Notes on the Revolution XXIV Jude Wanniski November 21, 1995

BUDGET DEAL: Volatility on Wall Street reflects confusion on just what the deal is all about and where it will go. Political posturing around the agreement between the President and GOP Congressional leaders added an ominous tone to the final deal in December. Behind the posturing, though, we find much more confidence. The posturing is necessary to give both sides reason to exult in victory. The weakness of NASDAQ stocks this week reflects continuing Wall Street jitters about the chances of survival of the capital gains tax cuts. If there were real problems, which there are not, there would be significant retreat. There are plenty of hotheads in both parties who are willing to walk away from budget reconciliation and “fight things out” in the 1996 elections. This would mean a second government shutdown on December 15 followed by a continuing resolution to take the government through the rest of the fiscal year. The GOP congressional leaders are privately sanguine about their ability to make the numbers stretch over the divergent positions on spending and revenue projections. Where the GOP acknowledged the President’s determination to set spending priorities, the White House conceded on a 7-year process. The White House will accept the CBO final judgment on the numbers, but the numbers have been opened to discussion, which will include the ability to anticipate a rosier scenario in 1996. 

CAPGAINS INDEXING: The restoration of indexation is hardly a lost cause. It was a key feature of the Contract With America, which both House Speaker Newt Gingrich and Majority Leader Dick Armey remain committed to, as of this morning! In the negotiations ahead, it will not be easy to squeeze the $22 billion to accommodate it, but as long as there are serious arguments being made on its behalf, Armey and Gingrich will keep the pressure on. In the Sunday Washington Post, Jack Kemp argued for it in an op-ed, “A Pro-Growth Compromise.” In a statement Tuesday, GOP presidential candidate Steve Forbes also urged re-opening of the issue: “I was disturbed by how casually the budget conferees threw out indexing capital gains taxes, especially since this has been a standing promise of the GOP since George Bush made it part of his campaign in 1988. Every time the American people have gotten close to winning on this issue, the Washington politicians have thrown in the towel....To tens of thousands of new and growing businesses starved for capital, the death of indexation could make the difference between failure and success.” It is now even in the interest of President Clinton to endorse a linkage between indexation, which in 1992 he told entrepreneurs he favored. Even a tiny add-on to the CBO’s January GNP projection would help enormously in covering the spending/revenue gap.

FLORIDA STRAW POLL: Bob Dole retained his front-runner status in the GOP presidential horse-race by narrowly defeating Phil Gramm and Lamar Alexander in this Florida farce. Each of the three spent nearly $2 million in competing for the votes of 3500 delegates in a meaningless convention -- covering the transportation, hotel rooms and “souvenirs” of political activists who committed themselves accordingly. The other candidates had really no chance of getting anywhere without spending megabucks. Forbes, who got only 18 votes, spent only carfare, choosing to commit $2 million instead to his fight to get on the New York state ballot. This requires collecting signatures from several hundred thousand qualified residents, but if he succeeds he will be alone on the primary ballot against Bob Dole, who will be there courtesy of Sen. Al D’Amato’s hold on the New York organization.