Budget Watch:
Blue Dog Option
Jude Wanniski
January 9, 1996


The carnage on Wall Street today, of course, reflects the failure of the White House budget talks. The reason is because the President cannot persuade Vice President Albert Gore that it is in the Democratic Party’s interest to cut a deal. The President seems to want a deal with the GOP leaders, which would increase his chances of being re-elected this year. Gore is the point man for the theological liberals in the House of Representatives, who are determined to kill any deal that might be possible. Today’s GOP offer, which would reduce the level of tax cuts to $177 billion over seven years from $241 billion, is of little interest to the liberals. Short of eliminating the capital gains tax cut altogether, there is practically no level of compromise to which Speaker Newt Gingrich can rise that will satisfy the President at this moment. Unless Clinton can look Gore in the eye and say, “Al, I’ve gone as far as I can without signing my political death warrant,” he is forced to stiff arm the Speaker. 

By the way, it really would not matter if Clinton, not Gore, scripted this scenario; the result would almost be the same. At the top of the power pyramid, the President and the Veep are responding to the ground beneath them. Our guess that there will eventually be a budget that includes capital gains because the ground will shift beneath them. We do think the President will get to a point where he can look the Veep in the eye and say he can’t go any further. Meanwhile, the Republicans can take the rock-bottom deal they have offered today and attempt to build a bipartisan coalition behind it. There are plenty of conservative Democrats who want a budget that includes a capgains cut. These are known as the Blue Dog Democrats, the sons and daughters of the Boll Weevil Democrats, and the grandchildren of the Dixiecrats. Unlike their antecedents, who had racist hangups to one degree or another, the Blue Dogs are social liberals who have no hangups about capitalism. The theological liberals represented by the Vice President, Minority Leader Dick Gephardt, and House Minority Whip David Bonior are anti-capitalist -- in the sense they are opposed to a system that permits big winners and big losers. They believe that capital gains, which only go to those who successfully risked after-tax ordinary income, are unfair to the unsuccessful.

The public opinion polls, which are in part driving the political process, helped inch us toward a budget accord during the weekend. The CNN-USA Today poll, which showed Clinton losing serious ground in both his general approval rating and in his theoretical match-up with Bob Dole, was helpful in moving the President in the direction of a deal. But not by much. Theological points of view do not shift according to straws in the wind. The savaging of the stock market, especially NASDAQ’s adolescent enterprise, is in the same category. Gore, Gephardt and Bonior could care less if Wall Street crashed. They are intellectually programmed to blame the Republicans for everything that goes wrong. Clinton has to have an argument that enables him to shout down the liberals. The Blue Dog option is the best chance of that happening. This would require a congressional deal that aims at the 290 votes in the House that would permit the Republicans to override a Presidential veto. 

The rocky road ahead will likely see the Republicans take their best offer to the House and get less than 290 votes, which is a hard number. The President might then approve the budget even though he opposes it now, given the convulsions we may observe on Wall Street and in the opinion polls. It would help enormously if there were a northern Democrat or two -- a few from the Congressional Black Caucus -- joining the Blue Dogs. They would be those worried enough about economic recession and the misery it would bring to their constituents to make the theological break. It could be a very close call.