In hazy detail, President Bush has sketched out a second-term economic agenda that would fundamentally change the relationship between citizens and their government, giving taxpayers more control over their health care, retirement savings and investments -- and shifting much of the risk, as well.
In far greater detail, Democratic nominee John F. Kerry has laid out how he would stop Bush.
In the meantime, neither candidate has really addressed what Goldman Sachs economists recently called "the elephant in the room": the government's swollen deficit.
The top item on Bush's economic agenda is unfinished business from his first term: making the tax cuts permanent. The cuts -- first passed in 2001, augmented and accelerated in 2003, then partially extended in 2004 -- are still set to expire by the end of 2010. Their permanent extension would cost the Treasury about $1.2 trillion over 10 years, according to Congress's nonpartisan Joint Committee on Taxation.
But under his "ownership agenda," Bush would break ground in his general push to shift social responsibilities from the government to individuals. Bush would partially privatize Social Security by allowing taxpayers to divert some of their Social Security payroll taxes into personal accounts -- the funds of which could be invested in stocks and bonds. Under most models of such proposals, guaranteed Social Security benefits would be cut for younger workers, but strong investment gains could make up much, if not all, of the benefit losses.
The president has also proposed new savings accounts, into which individuals could put as much as $5,000 a year. Investment returns would accrue tax free; and unlike the balances of existing tax-free retirement, health and education savings accounts, the balances in the new accounts could be withdrawn at any time for any reason with no penalty. A family of four could shield $20,000 a year in savings from capital gains, dividend and interest taxes. With the median family income at $43,318 and because few families could ever save $20,000, the proposal would eliminate taxes on investments for virtually all Americans.
Bush would make long-term-care insurance fully tax deductible, cap lawsuit damages and broaden tax-free health savings accounts. The president has also proposed the creation of a bipartisan commission to develop a plan to simplify the tax code.
Kerry has framed his economic agenda as a move away from Bush's aggressive tax cutting, back toward a government that would be more active in social welfare policy. Under Kerry's proposals, the top two income-tax brackets -- now 33 percent and 35 percent -- would revert to the 36 percent and 39.6 percent rates that Bush inherited in 2001.
Kerry would also reverse the 2003 cuts in dividend and capital gains taxation for households earning $200,000 or more a year, and he would cut -- but not eliminate -- the estate tax.
A Deloitte Tax LLP analysis of the plans concluded that families with incomes below $200,000 would face no changes in their taxes under Kerry's plan, but a family of four with $250,000 in income would see its taxes rise $1,300. A single taxpayer making $575,000 would be hit with $15,400 more in taxes, while a married millionaire would face $35,500 in additional taxes.
All the money raised by those tax increases and more would be consumed by Kerry's education programs, energy research proposals and ambitious expansion of health insurance coverage for those near poverty and for small businesses.
As different as the economic visions may be, their impacts on the budget deficit and economic growth may be virtually identical, according to independent economic analyses.
Global Insight Inc., an economic forecasting firm, said neither candidate would meet his pledge to cut the deficit in half in five years. Bush's plans would leave the budget deficit at $375 billion in 2009. Kerry's would put it at $447 billion, the firm said. Economists at J.P. Morgan Chase & Co. concluded that Bush would add $1.25 trillion to the national debt over the next decade, while Kerry would add $1.08 trillion. Neither the Global Insight nor the J.P. Morgan estimates included the cost of Bush's yet-to-be-detailed Social Security privatization, which could be $1 trillion to $2 trillion over 10 years.
Because neither candidate has effectively addressed the deficit problem, economic growth would suffer no matter who wins, said Nariman Behravesh, Global Insight's chief economist. Growth would be held to a relatively slow 2.5 percent to 3 percent by the end of the decade, as deficits weigh down on investment and savings, he said. Under Bush, that growth would be spurred by investment, financed by tax cuts. Under Kerry, growth would be pushed forward by government spending that would prime the economy and decrease the medical costs of lower-income families.
"Much like the pre-election polls, the economic impacts of the Bush and Kerry budget plans are so close as to be almost indistinguishable," Behravesh told clients this month.