Two-Tier Growth Package, etc.
Jude Wanniski
December 20, 1991


TWO-TIER GROWTH PACKAGE: The latest brainstorm of Budget Director Richard Darman is a "two-tier" approach to a growth package next year. That is, the Administration will seek the "easy" tax cuts first, then go after the hard one. The easy tax cuts are those the special interest groups are clamoring for, particularly an investment tax credit, some kind of cash giveaway to the middle class, partial restoration of the passive loss tax breaks, and IRAs. The hard one is the capital gains tax, which once again takes a back seat to Beltway priorities. Darman says he is insisting the Democratic leadership give him a "date certain" next spring on which they will permit a vote on capgains. If this is in fact the 1992 strategy the White House will adopt, Darman, who has already taken three called strikes, will watch a fourth pitch pass him by, and the President's popularity rating will approach Mikhail Gorbachev's. Congress will pass all the foo-foo tax breaks, which will have a net negative effect on the economy, and find some way to welsh on capital gains. Perhaps Treasury Secretary Brady will agree to a "targeted" capgain differential that has no retroactivity to it. HUD Secretary Jack Kemp last night told a DC dinner gathering of political reporters that he is trying to kill the two-tier strategy and have the President make a prime time speech on the economy in early January, in which he would urge Americans to lobby their congressmen at the grass roots for a growth package that would include a 15% indexed capital gains tax, and announce his willingness to put the Budget Agreement aside in order to negotiate freely with the Democrats on their priorities -- including the Moynihan payroll tax cut. Kemp said he thinks the White House should not be advocating ITCs and IRAs, but be willing to accept them as part of a deal with Congress. He is arguing internally for an aggressive State of the Union speech that treats the Democrats with respect, but insists on immediate action. He'd ask the leadership to call Congress back immediately after the speech. There is at least a small chance that Sam Skinner, the new chief of staff, will buy this approach. Reporters asked Kemp if he thinks Darman and Brady should be fired. Kemp said he did not, that the President should simply acknowledge that the Budget Agreement strategy has not worked as planned, and the \team should try a new one.

JAPAN TRIP: President Bush will fly to Tokyo next month with two dozen raving protectionists aboard Air Force One, led by Chrysler's Lee lacocca and American Express's Jim Robinson. This is one orxthe most ill-conceived Presidential junkets of all time, exactly what we have come to expect from this disintegrating Hoover Administration. The Japanese, our principal creditors in the world, are justifiably furious at the idea of President Bush, supposedly on a diplomatic mission, turning this into a Japan Bashing Campaign Trip. This will be bad enough, but far worse will be the brainwashing the President will get, trapped on a round-trip flight with Corporate Socialists. They will urge him to jettison capgains, finance massive ITCs retroactively, and throw up new barriers to Japanese imports on the grounds that the Europeans did it. They will also push national health insurance schemes, as MIT's Lester Thurow now argues, on the grounds that our trading competitors in Europe don't have to pay health care costs, because the government does! Shame on you, Lester. In any event, the President is now in the hands of political clowns. The Japan trip will be the biggest bomb since the Enola Gay.

MOSCOW COUNTDOWN: Moscow Mayor Gavriil Popov announced his resignation today, predicting hyperinflation and citing the Weimar Republic as the model Boris Yeltsin is following. "Events in the Russian republic are fast developing toward the Weimar Republic model," he said, arguing that the government is making a major mistake in freeing prices without first privatizing retail trade to create competition and keep inflation in check. There is in the background to all this, I think, a desire by many in the West to see the old USSR demolished, whatever it is called, just as the power elite of 1919 crafted the reparations of the Versailles Treaty as a final solution to the German problem.