Family Pocketbook Emerges as Make-or-Break Vote Issue

Launching his fall drive for the White House on Labor Day, Democratic nominee Michael S. Dukakis served up the ace of his economic policy argument:

“For the past seven years the rich have gotten richer, the poor have gotten poorer and those in the middle . . . are getting squeezed,” he told a Detroit rally. “ . . . Can we afford four more years of that?”

Last week, Republican nominee George Bush slammed back:

“The next time somebody tells you that America is declining, tell ‘em to put away the 1980 calendar,” the vice president assured Chicago business leaders. “This is 1988. America is a rising nation again.”

And so goes the economic debate, like a tennis match, with the two presidential candidates lobbing and smashing facts and forecasts back and forth.

But this is no friendly match between a couple of well-bred and well-conditioned Ivy League alums. Rather, it is a deadly serious competition for the support of the American voter over an issue that, more than any other, seems likely to decide the outcome of the election.

In one form or another, the economic argument has been raging for the better part of the past decade, highlighting fundamental differences between the two parties.

In 1980, with Democrat Jimmy Carter in power and the economy riven by skyrocketing inflation and interest rates, Republican Ronald Reagan asked voters: “Are you better off now than you were four years ago?” The answer helped win him a landslide victory and an eight-year lease on the White House.

In 1988, Dukakis’ chances of evicting the Republicans rest mainly on his getting the right answer from voters to another question: “How well off will you and your family be four years from now?”

Dukakis clearly has a much tougher job than Reagan had in 1980. Then, voters were downright angry and frustrated about current circumstances. Now, there is only an underlying sense of anxiety about what lies ahead.

‘Hard Case to Make’

“With conditions on the surface looking good, it’s a hard case for him to make,” says Missouri Rep. Richard A. Gephardt, a former Dukakis rival for the Democratic presidential nomination.

Republican Rep. Jack Kemp of New York calls the current 68-month period of economic growth “bad news for the Democratic Party. The Democratic candidate is talking about recession and deficits. The Republican candidate is talking about economic growth and cutting the capital gains tax.”

Republicans are also eager to talk about income tax rates, interest rates, inflation and unemployment, all of which are lower now than they were four years ago.

“If the economy is the No. 1 issue,” Bush campaign manager Lee Atwater declares, “George Bush wins. The Democrats will try to put a negative spin on it. But if they want to help us focus on the economy, that’s fine.”

The Democrats insist that Reagan’s economic prosperity is little more than a facade that hides massive inequities for the average voter.

‘Doo-Doo’ Economics

AFL-CIO President Lane Kirkland a week ago sought to rally Southern union leaders behind the Democratic banner by turning two oft-quoted George Bush remarks against him, jeering: “It’s no longer ‘voodoo economics,’ it’s ‘doo-doo’ economics.”

Some local union officials say their members are receptive to such criticism. Even though unemployment is low in his state, says Chris Scott, president of the North Carolina AFL-CIO, “there is a real sense that we are losing it, that people are not quite as well off as they were before. And a lot are worried about the future.”

Scott points out that delegates attending a state convention of the North Carolina AFL-CIO last month cleaned out a printing of 100,000 Dukakis campaign brochures and brought them back to distribute to their local members.

“That doesn’t happen unless they are planning to put them out,” he says. “And you don’t put them out unless you feel some sense of confidence about your position.”

And Democrats can cite plenty of other evidence of at least creeping discontent. Nearly two-thirds of the registered voters interviewed in a Times poll published last week said they believed the next President should take the country in a “new direction” rather than continue Reagan’s policies.

A Gallup poll for Times Mirror Co. last May showed that citizens who think economic conditions will improve in the coming year had declined to 24% from 35% in January, 1984, the year of Reagan’s landslide reelection. The number believing conditions would worsen had climbed to 20% from 13%. Moreover, more than a third of those surveyed said they expected a U.S. economic collapse in the next 10 years because of foreign competition.

Best Shot

Polling evidence aside, many Democrats believe Dukakis needs to concentrate on the economic issue simply because it provides his best, if not his only, shot at the presidency.

To shore up his standing on defense issues, Dukakis spent most of last week spelling out his views on weaponry and even dutifully riding around in a tank for the television cameras. But few believe that, given his limited experience in such matters, Dukakis can get anything better than a draw out of the debate over national security issues.

Meanwhile, the Democratic standard-bearer seems to be losing the argument over social issues and values, which has been dominated by his attempts to defend and explain his veto of a law that would have required the Pledge of Allegiance to be recited in Massachusetts schools.

‘Needs to Grab Hold’

“He needs to grab hold of the economic issue and not allow it to be George Bush’s issue,” says Democratic pollster Peter Hart, an adviser to the ill-fated 1984 presidential campaign of Walter F. Mondale. “He has to bring it down to stakes people care about--what is going to happen to my family, how secure do I feel.”

But to carry this off successfully, even some Dukakis advisers concede, the normally cautious and cryptic governor will have to be bolder and more explicit about what he would do as chief executive.

“We need to make our case,” says Tom Kiley, Dukakis’ pollster and strategist. “It rests on very different views (from Bush’s) of where we are and where we need to go to secure our future. And to the extent that we are sort of the challengers, it is incumbent on us to define the change that Dukakis represents.”

Dukakis has already begun taking on that challenge, most recently with his proposal for financing college loans through a payroll withholding scheme and, before that, with an idea for a “Fund to Rebuild America,” which would target $500 million a year on economically troubled areas.

Setting forth such proposals entails risks for Dukakis, even though his ideas seem modest when judged by the grandiose standards of past Democratic administrations. Although Dukakis rival Jesse Jackson called the $500-million rebuilding plan trivial, Bush has seized upon it as evidence that Dukakis is just another big-spending, tax-raising liberal.

“This isn’t a helping hand, it’s the same old heavy hand of government,” Bush charged. “And just wait until Congress gets its hands on this pork barrel. The hand will get heavier and heavier.”

At the same time, Bush has troubles of his own in defending the Administration’s economic policies and advancing his own ideas. As the incumbent vice president, his candidacy is hostage to events outside his control.

Sometimes this works to his benefit, as happened last week when the announcement of a sharp drop in the nation’s trade defict cut into the Democratic argument that the U.S. economy is threatened by foreign competition.

On the other hand, last month’s increase in the Federal Reserve’s discount rate, engineered by the Fed to reduce the threat of inflation, also raised the possibility of higher interest rates across the board and heightened concern about an economic slowdown.

Complex Issues

So goes the economy in this presidential campaign, cutting both ways at once. So complex are the issues that each side can muster facts and figures to support its own case.

Here is a glance at the principal points of contention:

--Recent performance. Since 1980, unemployment has dropped from 7.1% to 5.4%, inflation from 13.5% to 4.5% and banks’ prime interest rate from 21.5% to 10%.

“Clearly we have a major set of improvements from the last Democratic Adminstration,” says Bush issues director Robert Zoellick. “So if you compare where you are today with where you were then, we think most people will be very struck with the argument of ‘Don’t let them take it away.’ ”

Democrats respond that Republicans have exaggerated their accomplishments.

“If we had maintained just the same record of income growth that was normal in the 1960s and 1970s, the average American worker would be making $1,000 more a year,” contends Robert Shapiro, deputy issues director of the Dukakis campaign.

Democrats like to compare the Bush-Reagan record in Washington with the Dukakis performance in Massachusetts, where all his budgets have been balanced, taxes have been slashed five times, incomes are growing rapidly and the unemployment rate is the lowest of any industrial state.

But the Republicans have an answer. They contend that the personal tax rate in Massachusetts, despite the Dukakis cuts, is the fifth-highest in the country. As a portent of how he would act as President, they recall the tax hike Massachusetts decreed this past summer to stem an unanticipated flood of red ink.

--Present conditions. “Americans at every income level are certifiably better off than they were in 1981,” Bush insists. “Real family incomes for each income group of the population fell under Jimmy Carter and Walter Mondale. They have grown under Ronald Reagan and George Bush. It’s that simple.”

Not to the Democrats. “People near the top have done well,” concedes Dukakis’ Shapiro. “But down at the bottom they have been hurt. As for people in the middle, the best construction you can put on it is they are standing still.”

‘Middle-Class Squeeze’

The basis of the Democratic argument for “the middle-class squeeze” is this: Although average family incomes have been rising, such middle-class goals as a college education and home ownership--what Shapiro calls “the cost of buying into the American dream”--have been rising faster than inflation and faster than personal incomes.

--Prospects. Both candidates have invited skepticism with the solutions they have offered to what many Americans and most economists regard as the nation’s most serious economic problem--the federal budget deficit.

Bush has promised flatly not to raise taxes and instead proposes a “flexible freeze” that would allow some programs to grow but hold the increase in total government spending to the inflation rate.

“It’s not a plan, it’s an aspiration,” says Harvard economist Robert Reich, a Dukakis adviser. “George Bush has not said what he’s going to cut.”

But then neither has Dukakis, who has talked instead about reducing waste at the Pentagon. Although Dukakis insists he would raise taxes only as a last resort, Republicans, citing his record in Massachusetts, say it would not take him long to push the tax-hike button.

In the realm of new ideas, Dukakis has limited himself largely to proposals he claims would cost the Treasury nothing or next to nothing. These include his college loan program, which would require graduates to repay a percentage of their income throughout their working lives, and his proposal for health insurance for all workers, with the costs falling on employers.

As for Bush, issues director Zoellick says he would be more innovative than his critics think.

“It would be a mistake to think he would rest on Reagan’s laurels,” he says. Bush would not only rely on the private sector to solve problems, says Zoellick, but he would also use the tax code, by means of such programs as his proposed tax credits for child care, to give individuals more power to take care of their own needs.

Staff writers Art Pine and Tom Redburn contributed to this story.

THE DEBATE: ARE AMERICANS BETTER OFF? Under President Reagan, income has been rising:

Median family income 1981 1987 $27,977 $30,853 Per-capita after-tax income 1981 1988 $9,801 $11,351 (expressed in constant dollars to adjust for inflation)

But at the same time, costs of many middle-class items have been soaring:

Average new one-family home 1981 1988 $85,800 $116,800 Average four-year private college tuition 1981 1988 $3,935 $7,693 (housing costs expressed in constant dollars to adjust for inflation)

And the poverty rate has barely declined: 1981 1987 14.0% 13.5% Source: Census Bureau, Educational Research Information Center