Daily Updates

May 25, 2013

Improving economy changes political landscape

WASHINGTON (AP) — Alleged misbehavior by the Internal Revenue Service and other federal agencies gives the GOP something else to talk about and investigate as the economy clearly, if slowly, recovers on President Barack Obama’s watch, robbing Republicans of a central argument against Democrats.

Amid a series of recent positive economic reports, the GOP is revving up its portrayal of the Obama administration as scandal-ridden and inept, while largely abandoning the party’s where-is-the-recovery criticism.

Republicans had little choice, given that the economy has gained considerable strength over the past 18 months. Today, the federal budget deficit is shrinking rapidly and tax receipts are rising. Consumer confidence and spending are up, as are auto and housing sales. Stocks are near all-time highs.

Such improvements give U.S. policymakers some rare breathing room, even if the nearly 12 million people still out of work don’t discern the brighter picture.

While unemployment is at 7.5 percent, it’s down from the 10 percent of October 2009. Also, recent job creation in the private sector has been relatively strong.

Republicans, who earlier stressed the weak recovery and what they depict as Obama’s economic mismanagement, are now busy denouncing his administration on several fronts: for allowing the IRS to target conservative groups for extra tax scrutiny; for engaging in an alleged cover-up on the nature of a deadly terrorist attack on a U.S. post last September in Benghazi, Libya; and for secretly seizing records of journalists from The Associated Press and Fox News.

Obama and Democrats are trying to look beyond the ethics investigations to talk up the recent economic gains and the president’s efforts to promote more jobs. He’s been trying to draw attention to his job-creation ideas in a series of out-of-town events before audiences of workers.

As a result of fiscal improvements, the annual federal budget deficit will drop this year to $642 billion after four straight years of $1 trillion-plus annual shortfalls, the bipartisan Congressional Budget Office reported this past week.

The Treasury says it will pay down a small portion of the national debt this quarter for the first time in six years.

As the rebound gains steam, Republicans stand to lose what had been one of their strongest hands for the 2014 elections: asserting ineffective economic stewardship from the Democrat in the White House and those on Capitol Hill.

But they pick up another compelling issue, one that touches directly on Obama’s core 2008 campaign promise to restore public confidence in the ability of government to produce results in an effective and evenhanded way.

There’s “no question” that the alleged scandals are taking the attention of many politicians away from economic concerns, said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and top economic adviser to Republican Sen. John McCain’s 2008 presidential campaign.

“What’s more politically potent? Another round of complaining on the budget and the economy or the IRS, AP and Benghazi? I think it’s the latter,” said Holtz-Eakin, who now heads the American Action Forum, a conservative public-policy institute. Besides, “both sides were tired of the budget battle,” he added.

Holtz-Eakin and many other economists emphasize that the improvements probably will be short-lived because Congress has yet to seriously address tax overhaul or fast-rising costs of programs such as Social Security, Medicare and Medicare. “It remains an OK recovery, not a sterling one,” he said.

Part of the deficit decline comes from the higher tax rates that went into effect this year and from improving corporate profits. But some is due to temporary events such as bailout paybacks by government-controlled mortgage giants Fannie Mae and Freddie Mac, and higher tax payments from wealthy people and corporations shifting income into 2012 to avoid paying higher 2013 taxes. Also, U.S. borrowing costs are at historic lows.

For now, the three controversies plaguing the administration are consuming most of the political oxygen in Washington.

“Congress basically can’t walk and chew gum at the same time, so they’ll focus on these scandal things for a while longer,” said veteran budget analyst Stanley Collender.

With annual deficits shrinking, Republicans are more likely to focus more on the $16 trillion national debt, which is still going up, instead of deficits, which are going down, Collender said.

The declining deficit also means that another knock-down partisan fight in Congress over raising the government’s borrowing limit now won’t happen until October or November instead of early summer as originally envisioned.

The present dynamic, with Obama and his Democratic allies forced onto defense in three separate matters, is not lost on Republican leaders hoping to pick up seats in the House and regain control of the Senate next year.

House Speaker John Boehner, R-Ohio, opened a news conference Thursday by asserting that “jobs continue to be our No. 1 priority” before he quickly moved to “the IRS scandal” and other alleged administration improprieties.

The matters now being investigated by multiple congressional committee “all feed and fuel the narrative of government intrusiveness and a government that is too large,” said Thomas E. Cronin, a presidential historian at Colorado College.

“To some extent, the Obama administration has accidentally given Republicans a whole new line of attack,” Cronin said.

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