The prosperity killer.

IT'S hard to remember the last time Wall Street was as repelled by a presidential candidate as it is by John Kerry. Many stock analysts are convinced that the mere threat of a Kerry presidency has caused equity values to slump in the past two months. "No one wants to make major investments in the wake of a presidential candidate whose economic agenda would substantially raise taxes on investment and thus substantially raise the cost of capital in America," says investment specialist Robert Grusky of New Mountain Capital.

What Grusky is referring to here is the Kerry-Edwards risk factor. Efficient markets trade ahead of anticipated policy developments. A new analysis by Eric Engen, an economist at the American Enterprise Institute, finds that over the past several months there has been an inverse relationship between Kerry's poll numbers and the direction of the S&P 500: "The evidence suggests that when Sen. Kerry's political fortunes rise, the stock market tanks."

What do investors find so repugnant about Kerry-Edwards? In the past, the stock market has not performed, on average, much differently in Democratic and Republican administrations. What seems to have the markets especially spooked about this Democratic ticket is that it has embraced what I call the three terrible T's: tariffs, taxes, and trial lawyers.

Let's start with tariffs. Veteran political analyst Jeffrey Bell of Capital City Partners notes that if Kerry were elected, he would be the first protectionist to occupy the White House since Republican Herbert Hoover, whose policies helped start the Great Depression. While he touts, to some pro-business audiences, his vote for NAFTA, he tells labor-union voters that he regrets that decision and would now vote against it. He recently lambasted U.S. trade representative Robert Zoellick as a traitor for negotiating free-trade agreements around the globe. As for Edwards, there is no ambiguity whatsoever: He is, and has always been, a devout protectionist. Earlier this year, he boasted that "I campaigned against NAFTA. ... I voted against the Chilean trade agreement, against the Caribbean trade agreement, [and] against final passage of fast track for this president."

For Democrats, this is a distressing U-turn. The 1990s "New Democrats" promoted trade expansion, and Bill Clinton spoke wisely about the need for America to "compete, not retreat" in the arena of international competition. In contrast, Kerry insists that he would demand that draconian environmental standards and labor regulations--in reality, de facto trade walls that impoverish the developing nations they are supposed to benefit--be imposed on our trading partners. Protectionism, as economist Arthur Laffer points out, is historically a "prosperity killer." That's more true now than ever, given that about one-third of the growth of the U.S. economy today is in export markets.

A second prosperity killer is higher tax rates. Under a Kerry presidency, the capital-gains tax would rise from 15 percent to 20 percent; the dividend tax, from 15 percent to a high of 39.6 percent; and the top income-tax rate, from 35 percent to 40 percent. Kerry probably couldn't deflate the stock market any worse if he were doing it on purpose.

Then there is the issue of whether Kerry would be content with simply walloping the Bill Gateses of the world with higher taxes. He pledges that he would raise taxes only on those making more than $200,000 a year. (Reminder to middle-class voters: That's precisely what Bill Clinton promised a few months before he whacked everyone with a higher tax bill in 1993.) But Kerry's Senate history reveals that he has never shown the slightest reluctance to raise taxes on those on the lower rungs of the economic ladder to sustain big government. He has, over the past quarter-century, voted for higher taxes on more than 300 occasions, and once supported a 50-cent hike in the gas tax. If you have a job, drive a car, collect Social Security, or are married, it's a decent bet your taxes are going up if Kerry is elected.

One reason to suspect this is that there is no other conceivable way for Kerry-Edwards to finance their grandiose spending plans or to come within a Massachusetts mile of cutting the budget deficit in half, as the Democrats have promised. The Kerry economics team is fond of ridiculing the Bush administration for using "fuzzy numbers" to justify their tax cuts, but get a load of Kerry's mathematical deficiencies: The National Taxpayers Union finds that the Kerry wish list of new government programs would cost about $2 trillion over the next ten years. Where will the money come from? Not by soaking the rich. His plan to rescind the tax cuts for higher-income Americans would, according to the nonpartisan Tax Foundation, reduce the existing budget deficit by, at most, 10 percent. By my calculations, the Kerry tax plan to sock it to the wealthy, combined with his shopping list of new entitlement programs, will add at least $1 trillion to the national debt over the next ten years. So to the extent that the financial markets fret over massive deficit spending, Kerry's plan for restoring fiscal sanity is about as uninspiring as Bush's: They both flunk on this score.

Now what if Kerry pulled a Bill Clinton and proposed a massive broad-based tax hike to close the budget gap? The average family would be forced to pay about $8,000 in higher taxes over the next decade. That may be chump change for the super-affluent--people like the Heinz-Kerrys--but for "the other half of America" to whom Democrats are trying to appeal, it would be devastating.

Finally, there are the trial lawyers. Edwards is, of course, a multimillionaire trial lawyer himself, and one of the biggest recipients, ever, of campaign contributions from the trial bar; Kerry doesn't rank too far behind. This investment has paid off handsomely for the legal profession. Kerry and Edwards are so beholden to lawyers that they both once voted against any caps on legal fees in the tobacco-settlement cases, thus enabling several billionaire attorneys to walk off with fees of hundreds of thousands of dollars an hour--money that was supposed to be used to promote public health and reimburse people who got cancer from smoking.

More than any other profession, trial lawyers deter economic growth, slow innovation, and raise prices of almost every product we buy, from health care to jungle gyms. The Manhattan Institute, in its excellent report "Trial Lawyers Inc.," estimates that the net annual cost to Americans of frivolous lawsuits now approaches $500 billion. That is to say, Americans now pay the equivalent of a 5 percent trial-lawyer tax on every good and service they purchase. This is the greatest income transfer from the working class to the truly undeserving rich in the history of the Republic. Not surprisingly, this invasion of the trial lawyers cripples profitability and reduces shareholder value; the Kerry-Edwards umbilical cord to the trial-lawyer profession is a direct assault on the investor class--and another reason for Wall Street's hatred of Kerry.

And so we have an election that is shaping up to be a clash of two competing economic visions for America: the ownership society that George W. Bush embraces, and John Kerry's dream of a middle-class entitlement society. Bush recently announced in a major speech in Virginia that he seeks to expand broad-based ownership of assets in America, including stock ownership and home ownership, to all income groups. Most of his economic and tax policies have been designed to increase the value of assets: by cutting tax rates on capital, by promoting personalized ownership of Social Security payments, by calling for a vast expansion of IRAs, and by keeping interest rates low. As more and more Americans gain entrance to the ownership society, their dependence on government will theoretically subside; that quite understandably is a cause of serious trepidation to New Deal, welfare-state Democrats.

In stark contrast, John Kerry's program would--by design--vastly expand the dependency class in America through the creation of new welfare-style programs aimed at the vast middle class. Kerry craves a nationalized health-insurance program for all Americans, government-subsidized day-care programs, free or cut-rate drugs for seniors, and expanded college-tuition assistance for families. He would pay for all these programs by raising taxes on the very investor class that Republicans are trying to expand.

With some two-thirds of Americans owning their own homes and almost three out of five American households now owning stock, the key for Republicans to win in 2004 is to educate voters about the dangers of the Kerry-Edwards program to their personal economic security. Wall Street understands the bearish implications of a Kerry presidency, and the wealth-destroying effects of the terrible T's. The outcome of the election depends on whether the 120 million American shareholders do too.

Mr. Moore is president of the Club for Growth and a senior fellow at the Cato Institute.