GATT/Capgains: Inching Ahead
Jude Wanniski
November 23, 1994


Senate Minority Leader Bob Dole squeezed as much as he could out of the Clinton White House on capital gains taxation -- a formal letter from Treasury Secretary Lloyd Bentsen promising to take seriously the GOP proposals for capital formation next year. Dole had asked for a letter from the President himself, with a clearer commitment to treating capital gains "without prejudice." The White House would have none of it. The letter from Bentsen to Dole, negotiated all morning with Dole and his staff, follows:

I appreciate the work you have done to address the concerns of your constituents and other Senators before making a final decision about the GATT agreement. I am encouraged that the sovereignty issue has been resolved. I believe your announcement today in support of GATT will certainly bring us closer to the 60 votes needed for the budget waiver.

As the President stated in his press conference Tuesday, the Administration is unwilling to link any conversation regarding capital gains to GATT. But Members of the 104th Congress will no doubt set forth ideas for capital formation. I can assure you that these proposals will be carefully reviewed.

It would of course be our hope that the work of the 103rd Congress be completed next week with a bipartisan victory, not by a narrow margin, but by a resounding vote of confidence. You and I have led important fights in the past to expand economic growth in our country. Few are as important as this one. If we can achieve this, I believe the American people will hold both our political parties in greater esteem. With my best wishes for a Happy Thanksgiving.

The news media have played the story as if Dole capitulated on his demand that Clinton agree to support a capital gains tax cut in exchange for Dole's support of GATT. Of course, this was nonsense to begin with, as Dole never did anything more than politely suggest that he could more easily get GOP support for GATT in the lame-duck session next week if he could get some commitment from Treasury to bend the budget rules on capgains, just as the Senate will be asked to do on GATT. With that assurance, he believed he could get all the votes he would need to put GATT over the top. Dole did not get it, only a begrudging letter that had to be dragged out of a White House that kicked and screamed over every syllable. The fresh spirit of comity and bipartisanship that Dole had envisioned is not to be. It is certainly not at all clear that GATT will get the 60 votes it needs to pass the Senate. 

If anything, the White House flintiness in handling Dole has soured those Republicans who had rallied behind the Kansan's attempts to be generous toward the Democrats -- who had just suffered their worst defeat in 42 years. The fig leaf extracted from Treasury on the World Trade Organization seems not to have slowed any of the grass-roots demands for postponement of GATT into the new Congress, where they hope to strip the WTO out of the treaty and leave it with only the true free-trade provisions. In discussing this with an administration official this afternoon, I pointed out that the electorate on November 8 voted resoundingly for smaller government, not world government. This same groundswell will be at work over the next two weeks, as first the House, then the Senate, ponder GATT. If you watched the market this morning, upon the announcement that Dole would soon appear in the Rose Garden with the President for a joint announcement on GATT, and that capital gains would not be linked, the Dow went from minus 15 to minus 30, with the small cap NASDAQ stocks plunging. Not until the Bentsen letter came across the wires did stocks rebound, the Dow closing down 3, NASDAQ down 4.

The Rose Garden ceremony at noon today was arranged to make the President look presidential, and Dole look like a schmoe who had just been defeated. The President spoke about Dole's support, then announced that he had to leave to meet with the President-elect of Mexico (a really important political leader) and left the leader of his country's Republican Party by himself at the microphone. I felt sad for Bill Clinton, proud of Bob Dole, who then went on to a press conference where he said he did the best he could. That he did. If there was a chance to get more out of this White House it was lost yesterday when Sen. Phil Gramm [R-TX] told the press he opposed Dole's linking of GATT to capital gains. This alerted the White House that Dole had division in his own ranks and I believe persuaded Dole to swiftly get what he could. Another GOP Senator told me this afternoon that if he had been in Washington he would have talked Gramm out of breaking ranks. Gramm came across as not wanting Dole -- a competitor in the 1996 sweepstakes -- to succeed in his high-stakes maneuver on capital gains, which Gramm sees as his own issue. Tsk, tsk.

What will happen now? The country is in a very different kind of mood than we are accustomed to seeing. The most senior Democrat in Congress and its most skilled parliamentarian -- West Virginia's Robert Byrd -- wants GATT deferred to January, when it can be debated at length as a treaty, which requires a two-thirds majority, and not the 60 votes needed to defeat a point of order or limit debate. His words will carry weight with his fellows, especially those returning from the debacle of November 8, when they heard the call for smaller government. Will GOP Senators on the fence tend to follow Dole's lead, or will they decide it was too much of a burden for Dole alone to challenge GATT's imperfections and break loose to join Byrd? Others still may tell the White House lobbyists that they want direct assurances from the President on capital gains, or else they will follow Byrd's lead. If it comes down to one vote, what will the President have to promise to get it? The Republicans in the House are also feeling their oats and will want to ask Speaker-in-waiting Newt Gingrich why they shouldn't push off a vote until January, with a White House acting so rigid.

All that's clear is that from now on it will be a game of inches. We'll have no deal of the century to enjoy with our turkey. But considering everything else we have to be grateful for in this democratic land of plenty, we should be happy enough tomorrow as we give God thanks.