The Senate Finance Pretzel
Jude Wanniski
June 17, 1993


In order to get all eleven Democratic Senate Finance Committee members to accept a tax bill that will be unanimously opposed by Senate Republicans on the floor, the Democratic leadership had to twist the bill into a monstrous pretzel one barely edible to the 11 Democrats, but not to a majority in Congress. The biggest White House headache, the Black Caucus, held a press conference within minutes of the Finance Committee announcement of a deal to denounce it. Rep. Kweisi Mfume of Baltimore, the Caucus chairman (who continues to turn a cold shoulder to the President's request for a meeting), announced that the Caucus would oppose the legislation if it came to the House from a conference committee in the manner it emerged from Senate Finance. There should be no doubt that the Caucus will vote as a bloc of 38 votes, the most important being Mfume's and that of Rep. Charles Rangel of Harlem, the third ranking Democrat on the House Ways & Means Committee. If Mfume and Rangel are not satisfied with the conference report, it will be killed in the House, which approved the President's first effort by a mere four votes. All Republicans will vote no. The Los Angeles Times reported yesterday that President Clinton's approval rating among black Americans has plunged to 53% from 87%.

It is not only the Black Caucus that has heartburn over the Senate Finance pretzel. Every Democratic backbencher is also going to be asked to hold his nose in order to "Save the Presidency," almost certain they will have to pay for these votes in the '94 elections. President Clinton could have avoided this grief if he had simply decided that a $500 billion bogey of tax increases and spending cuts over five years is too difficult a number. By merely saying he would settle for $400 billion, he could have avoided the mess that lies ahead. The $500 billion became the mantra of Bob Rubin, who came to the White House from Goldman Sachs, and who has become the closest economic advisor to the President. Rubin apparently believes that Wall Street has been promised $500 billion, and if it does not get it, it will cause the bond market to collapse. It's all nonsense, but Rubin, who comes from the same corner of Wall Street as Nick Brady, dominates on this issue, along with the political team that does not want to upset Ross Perot. This combination has overwhelmed the resistance of Secretary Lloyd Bentsen and Senate Finance Chairman Pat Moynihan. The price the President and the Congressional leaders are paying, though, is the revolution of the Black Caucus and a potential revolt of its backbenchers.

The most outrageous element of the Senate Finance pretzel is a 2.8% increase in the capital gains tax for taxpayers with incomes above $250,000, courtesy of Sen. Bill Bradley of New Jersey, who is building on his record as the member of Congress most destructive to the national economy. It was Bradley, of course, who in 1989 was instrumental in preventing a Senate vote to cut the capital gains tax. Apparently determined to prove that capgains has nothing to do with economic activity, Bradley sold the capgains surtax as one of several measures that finally broke the deadlock in the committee. Senator David Boren of Oklahoma, the most ardent champion of capgains tax reduction on the committee, was forced to cave in to Bradley when he'd gotten everything he had asked for with removal of upstream energy taxes. Boren might have upped the ante, but his fellow Senators, West Virginia's Jay Rockefeller in particular, were already heaping unprecedented abuse on him. The comity of the Senate has probably not reached such a low since Reconstruction.

The capital gains issue had been dormant, except the incipient initiative of Rangel and GOP Senator Malcolm Wallop which remains very much alive. By thrusting capgains into the Senate package, Bradley has officially reopened the debate over the importance of capital in a capitalist economy, a subject that is sure to engage the attention of Ross Perot. President Clinton had last year stitched together considerable support of the business community by promising deficit reduction to "Old Money" and capital incentives to "New Money." This is another fissure that has now opened up, with the Clinton entrepreneurs of Silicon Valley dumbfounded by what is going on. America at the grass roots can easily do the calculations of what a 10% surtax on capital gains will cost ordinary people, who once in a lifetime have an income above $250,000 when they sell their farm or small business. Here again, the Senate will hear from Ross Perot as the Senate Finance pretzel arrives for debate on the Senate floor.

The "Rangel-Wallop" alternative, which would be anchored by Wayne Angell's idea of completely indexing capital gains and ending the step-up provision at death, is cooking on the sidelines. As far as Senate Minority Leader Bob Dole is concerned, nothing is possible as long as the Democrats remain mired in their "inside game." Only when they realize they cannot budge without Republican help can Dole present an alternative, which he knows cannot be a zero-sum plan. He tends to agree with Rangel that with a $500 billion bogey, no combination of tax increases and spending cuts can pass the Congress, that there must be the kind of positive-sum element that Angell's idea represents. Even if the "Rangel-Wallop" alliance does not succeed in this current round of debate, Dole knows the GOP must have it, or something like it, going into the '94 elections.

Republicans remain fascinated with the politics of an alliance with the Black Caucus, but it has been so many years since anything like this has happened that suspicions abound on all sides. The most serious is that Rangel is simply using Wallop as a bargaining chip for the Black Caucus, and will abandon the new effort with the GOP as soon as he gets enough gravy from the Democratic leadership. On Monday evening, I spent several hours at a Rangel fundraiser in Manhattan, at Tavern-on-the-Green in Central Park, attended by perhaps 500 people, mostly well-to-do, up-and-coming black entrepreneurs who can afford to make serious political contributions. Bob Novak's column had appeared that morning in the New York Post, reporting the Rangel-Wallop initiative, and clearly it had been read by this crowd. As he moved among the crowd, he was praised again and again for the opening to the GOP on this issue, and by the end of the evening he was obviously buoyed by the support he was getting from his constituents. "The White House thinks there's no place for us to go," he repeated again and again. "There's always someplace for 38 votes to go." He summed up the initiative as "a painless alternative" to the Clinton plan and told people the President somehow thinks "black folks like taxes more than white folks." He introduced me to Harold Ickes, Jr., son of FDR's Interior Secretary, and a close friend of President Clinton's, to explain the initiative.

The President will have a prime time press conference this evening, at which he will attempt to muster support for his economic initiative. Bob Dole will follow with remarks of his own. This will set the stage for the Senate debate that will follow, blossoming into a wider, national debate. Rangel even expects that there soon will be an invitation to Dole to address the Black Caucus, to exchange views on the state of the economy and the particulars of any Republican alternative. These kinds of events will certainly influence the shape of the Senate debate and voting patterns, complicating life for Senate Majority Leader George Mitchell.

Dole is still awaiting word from Treasury on the scoring of the Angell Plan. Rangel is awaiting word from the Joint Committee on Taxation, which is doing an independent scoring. Republican staff people on Capitol Hill are universal in their belief that the Democrats will minimize the positive effects by feeding negative assumptions into their computers. I've suggested to Dole, Rangel and Wallop that the Angell idea is such an obvious benefit to the nation and the Treasury, "a painless alternative," that if it were elevated in the upcoming debate and explained to the American people it would generate sufficient grass roots support to override the computers.

In my mind, Rangel remains the key to success. Margaret Bush Wilson, former president of the NAACP, called me Tuesday to ask who would be helped most by the Angell idea. I told her the same thing I'd told Dole, Wallop and Rangel: It helps most those who have the least capital, young black males. Second most, young black females. Then young Hispanic males, etc. It helps least rich old white men, who are near the end of life and don't need capital. It helps New York City the most, the nation's financial capital, and therefore it helps most of all the young, black males of Manhattan, who just happen to be represented by Charles Rangel. I'm satisfied he's in for keeps, which is what keeps me smiling as I study the Senate pretzel.