It's a new world, as the White House is learning every day. Over the weekend, it discovered that Senate Minority Leader Bob Dole, the same fellow who used to tell "good news" jokes about supply-siders going over a cliff in their bus, is now behind the wheel of a brand new one. Dole stunned the White House Saturday, essentially telling them he could not promise the votes for GATT in next week's lame-duck session unless they cut a deal on capital gains, of the kind we outlined in our "Deal of the Century?" letter last Thursday: If the White House agrees it will waive the budget rules on revenue losses next year, in the GOP 104th Congress, Dole can collect the votes on the point of order that will be raised next week on the budget rules applying to GATT. Here is the text of the Dole letter sent to Treasury Secretary Lloyd Bentsen Friday evening:
I would like to discuss with you the prospects for a comprehensive capital gains tax proposal. As you know, capital gains has strong support. Implementing a capital gains program will help free up existing capital fostering new investment, greater economic growth and entrepreneurship. The contentious debates of the past, over revenue estimates, are overshadowed by the need to address domestic capital costs, job creation, private savings and investment. Developing a credible proposal would show investors, businesses -- large and small, entrepreneurs, farmers and many others that we believe in their efforts.
I would urge you to include a capital gains proposal in the President's budget for the upcoming fiscal year. Better yet, perhaps we could outline principles prior to the GATT debate. I am prepared to work with the Administration to develop a proposal that covers a broad spectrum of entrepreneurial activity. We should reward long term investment without favoring only new assets. Investors should be allowed to "unlock" current gains in order that investments be redirected into more productive assets. Finally, the capital gains program should be reasonable, comprehensive and permanent.
Capital gains should not be a partisan issue. I know that we can agree on the basic principles. There have been many proposals discussed in the past including rate reduction, indexing, and exclusion. I am hopeful that having had those debates, we have aired the issues and could develop a set of principles for a legislative proposal early in the coming year. We have an opportunity to create broad bipartisanship on international issues such as GATT and domestic matters such as capital gains.
It's a perfectly reasonable position, especially considering the Republican earthquake November 8. But as Bart Simpson would say, Bentsen had a cow. The White House had actually expected Dole to be able to announce on the "This Week" David Brinkley show on Sunday that his negotiations with Special Trade Rep Mickey Kantor had produced an agreement on GATT. Dole, the Republican party leader, had been wrestling with the sovereignty issue in an attempt to pacify the GOP's right wing as well as the Perot forces, and appeared to have gotten some language worked out with Kantor. Instead, Dole used the Brinkley show to announce the capgains connection. ABC's Cokie Roberts accused Dole of "moving the goal posts" on the administration, whereupon Dole provided the correct rationale for the move -- just as he had last February when he made the same proposal to Clinton counselor David Gergen: If GATT's tariff cuts will have positive revenue effects, so will capgains. So let's make a deal.
The argument from Bentsen is that if the White House makes this deal, it will lose as many Democratic votes as Dole will pick up by getting the deal -- essentially a public promise from the President not to veto the capgains bill the GOP will certainly be sending him next year. Dole's comeback is that if the President wants GATT this year, he has to rally the Democrats behind it, just as Dole has been attempting to rally the Republicans. Sen. Jesse Helms [R-NC], who will be chairman of the Foreign Relations Committee, has announced opposition to GATT. So has Sen. Phil Gramm [R-TX], who has announced his candidacy for the GOP presidential nomination in 1996. In addition, Dole can no longer count on Sen. Trent Lott [R-MS], who is running for Senate Majority Whip in the new Congress against Alan Simpson of Wyoming, the current minority whip. Lott tells me he is now committed to the Dole initiative on capital gains and will oppose GATT if the President resists. Lott, Jack Kemp's closest friend in the Senate, has built his race against Simpson -- especially in talking to the big incoming freshman class -- around the idea he is the more committed to fundamental, not incremental, change in the system.
In other words, if GATT was in trouble with Republicans prior to the Dole initiative, its problems would be even worse in this session now that its political and intellectual linkage has been made with capital gains. The administration argues that if it dies next week it will be dead forever, because its "fast track" authority expires with the 103rd Congress -- which would threaten GATT by having its carefully negotiated provisions open to endless amendment. This is a phoney argument, because the GOP will control the House Rules Committee and could report out GATT as H.R. 1, with a closed rule, as it will continue to do for all tax legislation that emerges from the Ways and Means Committee. On the Brinkley show yesterday, Dole went even further by noting that the Republican parliamentarian in the Senate, who will have the last word, believes "fast track" authority will carry over into the new Congress.
The real problem at the White House with the Dole initiative is that it is yet another reminder that the Republicans control Congress. White House chief of staff Leon Panetta, who knows along with everyone else in the Beltway, that capital gains is the defining issue on the economy for the GOP -- the one issue that binds the party together -- had been planning to use it as his main bargaining chip with House Speaker Newt Gingrich and his "Contract With America." Now, Bob Dole is forcing him to use it before the old Congress ends. How can they not give Dole what he wants? He is their only hope in the new Congress, the most reasonable of all those crazies in the House and Senate. Can you imagine, Jesse Helms on Saturday's Evans & Novak Show said he did not think Bill Clinton was "up to the job" as commander-in chief? Thank goodness for Senator Dole, who told Brinkley that while he once agreed with Jesse, yes indeedy, the President is now "up to the job" and "getting better all the time."
All these years, the Democrats could make fun of Jesse Helms and ignore him and all those other Republicans who made all those right-wing noises. Nobody ever invited them on the talk shows. Now, not only will they get invited, but every bureaucrat in Washington will have to tune in to find out if they will have a job in the morning. Helms Saturday allowed as to how he might shut off most foreign aid and close down the Agency for International Development (which, by the way, most recently encouraged President Aristide of Haiti to raise taxes on the rich). And Holy Smokes! The Dole initiative on GATT and capgains first saw the light of day in The Washington Times on Saturday. Egad! Every bureaucrat in Washington will now have to subscribe to the conservative Times if they want to be first on their block to find out what's going on in Congress, the first to hear news leaked from Helms or Strom Thurmond, or all those other crazies now in power.
What will, then, happen with GATT? It will either pass next week, with the President's handshake agreement on capgains. Or, the President will stiff Dole and GATT will be deferred into January, when the Republican Congress will rewrite the enabling legislation to its own tastes. At the same time, of course, the new Congress will strip out of it all the protectionist pork the Democrats larded into it for their Big Business supporters. You can bet there are plenty of Republicans who would prefer this to happen.
Can the Dole initiative be blocked? Now that the cat is out of the bag, it is not possible. If the President stiffs the kind and gentle Bob Dole, the only friend he may have in the New World Order, how far will Newt Gingrich get in selling GATT to the House Republicans? Dole himself could reverse himself and say he made a mistake, that he would like all Republicans to forget about capital gains until sometime next year, and meanwhile hold their noses and vote for the pork-laden GATT legislation anyway. After all, Bill Clinton is commander-in-chief. Somehow, a Dole reversal does not seem likely. He's at the wheel of the supply-side bus, bringing home the bacon.