For GOP, Events Add Up to Reversal of Fortune

Republicans in Congress, increasingly jittery about the stock market and the economy, are about to head home for their summer break to confront a political landscape abruptly transformed--to their distinct disadvantage.

The Republicans are hopeful that Congress’ virtually unanimous passage Thursday of a major corporate reform bill will help control damage caused by the ongoing spate of business scandals. But they are scrambling to do even more to counter Democratic charges that the GOP is too cozy with business and inept at handling the economy.

To that end, they are touting pension-protection legislation that the House passed months ago, considering additional tax relief for beleaguered investors and agitating for changes in President Bush’s economic advisors.

But mostly, they are just crossing their fingers and keeping their televisions tuned to CNN’s stock ticker rather than to C-SPAN.

“There’s a nervousness; to deny that is to deny reality,” said Rep. Ray LaHood (R-Ill.). “But people are glad it’s happening now and hoping it doesn’t sustain through the fall and that the market will come back.”

Like LaHood, many Republicans feel powerless to shape the broader economic forces that could determine their political prospects.

A looming fear is a potential October surprise: Voter reaction when they receive financial reports from their 401(k)s and other investments for the quarter that ends Sept. 30.

LaHood said: “When people open those 401(k) envelopes ... there is going to be a lot of gasping and heart attacks.” The extreme volatility of the market, as amply demonstrated this week on Wall Street, and the uncertainty about the economy make for a risky political environment for the party in power.

“The people of this country are off balance, they are angry, they are scared,” said Sen. Charles Hagel (R-Neb.). “That is a very combustible mixture, especially for an election.”

It’s a striking shift in the political winds from just a few weeks ago, when Republicans seemed to be sitting pretty. Bush’s approval ratings remained sky high and the congressional agenda was dominated by the issues that polls show voters think Republicans handle best: security at home and abroad.

Republicans appeared on course to avoid the losses that the president’s party usually suffer in mid-term elections. GOP leaders were confident they would hold--and perhaps slightly expand--their slim House majority. The party’s focus was on overcoming the one-seat Democratic margin in the Senate.

GOP Is Worried

Much has changed during the last month, sparking Republican worries about their vulnerabilities in the November election.

Bush’s job approval ratings have begun to slip--down to 67% in a recent NBC/Wall Street Journal poll, the lowest since the Sept. 11 attacks. New polls, including one by GOP pollster Bill McInturff, report that a majority of people think the country is on the “wrong track” rather than moving in the “right direction.” And the congressional agenda has shifted to concerns about corporate corruption--highlighting populist issues that play to Democrats’ political strengths.

“The public is currently more receptive to our message than they were six months ago,” said Steve Elmendorf, chief of staff to House Minority Leader Richard A. Gephardt (D-Mo.).

House Majority Whip Tom DeLay (R-Texas) called a news conference Wednesday to accuse Democrats of deliberately trying to undermine confidence in the financial markets and the economy to bolster their electoral prospects. Democratic leaders “are practicing the politics of economic destruction,” DeLay said.

DeLay and other GOP leaders insist that voter concerns about corporate corruption and the economy have not undercut GOP candidates. “All our incumbents remain in strong positions,” said Carl Forti, spokesman for the National Republican Congressional Committee. “Voters are not assigning blame to their representatives at this point.”

But to keep it that way, many Republicans want a more aggressive response on corporate reform issues--by their party and by Bush--to defend against an expected Democratic onslaught.

“We need to do something to get confidence back in the stock market,” said John Feehery, spokesman for House Speaker J. Dennis Hastert (R-Ill.). “We see this as a problem that needs positive congressional action.”

Republicans are citing the volatile markets in a renewed push for economic measures already on the table--such as Bush’s request for more trade-negotiating power. And they are stepping up pressure on the Democrat-controlled Senate to act on legislation passed by the House in April to provide new protections for participants in 401(k) retirement plans. Senate Democrats plan action in September on a measure that goes even further than the House bill.

Republicans have been slow to resort to their traditional salve for an ailing economy: tax cuts. That’s because growing federal budget deficits have made Democrats--and even some Republicans--wary of draining revenue. A few GOP lawmakers would like to see action on capital gains tax cuts, but party leaders are wary of proposing measures that Democrats would surely attack as a sop to the rich.

Plan for Tax Breaks

Instead, House GOP leaders may introduce measures that would provide tax breaks or other relief to investors who have suffered losses because of corporate fraud or the swooning stock market. Another measure being considered would give retirees more flexibility in deciding when they can make withdrawals from their 401(k) accounts.

House GOP leaders have been circulating memos with encouraging poll numbers and advice on how to handle the corporate fraud issue.

They are urging lawmakers to use the summer recess to tout the strengths of the economy, in keeping with Bush’s message that its fundamentals are sound.

“The good news is being overwhelmed by the stock market’s bad news,” Rep. J. C. Watts Jr. (R-Okla.) said in a memo to House Republicans. “Each of us has an opportunity and a responsibility to help get the positive message out.”

Some Republicans believe, however, that Bush is in the best position to manage the public’s expectations and perceptions of the economy--and that he still has work to do on that front.

Rep. Lindsey O. Graham (R-S.C.), who is running for an open Senate seat, said Bush needed to do a better job of explaining his economic game plan.

Graham said the upcoming bill-signing ceremony for the corporate reform bill is an opportunity for Bush to explain: “We get it; we’re going to stay on top of the problem.”

Other Republicans lay part of the blame on Bush’s economic advisors, none of whom has assumed a commanding role in articulating the administration’s policies. Treasury Secretary Paul H. O’Neill has come under fire recently for traveling abroad while the stock market has been reeling.

“What the market needs is someone who can paint a picture of a better future ahead,” said Rep. Mark Foley (R-Fla.). Referring to a much-publicized trip O’Neill took with the lead singer for the rock group U2, Foley added: “Being in Africa with Bono is not what we need.”