Capgains: Not Over Yet
Jude Wanniski
November 3, 1989 (12:30 p.m.)


The financial press has nailed the coffin shut on the capgains proposal, declaring that George Mitchell, United States Senator, has brought George Bush, United States President, to his knees. But the press simply has not understood the maneuverings by the White House and GOP leadership. Part of the problem was that the first story by UPI had Dole's spokesman saying capgains was dead for the year, which sent the Dow down 31, a report Dole's office immediately denied. The market rebounded when the wires carried President Bush's statement spelling out the details of his proposal to the Democrats, which revealed his shift in strategy. Everyone I spoke with this morning at the White House, and among House and Senate GOP staff, expressed astonishment at how the press misplayed the story.

The interesting part of the struggle is just now beginning. President Bush's decision to pass up a showdown over the debt ceiling was necessary. He not only did not have the votes to win in the Senate, but he could not have won the support of the public in so brutal a fight, threatening to shut down the government over the issue. Instead, the President said he is prepared to live with sequestration in the struggle over budget reconciliation. His proposal is crafted in a way the Democrats cannot ultimately accept, opening up a veto strategy on the budget reconciliation bill. By all accounts, the Democrats will not be able to live with sequestration, and will have to use a new raft of procedural obstructions to try to thwart the White House.

My guess is that the Senate Democrats can always find new obstructions in the Senate to block the President on capital gains, but that the President can win if he gets public opinion on his side. This, I have to believe, is at the heart of this shift in strategy. What we should expect to see developing is a combination of pressure on Mitchell from the Democratic constituency, which does not want to live with sequestration, and pressure from the public in general, sympathizing with the President and seeing the Senate Democrats as petty obstructionists. This will occur around a measure or series of measures that the Democrats will have to filibuster in order to a) block the White House strategy on budget reconciliation, and b) prevent capgains from being appended to other legislation they want, for example the minimum wage bill and aid to Poland. At this point, the President must go public, must ask for television time to put these issues in context for the American people.

I wrote White House chief of staff John Sununu yesterday morning, endorsing this strategy: "The President will at that point be able to say that he has done everything he can to be fair and flexible, working out a compromise on minimum wage, accepting the Democratic offer of a clean bill in order to prevent a logjam on other legislation, etc. There is no way he could lose in the eyes of the American people."

Hang in there. The text of the President's statement yesterday makes it clear that he has both the commitment and the correct tone to carry off this strategy. "If other issues such as child care and capital gains prove more difficult to resolve, we will continue to pursue them until satisfactory legislation is enacted. I remain firmly committed to both capital gains and a child care bill consistent with the principles embodied in the proposed legislation. I am confident that there is a majority for capital gains in both the House and the Senate, and will continue to seek every opportunity for the majority to express its will."