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Does It Really Matter Who Wins?

Does It Really Matter Who Wins?

Business Community Is Undecided Over Economic Policies of George Bush, John

Kerry

COMMENTARY

By KATE BERRY

Wall Street is confused. So is Main Street. When handicapping this year’s presidential race, incumbent George W. Bush should be the odds-on favorite among the business class , if for no other reason than being a Republican and his insistence that the best way of stimulating the economy is by reducing taxes.

Except that the economy is not being stimulated , at least not enough to satisfy financial markets and corporate executives. A combination of a dismal jobs report in July (both nationally and statewide), oil prices heading toward the $50-a-barrel mark and a half-trillion-dollar federal budget deficit has the business world on edge.

Not helping matters, of course, is the still-unsettled role of the United States in Iraq and the ongoing terrorist threats.

No wonder the Dow Jones industrial average is struggling to stay above the 10,000 level. No wonder consumer confidence is showing signs of eroding.

And no wonder Sen. John Kerry is getting a hearing within at least some members of the business community.

“Bush has run on the conventional wisdom that lowering taxes is better for the economy. But spending hundreds of billions of dollars in Iraq for no apparent gain is a drag,” said Christopher Marlett, managing principal at MDB Capital Group, a Santa Monica investment bank. He calls himself a “Kerry Republican” , that is, he plans on voting Democratic even though he supported Bush in 2000.

“The reality is that all of our political leaders are pro-business. But now we have a Republican president who is increasing the size of government and subsidizing the safety of the world. A man like John Kerry can actually get these other countries to share the burden,” he said.

But Clay Womack, founder of Direct Capital Securities, a real estate broker-dealer in Santa Monica, doesn’t understand such leanings. “When I talk to friends, I ask how can they defend Kerry?” he said. “They can’t, it’s all anti-Bush sentiment and I don’t know what triggers that so violently. I have yet to have a conversation with someone who can tell me why Kerry should be elected.”

Important Differences

Perhaps more telling is another question: When it comes to the economy and the financial markets, will it really matter who is elected?

There are important differences, to be sure. Kerry has taken a more protectionist stance than the president on trade, noting that the expansive trade pacts of recent years have come at the expense of workers’ rights and damage to the environment. The Massachusetts senator is also pushing for a major health care overhaul (raising serious concerns in the pharmaceutical industry) and a tax hike for the very wealthiest Americans.

Then there is the matter of jobs, an issue Kerry is pounding at in key swing states such as Ohio, Michigan and Pennsylvania.

But campaign rhetoric is one thing , steering legislation quite another. With the Republicans holding their national convention in New York this week, the prevailing view among political pollsters and pundits is that the House and most likely the Senate will remain in GOP hands, even if Kerry were to win.

As for job growth, opinion is all over the map on why the numbers remain sluggish , and more to the point, what effect a Bush or Kerry administration might have in turning them around. Some economists maintain that presidents have relatively little influence, good or bad, on the national and global economies, and that the boom years of the late 1990s would have happened no matter who was occupying the White House.

Short-Term Impact

“In terms of fiscal policy (presidents) do have influence, but I would consider most of it would be of a short-term impact,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University. “When you look at the long run, the impact is much less.”

In the end, both Bush and Kerry take a centrist approach to the economy, with the president inching toward the right and Kerry toward the left. Where the two sides clearly separate on positions are taxes and the budget deficit.

The deficit, in particular, seems to have set off red flags for market watchers who are already concerned about rising interest rates and commodity prices.

When Bush took office, he inherited a surplus of $236 billion, which represented 2.4 percent of gross domestic product. The Congressional Budget Office has projected the federal budget deficit in fiscal year 2004 will hit $477 billion, or 4.2 percent of GDP (White House estimates are somewhat lower), with some economists forecasting a deficit of nearly $5 trillion during the next decade.

That marks the third consecutive year of budget deficits after four straight years of surpluses under then-President Clinton.

“It’s somewhat ironic that ever since Ronald Reagan, and now with Bush, the Republicans have had the biggest deficits , it’s somewhat shocking that a conservative Republican would be the steward of that,” said Ed Wedbush, the president of Wedbush Morgan Securities Inc., a Los Angeles investment firm.

“We can’t spend billions in Iraq and have us getting all the same things we want out of life economically , there’s no country that’s that rich permanently,” he said.

Tax Cuts Causing Deficit?

Besides citing the recession early in his administration and the war on terrorism as two reasons for the skyrocketing deficit, Bush acknowledged that three rounds of tax cuts also played a role. “Part of the reason we have this deficit is because I believed that in order to get this economy moving forward, there should be tax relief,” he told supporters in August.

Tax relief, the president maintained, has generated more revenues and helped stimulate the economy , a point seconded by Kevin McCall, a Los Angeles entrepreneur and former senior adviser in the U.S. Small Business Administration.

“People tend to forget that this economy is in recovery , we had an economic slowdown, a terrorist attack and two wars, so it’s been a tough few years,” he said. “How people feel about the economy is probably the biggest factor in an election, and every sign I see is that the economy continues to look better, which is positive for a sitting administration.”

But on that point there is little consensus. In fact, economists who had projected the second half of 2004 to be very strong are revising their estimates , based, in part, on second quarter GDP growth of 3 percent from 4.5 percent in the previous three months.

While some business executives focus on the deficit, others are more concerned that if Kerry were elected, he would seek to repeal the capital gains and dividend tax cuts enacted by Congress in 2001.

The top tax rate on dividend income has been a boon to investors, with the rate falling to 15 percent from 38.6 percent, retroactive to the beginning of 2003.

Don Weigandt, a tax attorney and managing director at JPMorgan Private Bank in Los Angeles, said wealthy individuals are particularly bothered by what might happen to the estate tax if Kerry takes office.

Federal tax legislation in 2001 gradually reduced the estate tax, but a sunset provision restores the old law in 2011. This year, the tax applies only to portions of an estate that exceed $1.5 million. The exemption threshold rises to $2 million in 2006 and $3.5 million in 2009, but in 2011 the tax will apply to all portions of an estate over $1 million, with a top tax rate of 55 percent.

“There’s no question that the tax cuts put money in people’s pockets and had a lot to do with the stimulus, which has mostly run its course, which is why we’re in a slight pause economically,” Weigandt said. “The problem is it’s really hard to assess where we are economically because there’s so much hyperbole around it. One party is saying the gravy train is just around the corner, and another is saying the train wreck is just around the corner. So who do you believe?”

Divisions Among Contributors

Indecision is reflected in the striking division among major campaign contributors.

While Kerry trails Bush significantly in the number of Fortune 1,000 executives donating money to his campaign, the Democratic nominee has made some traction within the business and financial worlds, especially in California.

Kerry had raised $23.6 million from Californians by the end of June, which amounts to more than 20 percent of total donations to his campaign, according to PoliticalMoneyLine, an independent tracker of campaign finance data in Washington. By comparison, Bush has raised $17.6 million.

In Southern California, Kerry has the support of Richard Ziman, the chairman and chief executive of Arden Realty; Sherry Lansing, head of Paramount Pictures; Irwin Jacobs, founder of Qualcomm Inc.; and John Moores, owner of the San Diego Padres, among others.

Business leaders who support Kerry typically cite three factors: his promise to cut the budget deficit in half within four years, his proposal to reform the health care system, and the pursuit of a more collaborative foreign policy.

“People ask me the key to our fund-raising success and I say, George Bush is a tremendous motivator,” said Michael Tod Thorsnes, a San Diego trial attorney and finance co-chairman of the Democratic National Committee.

But Bush’s support remains substantial and broad-based. Contributors include A. Jerrold Perenchio, the chairman and chief executive of Univision Communications Inc.; Angelo Mozilo, the chairman of Countrywide Financial Corp.; Timothy Leiweke, the president of Anschutz Entertainment Group; and Donald Bren, the chairman of the Irvine Co.

Republican Brooks Firestone, a former state assemblyman who owns Firestone Vineyards in Santa Barbara, said he remained optimistic about the economy and a Bush victory.

“I kind of like the economy. It seems to have substance and legs and seems to be growing without hyper-growth or inflation,” he said. “People don’t realize that Bush inherited a recession and 9/11 was an incredible knock to the economy.”

Kate Berry writes for the Los Angeles Business Journal.

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