A Defining Moment
Jude Wanniski
April 6, 1993


On the face of it, the Republican filibuster in the Senate has been enormously successful. The GOP has held together without a single defection in preventing a vote on President Clinton's $19.5 billion "economic stimulus package." The White House has raised a white flag and says it is willing to compromise. The Republicans, grinning from ear to ear for the first time in many moons, are patting themselves on the back -- apparently unaware of the trap Clinton's clever strategists have prepared for them.

What is it the Republicans want in order to permit a vote on the Clinton plan? Do they want to cut it in half? Will they settle for a $15 billion plan? $13 billion? The fact is, the White House doesn't really care. The Democrats want the Republicans to win this fight, as long as it remains a fight over how many dollars to spend. The objective is to get the Republicans to give up the strongest position they will have this year, perhaps the strongest position they will have for the next four years. If they can get them to do this for any part of the $19.5 billion, they will gladly do so, as the amounts of money we are talking about here are trivial compared to the political stakes. President Clinton is about to purchase an insurance policy for a few dollars, one that will enable him to blame the Republicans for any weakness that occurs in the economy from now through the '94 elections. Capitol Hill is already awash with crocodile tears from Senate Majority Leader George Mitchell, distraught because the dastardly Republicans are blocking the very first, critical initiative of the new President. How can they be so mean? So cruel? So partisan?

This is exactly what President Bush should have done in October of 1989, when Senator Mitchell refused to allow a vote on the capital gains tax cut that had already passed the Democratic House of Representatives. He should have yelled and screamed, especially as he had promised the voters during the '88 campaign that he would cut the capgains tax to 15% and index it against inflation. Had he fought for the issue, Mitchell would have had to accede and permit a vote, knowing a clear majority of the Senate wished to support the tax cut. Otherwise, the President could have blamed the Democrats for the economic weakness that followed, a risk Mitchell could not take. Instead, Treasury Secretary Nick Brady persuaded the President to throw in the towel without a fight, and the Bush Administration never recovered from that defining moment. President Clinton can make no such claim for a pork barrel legislative mandate, but he can still fix in the public's mind the idea that the GOP crippled his economic program by cutting $3 billion or $5 billion or $8 billion from it. As the man on the street has no idea how big $3 billion or $5 billion is, the Democrats will emerge from this "GOP legislative victory" by advising their constituents from coast to coast that the reason the economy remains weak is that the funds targeted for their home towns were denied by the hard-hearted Republicans.

This is exactly how the Democrats became the dominant party in the years of President Roosevelt's New Deal ~ which of course is the model of the Clinton Administration's brain trust, chiefly James Carville and Paul Begala. The toughest part of the strategy is to somehow get the Senate Republicans to accept the principle of increasing spending as a means of lowering the budget deficit. From then on, the Republicans will never again be able to unify as effectively as they have to this point. They will be able to congratulate themselves for being The Party of Fiscal Responsibility for wanting to spend less, which is the minority role the GOP played throughout the depression years.

What should the Republicans demand in exchange for an end to the filibuster? Senate Minority Leader Bob Dole says the price he will ask will be "Big." He is not thinking big enough, however. The Senate Republicans should ask for nothing less than total elimination of the capital gains tax. Not a cut. Not indexation. Elimination! Instead of playing along with the Democratic agenda of socialist investment of taxpayer's money, they should be making the case for capitalist investment. On CNN's "Crossfire" last night, Mississippi GOP Senator Trent Lott and Pat Buchanan made exactly this point in their exchange with California Democratic Senator Diane Feinstein and Michael Kinsley, the most interesting exchange I've witnessed in the economic debate all year. Are we to have a nation of private risk-taking via investment of individual savings, or are we going to be a nation of collective risk-taking via government investment of tax revenues? This is the kind of argument the Republicans can win, but as far as I can tell, only Senator Lott and Rep. Dick Armey of Texas are making it.

The Democrats would scream bloody murder if this were the GOP challenge during this defining moment. President Clinton, though, would instantly have lost his insurance policy, as he would no longer be able to argue that the GOP blocked his solution without offering one of its own. Indeed, I've suggested to Senator Lott that this single thrust would throw the entire Clinton economic plan into a tailspin. With the Loyal Opposition suddenly making the case for private investment vs. public investment, all the premises of the Clinton economic strategy would be reopened to question including his plans to socialize medicine. If the Senate Republicans remained unified behind this strategy, they would at the very least be able to wring out of Senator Mitchell a clear up-and-down vote on indexation of capital gains. It would pass by an overwhelming margin if the nose counts are correct, or at least establish a GOP I-told-you-so argument if the economy remains weak. I would go so far as to concede the President all of his $19.5 billion in pork in exchange, thereby undermining all of Carville's FDR strategy. The financial markets would take off like a shot, consumer optimism would soar, and it would be almost impossible for the Clinton Administration to get anyone seriously interested in raising a host of new taxes.

Is any of this going to happen? Almost certainly not. With a few exceptions, Senate Republicans remain cowed by the "fairness" issue, a fact that is the keystone of Carville's strategy. He knows the Republicans are afraid of what should be their strongest issue -- the key to rapid economic growth through entrepreneurial capitalism. Two years ago, at Polyconomics' annual conference in Puerto Rico, we heard then-GOP National Chairman Clayton Yeutter tell us that there was likely to be no progress on capital gains because of fear of the fairness argument among Republicans. We recall that another of our guests, John Moore, an M.P. who had been in Margaret Thatcher's cabinet, quietly interjected the warning that a political party that can be frightened off by the fairness issue is doomed to defeat.

All growth, including political growth, is the result of risk-taking. At the moment, because the GOP is risk-averse, we can expect no growth from GOP leadership. Senator Dole will cut a deal with Senator Mitchell on the spending issue, leading his flock like lambs to the slaughter. Several billion will be whacked from the Clinton package, but half of that will be restored in the conference committee with the House. The Republicans will congratulate themselves on their great victory on behalf of fiscal responsibility and the Democrats will cry all the way to the bank.

Our basic view remains the same as it has for the last four months, that the economy and the financial markets will continue to poke along on the strength of the Federal Reserve's sound money policy. We don't see anything terribly bad happening in Congress anytime soon, just a lot of missed opportunities. Congress will adjourn for Easter recess without taking action on the Clinton package. It will return April 20 for another go at breaking the gridlock. There's a very small chance, at least, that a more creative GOP strategy will emerge during this holiday.