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The Democrats Are Better for Business
By ROGER C. ALTMAN
October 20, 2004
Exactly 16 years ago, Lawrence Summers and I argued on this page that modern Democratic presidents, in statistical terms, had been better for American business than their Republican counterparts. We further predicted that these superior Democratic results would continue. And we questioned why the U.S. business community, in light of this record and this outlook, remained overwhelmingly Republican.
Another presidential election is at hand, and this is the right moment to review those predictions. In the interim, we have conveniently experienced eight Republican presidential years and eight Democratic ones. Mr. Summers, as president of Harvard, cannot debate these issues now. Fortunately, the statistics speak for themselves. In fact, the long-term comparison, as well this latest 16-year one, is no contest.
THE 16-YEAR COMPARISON
AVERAGE ANUAL GROWTH RATES THE TWO BUSH PERIODS* THE CLINTON YEARS
Real GDP 2.30% 3.60%
Private Employment 0 2.6
Real Median Household Income -1 1.7
Real Business Fixed Investment 0.3 9.2
Stock Prices, S&P 500 3.4 15
Earnings Per Share, S&P 500 7.2 5.2
OTHER THE TWO BUSH PERIODS* THE CLINTON YEARS
After-Tax Return on Capital 2.5 3.9
Average Budget Deficit/GDP Ratio -2.8 -0.7
*Full data for the Presidency of George W. Bush is available through June 30, 2004
Source: Roger AltmanAccording to Federal Reserve Board data, from January 1952 through June 2004 the average after-tax return on tangible capital was 4.3% under Democratic presidents and 3.2% under their Republican counterparts. As my table shows, the past 16 years provide an even more stark comparison, with after-tax return on capital at 3.9% under the Clinton presidency, and just 2.5% under the Bush presidencies. Moreover, on the most basic economic measures of all -- growth, jobs and household income -- the Democratic presidential advantage over the past 16 years is enormous. On the business indices -- investment, return on capital and stock prices -- the advantage also is strong. And, of course, the Federal budget comparison is dramatic. Yes, earnings per share rose slightly more during the Bush periods, but shareholders obviously benefited more under Bill Clinton.
The next question, then, is whether the election of John Kerry would extend this long-running Democratic advantage. A review of each candidate's key proposals, and a comparison of them to the Clinton principles, suggests that the answer is yes.
Deficit Reduction
All CEOs are responsible for conserving the finances and balance sheets of their organizations. Any candidate's credibility on budgets, therefore, is a key determinant for business support.
Deficit reduction, of course, was the signal economic achievement of the Clinton era. That presidency, despite inheriting a $255 billion deficit (3.9% of GDP), saw America achieve its first balanced budget in 40 years and then a nearly $500 billion paydown of the National debt. Indeed, when George W. Bush was inaugurated, the Congressional Budget Office forecast a $5.5 trillion 10-year cumulative surplus. This proved short-lived. The deficit for fiscal 2004 was $415 billion, the largest nominal amount on record. The latest CBO forecast now envisions a 10-year cumulative deficit exceeding $3 trillion. In constant dollars, this is the largest budget deterioration over four years since 1900.
There should be no debate over whether deficits matter. In the long run, they represent a claim on national savings which reduces the availability of funds for private investment. As such, they slow productivity and thus reduce standards of living. They also undermine the confidence of financial markets and pose serious risks to interest rates and capital inflows. The question is which candidate will reduce these deficits.
Both propose to cut the deficit in half over four years. But their credibility diverges in three major ways. One is the dismal Bush record to date. Second, Sen. Kerry is the only candidate to favor reinstating the main budget laws of the 1990s. These are: (1) the pay-as-you-go requirement (Paygo), and (2) the system of inflation-based caps on non-defense discretionary spending, enforceable through an across-the-board cut, if necessary. They took effect in 1990 under the first President Bush, were extended twice on a bipartisan basis and expired in 2001. These laws, which restrained spending to a 3.2% annual rate over the eight Clinton years, explain the budget success of that period.
Thirdly, Sen. Kerry is the only candidate to apply this Paygo approach during this campaign. Each of his initiatives, led by health care and education, has been accompanied by "payfors" -- specified financing. Mr. Bush has not followed suit, particularly relative to the multi-trillion dollar cost of his Social Security privatization plan. Fundamentally, Sen. Kerry has pledged compliance with these budget laws, even if they require scaling back his own initiatives. In contrast, Mr. Bush opposes their reinstatement. Business leaders should ask: Which one is more serious about deficit reduction?
Health Care
Few issues should be more important to business than this one. Corporation after corporation has deplored the international competitive disadvantage of skyrocketing U.S. health costs. This largely reflects the cost shifting associated with so many uninsured Americans who receive health care but don't pay for it. Particularly poignant is General Motors' calculation that its health-care costs average $1,700 per vehicle -- a burden which Toyota does not carry.
Health care is the centerpiece of Sen. Kerry's domestic agenda. His primary goals are to extend coverage to most of the 45 million Americans who don't have it, and to cut the health-cost inflation rate, currently almost five times higher than overall inflation. Key features of his plan include: (1) lifting 75% of the costs of catastrophic cases from employers; (2) opening to small businesses the giant purchasing power of the Federal Employees Health Benefit Program; and (3) making prescription drugs more affordable, including through Canadian imports. Emory University has estimated that it would lower overall premiums by $1,000 per family and cover virtually all uninsured children and 75% of uninsured adults.
In contrast, Mr. Bush has made a limited proposal centering around IRA-style Health Security Accounts and allowing certain trade associations to open their purchasing pools to small businesses. These plans, according to Bush supporters, would cover only six to seven million uninsured Americans. And, there is no basis for expecting a change in health-care cost inflation.
Yes, the Kerry plan is sweeping and ambitious. But unlike the Clinton efforts, it is entirely voluntary. Also, it is more than financed by eliminating the Bush tax cuts for those earning over $200,000 per year. The largest employers particularly know that slowing health-cost inflation requires fundamental change along the Kerry lines, not token proposals.
America's Standing
Innumerable American CEOs have expressed concern, publicly and privately, over the precipitous decline in respect for America around the world. This can harm their international business and is thus an economic issue. Those CEOs are responsible for protecting the brand value of their products or services and expect their president to do the same for America's international standing.
Yet the mistakes surrounding our intervention in Iraq have inflicted so much damage on America's brand as to require a fresh start. It is not a matter of seeking permission from other nations to protect ourselves. No American favors that. But rather returning America to its role as the most generous, enlightened and respected nation on earth. That goal does not conflict with seeking the strongest national defense. Sen. Kerry promises that fresh start; Mr. Bush does not.
For all these reasons, the list of business-leader endorsements for Sen. Kerry, as published by his campaign, is longer than for any Democratic nominee in memory. Considerably more, for example, than Bill Clinton had in 1992. Yes, the traditionally Republican business community still supports Mr. Bush to a greater degree, but the gap has narrowed considerably. A few more years of consistently better results under Democratic presidents, and it should reverse.
Mr. Altman, a senior economic adviser to the Kerry presidential campaign, served as deputy Treasury secretary during the first Clinton administration. He is chairman of Evercore Partners.
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