Soaring economic optimism could torpedo Dems’ ‘blue wave’ midterms

Bad news for Democrats: House Minority Leader Nancy Pelosi’s (D-Calif.) tax bill “crumbs” are feeding a monster rally in optimism across the country. Approval of the GOP tax cuts climbs steadily higher, fueling faster growth and increasing investment and undermining Democrats’ chances of a “blue wave” in November.

A new survey shows confidence among small business owners at a record-high of 62 in the first quarter, up five points from last year’s fourth quarter. The CNBC/SurveyMonkey poll shows that the number of people who think the Republican tax bill will help their firms has doubled compared to three months ago. 

{mosads}Not only is the optimism among people who own small firms at an unprecedented level, but consumers are also feeling increasingly upbeat. A recent survey from the University of Michigan reported consumer sentiment at 99.9 in February, up from 95.7 in January and considerably higher than consensus expectations of 95.5.

The reading, which averaged 86.2 from 1952 to 2018, was the second highest score since 2004, and reflected optimism about both current conditions and future expectations. 

Without a doubt, the public’s cheerier view of the tax cuts passed in December is helping. A recent New York Times poll showed that 51 percent of the country now approves of the bill, up from 46 percent in January and 37 percent in December.

The rise suggests an ongoing trend, especially since only 33 percent of respondents said they expect a tax cut. Realistically, more than 80 percent of the country will see some relief. When people witness the change in their paychecks, as early as this month, approval of the bill should increase.

Other surveys confirm the rosier expectations. The National Federation of Independent Business (NFIB) announced that its January reading of small business sentiment jumped two points to 106.9. Even more encouraging is that an all-time record number of small business owners agreed that “Now Is a Good Time to Expand,” according to the NFIB. 

That is the problem for Democrats: Rising optimism creates a virtuous circle, leading to the kind of investment and spending by families and businesses that creates higher demand, more jobs and increased wages.

The NFIB survey shows 20 percent of business owners ready to add employees, a record-high level, and 29 percent intending to make capital investments. The number of companies ready to hike wages also rose last month, to the highest level since 1989. The White House’s tax cuts and lighter regulatory approach have both contributed to the better outlook, according to an NFIB spokesman.

Economic growth has already ticked higher, with estimates for the current year coming in at around 3 percent or better, solidly higher than 2017. Wall Street’s leading economics team at Evercore ISI just bumped their 2018 growth estimate to 3.5 percent from 3 percent; their surveys of a wide range of businesses recently hit a three-year high.

As the country warms to the GOP tax cuts and to the resulting bounce in the economy, Democrats will have to explain why every single member of their caucus voted against the bill. They will also have to answer for having misled the country, saying that most middle-class Americans would see their taxes rise.

The NYT survey shows a remarkable divide, with 89 percent of Republicans approving of the tax bill, up from 80 percent in December, while only 19 percent of Democrats view the tax reform act positively, up from 8 percent at the end of last year. The impact of the bill, needless to say, will not vary by party. Democrats will have some explaining to do.

Republicans trying to hold onto seats in the upcoming elections will warn voters: “If you like the tax cuts you can keep them — but not if you vote Democrat.” Clips of Nancy Pelosi dismissing $1,000 bonuses as “crumbs” will flash across the nation’s TV screens, highlighting just how out of touch Democrats are.

Already, the tax bill and accelerating economy have narrowed Democrats’ advantage in the so-called “generic ballot.” The Real Clear Politics average of polls still shows Democrats ahead, with an average lead of nearly 8 points, but that’s down from 13 percentage points just a few weeks ago.

One recent survey from Politico shows the GOP pulling ahead for the first time since last April. That poll showed Independents nearly split down the middle, with an astonishing 49 percent undecided. That presents both parties with a real opportunity. 

The question is, which party has the better message and can capitalize on that opportunity? Will it be Republicans touting growth, lower taxes and wage gains? Or will it be Democrats, continuing to focus their energies on hating President Trump? The voters will decide.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. For 15 years, she has been a columnist for The Fiscal Times, Fox News, the New York Sun and numerous other organizations.