Early Skirmishing Jude Wanniski November 14, 1994

It would be so easy for the 104th Congress to quickly slide into a two-year confrontation with President Clinton, a hopeless gridlock amidst continued economic decline. The ideologues on the Democratic left are already circling their wagons and fanning the flames of a veto strategy aimed at denying the GOP the most important ingredient of their mandate -- a cut in the capital gains tax. Their blowout last week by the GOP has the liberals practically hysterical, as we can readily observe on the editorial page of The New York Times. Acting like a terrified wife who expects to be battered by a husband drunk with power, the Times Sunday warns its children in a lead editorial to hide in the basement as Newt Gingrich approaches. In an adjoining op-ed, Michael Kinsley, the co-host of Crossfire and the most important liberal intellectual, urges the President to give the inebriated Newt all the aspirin he wants -- a balanced-budget amendment, a line-item veto, term limits -- but to hide what he really seeks, a capital-gains tax cut. This, Kinsley has always correctly identified, is the defining issue of the resurgent Republican Party, in that it increases the rewards for individual risk-taking. The liberal Democratic parallel is national health insurance, designed for collective security.

Can the Democrats succeed in blocking capgains? The working assumption on the GOP team of Speaker Gingrich and House Majority Leader Dick Armey is that their Contract With America may not pass the House in its entirety -- but the tax-cutting program that includes a $500 per child tax credit and the 15% indexed capgains tax will easily pass. The assumption is that Clinton won't veto, but there will probably be enough Democratic votes to override one if he does. There really hasn't been much thought given to whether the legislation would be approved with a strong enough majority in the Senate to override a veto. In these giddy first days of GOP celebration, especially in the House, there is a sense of consummate power -- of the kind a teenage boy gets when he finally gets his license and the keys to the car. If 40 years of power corrupted the Democrats, the first whiff of power by the House Republicans already has a distinctive aroma.

In last Friday's Wall Street Journal, Paul Gigot quotes Bill McInturff: "the GOP pollster and no flamethrower, is now arguing that Republicans should act as the governing party. This means passing their own reform agenda with or without Democrats and forcing Mr. Clinton to choose: Either veto and thus create a campaign issue, or sign and take some credit but risk upsetting his liberal base. This is more or less what George Mitchell did to George Bush." This is pretty ugly advice, as far from the Golden Rule as one can get. It's the mistake President Clinton made, on the advice of the partisan liberals, pushing his agenda ahead without bothering to consult the Republicans. If Gingrich were to follow it, determined to make up for forty years of lost time in 100 days, he would get nothing accomplished. He'd get ten pieces of legislation to the floor for a vote, as the Contract promises, and get only the least consequential into law. My guess is that he will soon settle down, shifting from a position that offers "cooperation" but refuses "compromise," to that of his kinder, gentler partner, Dick Armey, who refuses to "compromise on principle," but is willing to "compromise on detail." Where Gingrich is demanding the Great Society programs be razed, from the ground up, Armey wants to "take down" the welfare state and the regulatory state "a brick at a time, choosing each brick carefully to build more support for the next brick." 

Rhetoric is important in these first days, which is why it is so important that Armey and Senate Minority Leader Bob Dole are being judicious in their statements. If we are going to get meaningful legislation next year to get the economy moving fast enough to permit the welfare state to be taken down a brick at a time, it will have to be Dole and Armey working at the center. They have to be ready to compromise on detail with a President and a Democratic minority that has been stripped of its moderates and is prepared to fight on behalf of its threatened constituency with every weapon remaining. It is a working assumption among many liberals that the Republican Congress does not really want to pass legislation that will really improve the economy, but will instead put politics above policy and gear up for another blowout in 1996. Their friends in the news media are already making life miserable for Gingrich, forewarning him that no corner of his past public or private life is sacrosanct. If he is going to practice a scorched earth policy, so will they. 

At some point before we get to the 104th Congress, we should expect things to settle down, as cool heads prevail. The Democrats know they were soundly thrashed and that they probably deserved what they got. With his usual radical honesty, Senator Daniel Moynihan yesterday on This Week with David Brinkley agreed with all the enlightened assessments of how big and unwieldy the federal government has gotten and why it is time for a change. Moynihan, though, is of the "brick by brick" school, not the kind of "Shock Therapy" that gets the economy rolling by cutting back on food stamps. His appeal is for the Republicans to supply the votes in the Senate to approve the GATT agreement on worldwide tariff cuts, which is President Clinton's only growth initiative at the moment. Congress returns after Thanksgiving to take it up. The measure will need 60 votes to overcome a procedural point of order, and it now has only 26. In this instance, Gingrich and Armey are behind GATT, because they have no way of getting it amended to their preferences unless it is deferred to the 104th Congress. Senator Dole is trying to figure out how to deal with GATT's sovereignty issue, which has inflamed some of the Perot coalition. Sen. Phil Gramm of Texas, who is about to announce his presidential run, wants to postpone GATT to the new Congress to strip it of offensive provisions. Gramm, a scorched-earth Republican who appears to reject compromise or cooperation with the Democrats, has already begun to take potshots at Dole for being insufficiently radical.

The obvious opening for the GOP leaders is to get together with President Clinton on a package deal that would deliver GATT now and the promise of an indexed capital gains tax cut next year. The reason GATT needs 60 votes, after all, is that it will take that many to defeat a point of order -- probably raised by Phil Gramm -- refusing to waive the budgetary rule that requires the $40 billion static cost of GATT be paid for by spending cuts or tax increases in that amount. The static cost of the capital gains proposal in the Contract With America is roughly in that amount. If Dole and Gingrich were to offer the President a handshake on one for the other, they could easily get both, with enormously desirable effects on the U.S. and world economy. If the President refused a compromise on this detail, which does damage to no principle, he would clearly be inviting confrontation and gridlock. 

The deal is also symmetrical in its supply-side effects. GATT is a Big Business buffet, designed to benefit multinational corporations that sell widgets and want to sell more. In that sense it merely reduces the risk to capital through economies of scale. Except for all the protectionist garbage the Democrats layered into the agreement as political payoffs to those who financed their losing campaigns, the GATT agreement would also benefit smaller business through a trickle-down effect. The new World Trade Organization created by the agreement is entirely unnecessary, but as long as the U.S. can easily withdraw from it, which Dole is trying to ensure, it can be viewed as the price to be paid for the international bureaucrats who negotiated the agreement. A capital gains tax cut, on the other hand, works from the bottom up, benefitting small and emerging business. With a package deal like this, even Senator Gramm would find it hard to refuse.

Former HUD Secretary Jack Kemp is spending his time trying to promote such deals, in order to prevent confrontation and gridlock. On the "Both Sides" Jesse Jackson show Saturday on CNN, he offered to arrange a meeting of Jesse, Rep. Charlie Rangel of Harlem, and Rep. Kweisi Mfume of Baltimore (head of the Congressional Black Caucus) with Gingrich and Armey. In last Tuesday's elections, only 12% of the black community voted Republican -- 10% of black women, 15% of black men. They correctly assume that in a scorched-earth budgetary approach, the fellows on Gucci Gulch will protect spending for the Big Guys, and their constituents will pick up the tab. A deal on capital gains and GATT is made to order for them because it would unambiguously expand the economy and would not have to be paid for with food stamps and/or welfare checks. 

Kemp understands, as few other Republicans do, that the only way to cut entitlement spending is to provide better alternatives to the entitled. The entitlements exist because the real economy has been in contraction for 25 years. If the cool heads in the GOP play their cards right in the next several weeks, this is a condition that will not last much longer.