The weakening economy is a major negative factor for the Republicans and presents candidate John McCain with an uphill battle for the Oval Office, economists from Global Insight say.
Historically, there has only been one other election year where year-over-year growth in disposable income per capita was negative, noted Nigel Gault, chief U.S. economist at Global Insight. In that year - 1980 - incumbent Democrat President Jimmy Carter was voted out of office and replaced with Republican Ronald Reagan.
Gault noted that the projected third-quarter drop in real incomes this year is expected to be larger than that seen in 1980, though noted McCain may be given some leeway since he is not an incumbent candidate. He also added that the "fatigue factor" is working against the Republicans, who have held office for two terms.
"Historically, the incumbent party tends to get hurt if the economy is in bad share, particularly if income is falling sharply," Gault said in a Global Insight webcast.
Considering a variety of factors, Global Insight is forecasting that the Republicans will receive 46.4% of the two-party presidential vote (which does not factor in votes to other parties).
While the economy is currently favouring Democratic candidate Barack Obama, Gault said whoever wins will have a difficult time translating their fiscal objectives into action.
Obama is proposing to preserve and extend the income tax cuts initially introduced by George W. Bush, though with the exception of those earning more than $250,000 annually. On personal taxes, he proposes a top marginal rate of 39.6%, a top capital gains and dividends rate of 20%, targeted middle class tax cuts and would increase the social security tax on higher incomes down the road.
He also plans to close corporate tax loopholes and has pledged to reduce the federal deficit, though he has not committed to balancing it.
McCain, on the other hand, would preserve all of the Bush tax cuts and balance the budget by 2013. He is also favours a top marginal tax rate of 35%, a top capital gains and dividends rate of 15%, an increase to the dependent exemption and said he might be open to higher social security taxes.
McCain would also cut the basic corporate tax rate to 25% from 35% and allow temporary expensing of short-lived equipment.
By Stephen Huebl and edited by Nancy Girgis