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October 2012 2012 Family Wealth Conference Perspective and Insight on the 2012 Elections David Gergen CNN With President Barack Obama’s reelection increasingly likely, CNN political analyst David Gergen discusses how the president has overcome a poor economy to build his lead and what the outcome of the election could mean for U.S. fiscal policy. The past three-and-half years have seen persistently high unemployment rates, sluggish GDP growth, enormous federal deficits, and high gas prices, all of which should create a difficult environment for an incumbent to remain in the White House. “Yet here we are on the verge of what is almost certain to be an Obama victory absent some game-changer in the first debate or over the next 30 days,” said CNN senior political analyst David Gergen on September 28, five days before the first presidential debate. Gergen said that Obama’s path to reelection has been largely paved by Governor Mitt Romney’s weaknesses as a campaigner and the Republican Party’s inability to make inroads with women and minorities. Ohio or Bust President Obama has leads in nearly all of the swing states, including Iowa and Ohio, where early voting has already begun. “If you look at the key battleground states, it’s just a very hard road for Romney at this point,” said Gergen, one of most respected and objective political analysts in the business. “What’s becoming pivotal now is the state of Ohio; it always is.” Gergen, who has served as an advisor to presidents Nixon, Ford, Reagan, and Clinton, said that every president dating back to John Kennedy has won Ohio. No Republican has ever won the White House without taking Ohio. “Lincoln used to say during the Civil War that he’d like to be close to God, but he really needed Kentucky. In this case, Romney really needs Ohio,” Gergen said. He said Obama’s lead has expanded in the weeks leading up to the first debate, driven mostly by decreases in Romney’s popularity. “Think of that—[Romney’s] virtual negatives are higher than an incumbent president who should be in real trouble, and that says a lot about that state of [Romney’s] campaign,” Gergen said. Gergen said that Romney is finding that “it’s not easy to move from the world of business to the world of politics and be equally successful at both. It’s a different set of skills.” Not His Father’s GOP Gergen said that the Tea Party movement has tremendous influence over the Republican Party. Of all three Republican presidents under which he has served, Gergen said, even conservative hero Ronald Reagan would be unlikely to have been nominated by today’s Republican Party. To win the Republican nomination, Romney had to shift further to the right, putting him in a difficult position to make inroads with two groups that are influential in this election: women and Hispanics. Gergen said that after the 2012 election, the Republican Party needs to rethink its approach to targeting these groups. He believes that the Republicans’ fiscal policies and other aspects of their platform are appealing to women and Hispanics, but the GOP has alienated large portions of these groups because of its stance on abortion and immigration, respectively. “[The Republican Party] simply has to be able to appeal to the minority community because the electorate is changing and changing rapidly,” Gergen said. When Bill Clinton was first elected in 1992, 88% of voters were white. When Obama was elected in 2008, that figure declined to 74%. Gergen believes Republicans can make inroads with Hispanics in upcoming elections if the party deals differently with the immigration issue. “The immigration issue right now is the bone in the throat for Republicans,” he said. Potential to Close the Gap Romney can still close the gap over the last five weeks of the campaign, but to do so, he needs to perform extremely well in the debates. Gergen said Romney needs to accomplish two things during the debates: explain why the incumbent has done a poor job over the last four years as well as what he, Romney, would do to fix the country’s problems. “Doing two things at once in a debate is hard to do,” said Gergen, who headed President Reagan’s preparations for his debate against incumbent President Jimmy Carter in 1980. Gergen is credited with crafting one of the most famous lines in debate history for Reagan’s closing remarks that year: “Are you better off than you were four years ago?” The Margin Matters Even if Romney proves unable to overcome Obama’s lead in the polls, the final margin of victory for Obama will be influential regarding the composition of the next Congress. “The more Obama gets his overall number up, the more senators he brings with him and the more leverage he has in the next Congress,” Gergen said. If the margins narrows (as many analysts, including some within Obama’s campaign team, expect to happen) and Obama wins with a relatively modest two- or three-percentage-point victory, Gergen expects the status quo to be maintained in Congress, with Democrats holding a narrow edge in the Senate and Republicans keeping control of the House. If Obama scores a relatively large victory and helps the Democrats expand their advantage in the Senate, “[the Obama administration] is going to read this as a mandate for raising taxes, and they believe they will be able to get the votes in the Senate to raise taxes,” Gergen said. He said that Obama, if reelected, would pursue a “grand bargain” on reducing the federal debt through Medicare reform and increasing taxes on the wealthy. In addition to increasing income-tax rates to Clinton-era levels, the bargain would likely include revenue-generating tax reforms, such as reducing high-income taxpayers’ tax deductions for charitable deductions and mortgage interest. “There are a lot of different hidden taxes, and cumulatively they are going to get the tax rate up,” Gergen said. 2 | Perspective and Insight on the 2012 Elections Iran a Wild Card for the Economy Gergen said that Iran’s development of nuclear capabilities and the threat it poses to Israel will be one of the toughest issues facing the winner of November’s election. “This issue is getting very serious very quickly,” Gergen said. “It’s a really, really hard problem, and it’s going to be on the desk of the next president.” As Iran closes in on developing the technology necessary to create nuclear missiles (possibly as early as next summer), Israel appears increasingly willing to launch a preemptive attack, either with or without the support of the United States. “We are very close to a conflict, and a conflict has economic repercussions that you don’t want to think about,” Gergen said, citing Iran’s ability to choke off the supply of oil and other turmoil that would rattle financial markets. Long-Term Optimism Regarding the future of the United States, Gergen has described himself as a short-term pessimist and long- term optimist. Much of that optimism is based on the next generation of leaders that he sees emerging among recent graduates and military veterans. He said he is extremely encouraged that today’s young people have shown a sense of shared sacrifice and appreciation for leadership—both of which are largely lacking among today’s political and business leaders. “Help is on the way,” Gergen said. “We’ve just got to get through the next three to five years.” This material is provided by William Blair & Company for informational purposes only and is not intended to offer investment advice. The factual information herein has been taken from sources we believe to be reliable, but without any representation as to accuracy or completeness. Opinions expressed are current opinions as of the date appearing in this material only. This document and its contents are proprietary to William Blair & Company and no part of this document or its subject matter should be reproduced, disseminated or disclosed without the written consent of William Blair & Company..

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