From the October 2004 issue of Investment Advisor • Subscribe!

The Middle Way: Election 2004

As a candidate for the presidency some time ago, this man noted that unlike the "generation of Americans who stormed beaches, liberated concentration camps, and delivered us from evil," today Americans are called to perform "small, unnumbered acts of caring and courage and self-denial."

Would it surprise you to hear that the year was 2000, and it was George W. Bush who spoke those words? The events of 9/11 changed the world that Mr. Bush described when he was only the nominee for president, and whatever pre-9/11 plans he had for his presidency have taken a back seat to greater and graver challenges.

Just as generals prepare to fight the last war instead of the next, we usually elect presidential candidates to handle the challenges that bedeviled the previous administration. Instead of proposing specific ways to ensure the solvency of the Pension Benefit Guaranty Corporation, for instance, we get economically misguided calls from one candidate to "stop outsourcing jobs." As a card-carrying Republican, the other candidate calls for "less government interference" in our lives, despite his key role in greatly expanding the size of the Federal government over the past four years.

Throughout our history we've had wise and politically astute presidents, and intellectually challenged, politically asinine leaders. But even a political genius like Roosevelt couldn't solve the Depression: World War II did. Even a nuclear physicist like Jimmy Carter couldn't parlay his brilliance into becoming an effective leader, despite his big heart and good intentions.

We give presidents too much credit for the good that happens on their watches, and too much blame as well, depending on our political leanings, of course. I admit to feeling bad for the first President Bush when, soon after Bill Clinton assumed power, the moribund economy sputtered to life and eventually blossomed into the great boom of the 1990s. His timing was poor; Clinton's was good.

Yet presidents do have power to effect change, not the least of which is their powerful bully pulpit. Even if they aren't blessed with a cooperative Congress, they can affect the markets and the economy and the very mood of the nation. Melanie Waddell writes incisively this month on the proposals of the current candidates for the highest office in the land and outlines what we may expect beginning in January 2005 (or at least what the candidates say they'll fight for if elected). That includes increases in the capital gains and dividend tax rates and the demotion of Bill Donaldson at the SEC, should Kerry prevail; and a push to make permanent the repealed estate tax and the EGTRRA and JGTRRA tax cuts, if W. is reelected.

One continuing concern that is likely to persist regardless of who wins in November is the alternative minimum tax, a bane for many taxpayers and a pain for their advisors. Jim Walsh, the editor in chief of Forefield Inc. who earned his inside-the-Beltway spurs with the IRS as a congressional liaison, writes all about the AMT in this month's cover story. He explores its origins, how to figure it out for your clients, and the prospects that Congress will get around sometime this millennium to fixing it (expect a temporary Band-Aid instead, Walsh suggests). This separate Federal tax ensnares more taxpayers every year and is on track to account for a majority of the government's tax revenue if the people's representatives don't get off their duffs. I'm not holding my breath.

That's because I've been disappointed too many times by both parties and their leaders not to be cynical. The good news is that once the campaign rhetoric dies away and they take the oath of office, most presidents tend to move toward the middle on most policy matters. Luckily for us, that's not only how to get things accomplished in Washington, it's also where most Americans live.

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