A Greenspan Study Group
Jude Wanniski
February 22, 1991


Fed Chairman Alan Greenspan, who has probably spent more time on presidential commissions than any other American, has an important insight that I believe could rapidly advance the cause for capital gains. There are two components to the capgains issue, he told Senate Banking on Wednesday, one political and one technical. The Democratic leadership in Congress has rejected President Bush's proposal of a Greenspan Commission on capgains, on the grounds that it would be politically biased, especially given Greenspan's public acknowledgement that he favors elimination of the tax altogether. Greenspan accepts the criticism and has indicated he could not undertake the assignment without Democratic acquiescence. Instead of a commission, which would by its nature have to have political components, Greenspan has invited the idea of a Study Group, composed entirely of economic professionals that would be designated by the Administration and the Democratic Congress. It would not address itself to whether the tax should be cut or not cut, but would address itself to a series of questions relating to the effects of lowering or eliminating the tax effects on real economic growth, federal, state and local revenues, and perhaps the struggles of our financial services industry. Greenspan told me the previous afternoon that it is his experience that no matter what the political bias of economists and statisticians, their professionalism always prevails when they operate in a peer group set up to solve technical issues. He believes the technical component represents perhaps 30 to 40% of the problem, and once it was disposed of, political resolution would be much easier.

In a lengthy meeting I had with Nick Brady early Tuesday evening, after my meeting with Greenspan, the Treasury Secretary voiced great enthusiasm for the idea. Indeed, he said he had suggested last September in internal administration memos that Greenspan be enlisted to address the technical issues that would produce gridlock on capital gains at the budget summit. He said he thought the Democratic leadership would respond favorably to the approach. (In fact, when Greenspan brought it up at Senate Banking the following morning in response to a question from Sen. Connie Mack of Florida, Chairman Donald Riegle on the spot said he liked the idea.) Brady also indicated he is much more serious about capgains than he has been characterized in the press. I noted that after he spoke aggressively on the issue last week before the U.S. Chamber of Commerce, the DJIA ran up 35 points as soon as his remarks hit the broadtape. Brady seemed to be aware of the point, nodding with a smile. He also took pleasure in noting he had recently had a long meeting with House Minority Whip Newt Gingrich and Rep. Vin Weber, and that Gingrich also agreed that the technical issues surrounding capital gains had to be settled before political progress could be made.

In a meeting I had with Gingrich Wednesday afternoon, he seemed immensely pleased with the way things were knitting together, and he discussed action plans to keep things in motion. It was critical, he said, that one person be assigned in the administration to eat, drink and sleep capgains, and that he would make such a recommendation to White House Chief of Staff John Sununu. Those I spoke with at the White House also seemed delighted with such broad agreement.

It is my general sense that Greenspan's insight is correct, and that the Democratic leadership will find it difficult to resist the idea of exploring the technical issues. The President, after all, made a legitimate request in his State of the Union speech when he proposed the Greenspan Commission to examine the issue on its merits. I met Tuesday, prior to my meetings with Greenspan and Brady, with Sen. Bill Bradley of New Jersey, who had been key in blocking a capgains cut in both 1989 and 1990. Bradley expressed astonishment and genuine dismay when I informed him the Greenspan Commission idea had almost certainly been killed by the Democratic leaders. He indicated he believes the issue should be seriously examined as per the President's request -- that it had become too politicized. From what he said, I would be astonished and dismayed if he did not argue within Democratic ranks that the Study Group idea should go forward. House Majority Leader Richard Gephardt, I have been told, spoke at a Wall Street breakfast last week and said he was ready to at least hear serious arguments on behalf of capital gains.

As Greenspan indicated, though, a Study Group only gets us part way. The political component of the issue remains -- the value judgment of whether you want to cut or eliminate the tax after you know the technical differences have been narrowed. My sense is that the administration will begin to deal with this as it never did in the two years Budget Director Richard Darman was in charge of strategy. Greenspan, I'm informed by a U.S. Senator, was explicitly advised by the White House a year ago, in accordance with Darman's strategy, to stay out of the capital gains issue. Obviously, he is now free to speak his mind and is elaborating on his conviction that the tax should be eliminated altogether. The President, his Treasury Secretary, and the rest of the economic team, have to simply make their arguments openly and frequently on why they think it would be a good thing to cut or even eliminate the tax. They do not have to yell at the Democrats. They simply have to make their case. Brady's remark after the Chamber lunch last week was the first shot fired in this manner.

After the firing of shots ends in the Gulf, we can expect the President to be addressing himself once again to matters domestic and economic. He has a new speechwriter, Tony Snow, who is not quite the wordsmith President Reagan had in Peggy Noonan and Ben Elliot, but is better than any of the Reagan writers in understanding the issues. He starts in two weeks, reporting directly to Sununu. Sununu is clearly girding his loins for the re-election campaign, knowing the President is not going to be able to simply rest on his laurels abroad. A growth agenda is in order. Additionally, Secretary Brady's new public affairs director, Barbara Clay, may be the best thing that has happened at Treasury in recent years. We may finally see a better Brady, a la his Chamber speech.

What's the timetable on all this? A Greenspan study group of professionals can actually be put together and operate to conclusion more easily than a commission, which would mean a schedule of VIPs would have to be coordinated. There is plenty of time for both the political and technical components of the issue to move forward in parallel. And as HUD Secretary Jack Kemp has been observing, President Bush's stunning display of leadership in the Gulf will enable him to get just about anything he asks for from the Congress -- especially an agenda for economic growth.