With not quite half the delegates needed to win the Democratic presidential nomination in hand, Arkansas Governor Bill Clinton seems secure enough. It seems almost impossible that former California Governor Jerry Brown, the last opponent still standing, can overtake him. I wish he could and believe, as I always have, that he could only do so on the issue of taxation, which remains the nation's primary problem. Clinton, the candidate of the Democratic Establishment, seems confident he can tangle with Brown on this issue. This, though, is Clinton's weakest area, but he has remained vague enough to stay out of trouble so far.
Former Massachusetts Senator Paul Tsongas had a piece of the problem, with his advocacy of a capital gains tax cut and a pro-business posture. This was the basis for his victory in New Hampshire. But that was the last we heard of it. When Clinton challenged him on capgains in Michigan and Illinois, using the "fairness" issue, Tsongas simply retreated, more comfortable denouncing Santa Claus and talking about how Clinton's middle-class tax cut would increase the budget deficit.
Clinton's success in driving out Tsongas and the other two contestants can be attributed to two factors. First is his surehandedness in brushing aside the "scandals" that have buzzed around him. Voters by definition are grownups and, for the most part, sinners, tolerant of the garden variety indiscretions by political leaders that have thus far characterized the Clinton "scandals." Second was the weakness of the campaign managers of the other failed candidates. Tsongas especially permitted himself to be outmaneuvered, accepting a defensive posture when attacked on the austerity component of his tax message, then spending his resources attacking Clinton on the character issue upon which the voters had already passed judgement. (President Bush's campaign team is already planning to squander enormous resources this fall on the issue of Clinton's character. Mr. Bush still seems unaware the electorate takes more seriously his breaking of his tax promise.)
On NBC's "Today" show this morning, Clinton seemed eager to slug it out with Brown over Brown's idea of a 13% flat tax that would replace the 4,000 pages of the tax code. Once again he used the "fairness" argument, echoing the views of The Washington Post and politically correct Keynesians that a flat tax is "regressive" because it is not progressive. During the campaign, Clinton has come a long way from his days as chairman of the "moderate," pro-growth, pro-business Democratic Leadership Council. Later in the same program, in a separate interview, Jerry Brown seemed delighted to finally be going head-to-head against Clinton, whom he correctly sees as the embodiment of the Establishment elites that have corrupted the political process through the tax and spending game. Jimmy Carter waited until he got to Madison Square Garden in 1976 before he turned himself over to the Establishment; Clinton has already made the delivery.
Brown can't make much headway simply duking it out with Clinton on the flat tax, however. The issue is one that will ripen over the next decade, I think, but at the moment seems theoretical and thus unrealistic even to its most fervent supporters. Brown is more or less occupying the "outsider" role that William Jennings Bryan played a century ago. Bryan lost three presidential elections as the Democratic nominee (1896, 1900 and 1908), espousing the then flaky idea of a central bank that would provide for an "elastic" currency and the moonbeam idea of a progressive income tax. In 1912, of course, Woodrow Wilson took the White House and in 1913 we got the Federal Reserve Act and the 16th Amendment, Bryan looking on as Wilson's Secretary of State.
Clinton, though, could be wounded on capital gains, if Brown chose to fight on that terrain. Because he challenged Tsongas on capgains, Clinton could easily be cornered by Brown into making further declamations against it. If I were Brown, I would now promise to make my first act as President a directive to the new Secretary of the Treasury that he (or she) redefine capital gains to index them against past inflation. Instead of an ethereal, moonbeam ideal shimmering in the distant future, the electorate could see the very realistic and immediate benefit of a Brown decree next January -- unlocking an entire generation of inflation swollen investments. Clinton would have no choice but to argue that the idea is too expensive; his politically correct patrons are lusting to tax that generation of inflated gains. The electorate would quickly calculate the moral correctness of wiping out tens of billions of dollars of inflated tax liabilities with the stroke of a presidential pen. President Bush should have done this, but his Treasury Secretary arranged for an opinion of the Attorney General that it is illegal to not tax inflated gains! If Brown were to somehow pick his way to the nomination with this longshot strategy, President Bush would have to ask his Attorney General for a second opinion.
The other economic issue that might prove interesting between Clinton and Brown is on trade. The Wall Street Journal yesterday morning praised Clinton in an editorial for not pandering to the United Auto Workers in the Michigan primary, maintaining his credentials as a free-trader. This morning's editorial, "Then There Were Two," bashes Jerry Brown, who has "proved himself to be an extraordinary opportunist, who will radically adjust his views for immediate tactical advantage. This is a man who began his campaign by calling protectionists 'crybabies who can't compete'; then he lands in Michigan attacking free trade with Mexico."
Brown, though, has not switched sides on his trade position. Because the press corps has never taken him seriously, his positions on many issues have come across garbled. From the earliest discussions I had with him last August, he has been consistent, arguing against Japan bashing and opposed at the present time to the FTA with Mexico. He does not want to shut off imports from Japan to make life easier for crybaby industrialists. He also does not want to eliminate trade barriers with Mexico at a time of recession in America, as he sees the motivation and pressures coming from the same crybaby industrialists. Because they can't compete against Japanese automakers from U.S. soil, where capital and labor are both expensive, they wish to jump to Mexico where at least labor is cheap. This is exactly what I told President Salinas last December in Mexico City: The FTA will not be approved during an U.S. recession because it puts the burden of adjustment on the workers, with jobs in scarcity. Trade liberalization should take place during periods of expansion, when jobs are abundant and adjustment is easier. A year ago, I specifically advised Mexico's Finance Minister Pedro Aspe that unless the U.S. capital gains tax were soon cut, the U.S. economy would remain in a capital-short recession, and the FTA would get nowhere. The White House, by the way, this week decided to postpone legislative action on the FTA until 1993.
President Bush is clearly feeling chipper about the current state of his political future. With Pat Buchanan no longer a threat from the Nixonian right, the President may even feel free to jaunt to Rio de Janeiro in June to attend the "Earth Summit," the politically correct celebration of Global Warming. Meanwhile, he is sending Congress 200 budget "rescissions" this afternoon, to show the American people he is serious about cutting spending. Instead, the strategy will only succeed in making 200 little interest groups mad, requiring them to spend more on their lobbyists to persuade Congress not to rescind appropriations. In the end, no rescissions will be approved. There is also a rumor that the White House is thinking of unilaterally suspending the Davis-Bacon Act, a favorite anti-construction union ploy of the Nixonian right. This certainly sounds like it could have come from either Nick Brady's Treasury folk or Dick Darman's people at OMB, as it is a surefire turnoff to Reagan blue-collar Democrats.
The President will, of course, veto the tax bill Congress will send him tonight. He will make another speech late this afternoon anticipating the veto. I sent some ideas to the White House on how the speech might be developed, but got back a note that all of my nice ideas run into the spending caps of the Budget Agreement. I don't expect the speech to be very entertaining. If we're going to have any fun at all for the rest of this political season, it's going to have to be supplied by Governor Moonbeam.