve the country's general health and well-being, it's sometimes easier to determine which would have the most impact on the dollars-and-cents issues you personally care about most.

Overall, Bush comes out strongest on pocketbook issues that affect the wealthy. He emphasizes lower taxes and less regulation of business, which may translate into higher stock market returns for industries operating with fewer costly restrictions. Yet Bush's tax cuts and aggressive military policy have contributed to soaring budget deficits that have contributed to a weaker dollar.

In contrast, a central feature of Kerry's campaign is a promise to help a pinched middle class that's coping with a weak labor market and minuscule wage growth, at a time when the price of health care, tuition, energy, and food have soared. Kerry is expected to promote more regulation. Keeping tight reins on profit-maximizing companies may lead them to raise prices, but may provide consumers with better, safer goods in the long run.

Following is a list of key issues and which candidate seems most likely to do the best to protect your pocketbook on each one:

Jobs: Kerry

President Bush has already had a four-year shot at getting America hiring again, and he has come up short. His policies have resulted in economic growth and a boost to corporate profits -- yet only pitiful job creation. Fear of another terrorist attack, which Bush keeps in the forefront of the national psyche, and testy international relations aren't helping businesses' willingness to expand and invest. That means fewer jobs.

Also limiting job creation: dramatic increases in the cost of health insurance and benefits. Kerry's proposed health-care reforms could mitigate that burden, which could help stimulate more hiring. Given Bush's track record, a new jobs policy is worth a try.

Energy costs: Bush

Energy prices have soared under Bush. Going forward, however, it seems clear that the President would do more to bring prices down, in part by promoting policies to increase oil and gas supplies. He wants to hike domestic production of oil in places such as the Arctic National Wildlife Refuge and of natural gas in the Gulf of Mexico.

His energy bill is widely regarded as a boon to producers. Morningstar's Oct. 21 forecast for crude-oil prices, from a current level of $55, is that they would fall to $44 in 2005, $34 in 2006, and $33 in 2007, due mainly to hikes in production.

In contrast, Kerry is likely to push for stronger environmental protections, which would mean tougher emissions standards for both auto makers and coal companies. This would spark higher costs for coal-fired utilities. It would also hike costs for the auto industry, which would pass them on to the driving public.

Kerry would also, however, be more likely to promote alternative-energy development and use. Renewable energy sources cost more in the near term but ultimately could reduce demand for fossil fuels, save money, and better protect the environment over the long haul. But if it's less expensive and more plentiful gas and home heating oil you're after now, vote Bush.

Real estate: Kerry

The Democrat would likely ease pressure on government-sponsored mortgage giants Fannie Mae FNMand Freddie Mac FRE, which have come under fire by the Bush Administration for weak financial controls. Those lenders help make mortgages more available. Kerry also stands to maintain real estate values by promoting environmental protections. There's nothing like a nearby ecological disaster or environmental problem to destroy property values.

O.K., maybe the odds on that are relatively slim. But here's something a bit more pressing to consider: The big risk to housing prices is dramatically higher long-term interest rates. Such higher rates could happen if the bond market gets too worried about the strength of the U.S. economy and demands higher returns for holding long-term bonds (mortgage rates are typically tied to the 10-year Treasury).

Large federal deficits are already contributing to a weaker U.S. dollar and limiting the appeal of U.S. Treasuries to foreign buyers. Getting the budget deficit down is key to keeping interest rates low and homes affordable. Both Bush and Kerry promise to cut the deficit in half over the next four years, but given Bush's track record, we think Kerry has a stronger commitment to that goal. By Amey Stone Taxes: Bush

If reelected, Bush would fight in '05 to make permanent many of his past tax cuts, which are set to expire in a few years, including the 15% capital-gains rate, a 35% top tax rate, and a 15% tax on dividends. "But it will be a tough fight getting that through the Senate," says Greg Valliere, chief strategist at Charles Schwab's (SCH ) Washington Research Group.

Kerry promises tax relief for the middle class, in part by raising taxes on the wealthiest Americans -- those earning more than $200,000. But if he's serious about cutting the deficit, the Democrat may need to raise taxes more than he's saying now. Again, that seems unlikely, given the potential for legislative gridlock. However, Bush seems more determined to keep taxes low, even if it means watching the deficit climb ever higher.

Bush also has a goal of reforming the tax code, making it simpler and fairer, as well as rectifying current problems with the dreaded Alternative Minimum Tax (AMT), which is hitting too many moderate-income Americans. Those are worthy goals.

Investments: Kerry

This is a controversial point: Most investment strategists favor Bush and believe he would be better for the stock market. However, history shows that Wall Stree performs better under Democratic Administrations. Since 1901, the Dow Jones industrial average has returned an average 9.1% annually under Democrats, but only 6% under Republicans. President Clinton's record on that score is the best recent example.

Plus, Wall Street is increasingly worried about the deficit and the standing of the U.S. among foreign nations. Many investment pros are starting to think a Kerry Presidency might be better for stocks in the long run (see BW Online, 10/18/04, "The Street Gets Comfortable with Kerry"). Plenty already believe that Kerry would be better for the bond market, especially municipal bonds, which would be more attractive if taxes are increased.

A Bush Presidency would be better for dividend-paying stocks, and sectors like health care and energy that Kerry might regulate more aggressively. But Kerry just might have a preferable strategy for stimulating growth, and that would better boost the stock market overall.

Consumer goods: Bush

What about the prices of everything from Tupperware to blue jeans? Inflation has been kept in check under Bush. With energy costs rising, companies may try to raise prices. However, with wage growth so anemic, they're unlikely to be able to. Plus, Bush would likely do more to keep companies' costs low. His energy policies and looser regulation would keep their expenses down. Moreover, he wants to push tort reform, which would reduce many manufacturers' exposure to product-liability suits.

Then there's competition abroad, which drives down prices at home. Both candidates have discussed some limitations on free trade, which allows cheaper products to be imported. But Kerry appears more likely to favor such moves. He has also suggested ways to discourage companies from outsourcing, which keeps the price of goods lower for consumers. All in all, companies seem less likely to raise prices under Bush.

Health-care costs: Kerry

Reforming U.S. health care is one of the senator's key initiatives. Achieving his most ambitious reforms in what will likely be a Republican Congress would be next to impossible. However, he would still endeavor to push through some change that would lower health-care costs for average Americans. He would try to make health insurance more available and enable Americans to import cheaper drugs from Canada.

His policies could ignite a pitched battle between government and drug and health-insurance companies, but it would likely lead to a better health-care deal for more people.

Stone is a senior writer at BusinessWeek Online and covers the markets as a Street Wise columnist

Edited by Beth Belton