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Improving Economy Changes Political Landscape

As the rebound gains steam, Republicans stand to lose what had been one of their strongest hands for the 2014 elections: asserting ineffective economic stewardship from the Democrat in the White House and those on Capitol Hill.

But they pick up another compelling issue, one that touches directly on Obama's core 2008 campaign promise to restore public confidence in the ability of government to produce results in an effective and evenhanded way.

There's "no question" that the alleged scandals are taking the attention of many politicians away from economic concerns, said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and top economic adviser to Republican Sen. John McCain's 2008 presidential campaign.

"What's more politically potent? Another round of complaining on the budget and the economy or the IRS, AP and Benghazi? I think it's the latter," said Holtz-Eakin, who now heads the American Action Forum, a conservative public-policy institute. Besides, "both sides were tired of the budget battle," he added.

Holtz-Eakin and many other economists emphasize that the improvements probably will be short-lived because Congress has yet to seriously address tax overhaul or fast-rising costs of such programs as Social Security, Medicare and Medicare. "It remains an OK recovery, not a sterling one," he said.

Part of the deficit decline comes from the higher tax rates that went into effect this year and from improving corporate profits. But some is due to temporary events, like bailout paybacks by government-controlled mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC), and higher tax payments from wealthy people and corporations shifting income into 2012 to avoid paying higher 2013 taxes. Also, U.S. borrowing costs are at historic lows.

For now, the three controversies plaguing the administration are consuming most of the political oxygen in Washington.

"Congress basically can't walk and chew gum at the same time, so they'll focus on these scandal things for a while longer," said veteran budget analyst Stanley Collender.

With annual deficits shrinking, Republicans are more likely to focus on the $16 trillion national debt, which is still going up, instead of deficits, which are going down, Collender said.

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