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Economic woes central issue for looming campaign

and Michael M. Phillips

For months, Dale Albright, a 30-year-old Tampa bankruptcy lawyer, has watched as his clients buckle under mortgage and credit-card debts. After an expensive recent hospital stay, he's worried that a run of bad luck could leave him in financial straits, too.

"I care about bringing our troops home ... and for the most part, I believe as far as domestic terrorism goes, I think we've got that pretty much under control," Albright says. "But the economy really scares me." A longtime Republican, this election he says he's voting Democrat.

With the parties just weeks away from the first presidential nominating contests, economic concerns are seizing a top spot in many voters' minds. Falling housing prices, rising gasoline prices and health-insurance worries are supplanting the war in Iraq and concern over terrorism.

"The middle class already is suffering from falling real incomes, even before this new economic slowdown," says investment banker Roger Altman, an economic adviser to Democratic Sen. Hillary Clinton. "This slowdown suggests the economy, once again, will be the No.1 issue in 2008."

All the leading Democratic candidates are touting plans to broaden or guarantee health coverage as one recipe for easing economic uncertainty. Other steps such as middle-class tax cuts and college aid are also moving front and center. Sen. Clinton addressed the housing mess this week, proposing a 90-day moratorium on foreclosures and a five-year freeze on adjustable-mortgage rates.

Republicans too have put forth plans for expanding health care, though their plans tend to focus more on easing regulation and offering tax breaks for individuals to buy coverage on the open market. "Everywhere in town halls, you'll get a question from someone saying, 'I'm worried about losing my job and my health benefits,'" says Douglas Holtz-Eakin, economic adviser to Arizona Sen. McCain. "You have to have a health plan even in the Republican primary, and that's a new development."

Republicans are mainly using the economic concerns to push harder for tax cuts and hit the Democrats, who favor letting President Bush's tax cuts lapse for top earners. Republicans say such a move is equivalent to a tax increase and call it the wrong medicine when the economy is shaky. Last week, Rudy Giuliani started running a television ad in New Hampshire promising to lower taxes and declaring that the leading Democrats would "raise taxes even more than they promise."

While the Bush administration has reduced its 2008 growth forecast slightly &

to 2.7 percent from 3.1 &

officials maintain the country is in generally good shape. "I believe we're going to continue to grow," Treasury Secretary Henry Paulson said in an interview. "I've always said these credit-market problems weren't going to work themselves out quickly. And the housing-credit market, the price of oil &

these are the risks. But we have a very diverse, healthy economy."

Fifty-two percent of Americans say the economy and health care are most important to them in choosing a president, compared with 34 percent who cite terrorism and social and moral issues, according to the latest Wall Street Journal/NBC News poll. That is the reverse of the percentages recorded just before the 2004 election. The poll also shows that voters see health care eclipsing the Iraq war for the first time as the issue most urgently requiring a new approach.

The figures partly reflect the better news from Iraq, where security has improved since the U.S. added troops and cut deals with Sunni Muslim tribal leaders. Some voters link the issues of the economy and Iraq. Richard Scown, a 61-year-old equipment-lease broker in Las Vegas, frets about "all the money we're spending there, and all the issues we have here."

Scown, a lifelong Republican, says he and his wife probably will vote for the Democratic nominee. "The Republicans haven't shown anything yet to suggest they've got a clue about the direction we're going with the economy," he says.

Irma Lipscomb, a 79-year-old Republican-leaning voter from New Market, Va., says she and her husband were just billed $300 for their first month's delivery of home-heating oil, nearly twice what they paid monthly last winter. And while her Social Security checks will have a small cost-of-living increase in the new year, she says, "they'll take it all back for health care"""now her top concern.

Overall inflation measured 3.5 percent over the past year, but energy costs jumped 14 percent. "If you look at a market basket of middle-income goods &

college tuition, gas, child care, health care, food &

you will find inflation growing twice as quickly as the overall measure," says Jared Bernstein, senior economist at the Economic Policy Institute, a liberal think tank. While wages have kept slightly ahead of inflation in recent years, many workers have seen their hours cut and their take-home pay stagnate, he says.

One issue resonating in polls, illegal immigration, may also reflect worries about wages. "The reason the American people are concerned is because they are seeing their own economic positions slip away," says Illinois Sen. Barack Obama, a top contender for the Democratic nomination.

While Democrats can easily agree to blame Bush for the economy's problems, the campaign may expose some differences on what to do about them. Clinton and Obama have already clashed over health care. Clinton wants to require all Americans to get coverage, while Obama says a mandate would be unwise and unenforceable. The candidates also differ in nuance over how far to blame trade for the U.S.'s troubles, with former Sen. John Edwards opposing more trade agreements than his rivals.

In hard times, as voters look to government for relief, Democrats traditionally have the edge. That is especially true when the incumbent president is a Republican, and, as in Bush's case, has low marks in polls for fiscal stewardship. In a Journal/NBC poll in July, respondents by double-digit margins preferred the Democratic Party over the Republican Party to deal with the economy, health care, gas prices and the federal deficit.

Until lately, Republicans have been fairly quiet on economic issues. Last week's CNN-YouTube Republican debate focused on the hot-button social issues important to the social conservatives dominant in the party today &

abortion, gay rights, illegal immigration and gun control.

Timing may play against the Republicans, because the current slowdown could accelerate next year, just as voters are making up their minds. "The house-price decline in particular is likely to depress confidence and spending a great deal further," says Ian Shepherdson, chief U.S. economist at High Frequency Economics, a research firm based in Valhalla, N.Y.

The pessimism, moreover, isn't momentary but reflects voters' worries beyond the current business cycle. Early this month, a sobering consensus emerged from a focus group of a dozen Republican-leaning voters in the Richmond, Va., area, sponsored by the nonpartisan Annenberg Public Policy Center at the University of Pennsylvania. The participants unanimously agreed that they didn't think their children's generation would be better off than their own""breaking with traditional American optimism &

largely due to the debt future taxpayers will inherit.

"Who's buying our loans?" said former secretary June Beninghove, 67. "Who's going to own us? We are going to give ourselves to another country because of debt."

To one Democratic strategist this all sounds familiar. Sixteen years ago, Bill Clinton's campaign manager, James Carville, had the words "The Economy, Stupid" written on a Marks-a-Lot board at campaign headquarters in Little Rock, Ark. He says the point of the message was "to keep everybody focused. It was a change election""change versus more of the same."

Says Carville, "If anything, the anxiety is bigger now."