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Major economic challenges face next president

BY RANDI F. MARSHALL | randi.marshall@newsday.com

8:45 PM EDT, October 12, 2008

The stock market is on a quick-moving roller coaster, huge financial firms are still sizing up staggering losses and bailouts are barely making a ripple of impact.

Retailers and restaurants are seeing slowing sales, just as the holiday season gets under way.

And homeowners are heading into foreclosure at a record pace, with a real estate market that likely isn't near bottom.

What's a new president to do?

Even as the economy takes center stage during this presidential election season, it's unclear whether either Democrat Barack Obama or Republican John McCain can influence its direction significantly. What's more, it's tougher to turn tax proposals or spending plans into reality when a $700-billion U.S. bailout and global financial distress take priority.

McCain and Obama have staked out very different territories in economic plans that cover taxes, trade, housing and jobs. And while taxes often get the most attention, the economic story now - with financial markets in turmoil and so much uncertainty in the air - is about far more than that, experts noted.

"What policymakers do will matter a lot - near-term to try to get us out of this economic pickle we're in and longer-term as we try to tackle the very daunting fiscal problems that we're going to face," said Mark Zandi, chief economist with Moody's Economy.com in West Chester, Pa.

"Priority number one would be dealing with the economy on Inauguration Day, especially if the economy is still struggling to regain its footing and the housing market is still crashing and the financial system is in turmoil," Zandi said.

Indeed, the new president's initial economic strategy may take an unusual road where tax policy takes a bit of a backseat.

"It's going to be how the next president administers the bailout and the unwinding of this problem that counts," said Steven Malanga, a senior fellow at the Manhattan Institute for Policy Research, a conservative think tank in Manhattan.

And the economic circumstances may make any new proposals tough to swallow, said Bill Gale, economic studies director at the Brookings Institution in Washington, D.C.

"It's going to be hard, I think, to push through massive tax cuts in an environment like we're facing right now, but it's also hard to think about raising the tax burden," he said.

Some experts say short-term fiscal stimulus might be necessary to prop up the economy, but others say any spending increases aren't likely now.

Obama has advocated an additional $50 billion in such stimulus for employment insurance, infrastructure spending and energy assistance. He has suggested cutting or holding steady taxes on those earning less than $250,000, while raising them on those earning more.

McCain seeks broad tax and spending cuts, greater openness to trade and a commission to study the financial crisis.

The difference between the economy and other campaign issues, said Gale, is that even when they outline proposals, candidates and experts alike remain far from certain that they'll work.

"As far as I can tell, nobody thinks with conviction that they have the right answer," said Gale. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx