Budget Watch:
Republicans Regroup
Jude Wanniski
January 26, 1996


The state of confusion in Republican ranks is being likened to the Union Army after the first battle of Bull Run at Manassas, Virginia, when troops wandered around in the smoke and wreckage, not knowing what hit them, looking for someone who might know what to do. I spent the last three days in Washington talking to the walking wounded on the Republican side and meeting with some of the Democrats. My conclusion is that, like at Manassas, this GOP setback was only a reality check. As the smoke clears, it is obvious that President Clinton and the Democrats know they’ve escaped annihilation at the hands of superior forces by sheer luck and some clever maneuvering. The President’s State of the Union address Tuesday night was the real news from the battlefield. In announcing an end to Big Government, the President outraged the GOP troops from whose hands he has snatched this rhetorical battle flag. Yet I suspect the rest of the country saw this as a generous and genuine consolation prize handed to his adversary, House Speaker Newt Gingrich. Newt simply overreached by aiming at immediate unconditional surrender in his goal of emancipating the nation from the welfare plantation. Gen. Ulysses Grant was not at Bull Run, but we rather think of Gingrich as that kind of warrior, one who eventually will get the job done.

At the moment, there is really no Republican plan on how to proceed with the budget, beyond the work of avoiding a government shutdown tonight. I can say with considerable confidence that there will be a capital gains tax cut if there is a final budget deal. The confidence is based on assurances from the GOP leadership ranks in both Senate and House, as well as repeated indications from the administration that the White House is prepared to accept capgains as part of a final deal. They are much too smart to hand out that ultimate carrot before the last possible give-and-take, which will now take us well into February. Will there be a final deal? The two parties, of course, could settle for gridlock through the rest of the year. But I think Gingrich now sees that this kind of gridlock could produce serious losses among his troops in the November elections. To use a biblical metaphor, the electorate, like King Solomon, has now decided that in a relative sense, President Clinton has the true interests of the nation at heart. He appears to want to do a deal if the GOP doesn’t insist on cutting the baby in half. As long as the Republicans seem to be putting their unreasonable agenda before the health of the economy, King Solomon will reward the Democrats. 

The idea that surfaced ten days ago was to give the President a continuing resolution for the rest of the fiscal year that would fund part of the government at 75% of last year’s level. To this would be appended a capital gains tax cut, for the purpose of forestalling a recession this year. The Republicans can only make this argument with capgains -- not with their expensive $500 kiddie credit -- which is designed to help middle-class families make ends meet in a recession. This strategy would force the President’s hand. A veto of this offer, which of course would be accompanied by a clean increase in the debt limit, would cast him as the bogus mother in the eyes of King Solomon. The blood of the 1996 economic recession would be on his hands and conscience. The President might ask for funding at a level higher than 75%, to accommodate widows and orphans, but he would have to accept the 75% offer. Indeed, faced with this prospect, the Democratic liberals who are now holding the high cards might opt instead for full budget reconciliation. President Clinton continues to signal he is willing to do such a deal.

What is the problem? It is simply that it will take Gingrich a few days to collect his thoughts. The half-baked idea he came up with on Wednesday morning -- a “down payment” on the balanced budget -- was the equivalent of a white flag. It had not even been discussed with the Senate leadership, which for all practical purposes is now in the hands of Majority Whip Trent Lott. In the critical weeks of budget negotiations just ahead, Majority Leader Bob Dole has his hands full trying to stop his free-fall in Iowa and New Hampshire. It is unrealistic to think he could devote serious mental energy to the complexities of the budget negotiations. Lott was not consulted on the “down payment” idea, which would use the debt limit as the vehicle for getting some form of capgains and the kiddie credit signed into law. He told me he would prefer to use the idea of a continuing resolution that would have capgains attached and that he would bring the idea into the leadership strategy discussions next week.

In those discussions, Gingrich & Co. may begin to see that they lost the P.R. battle of Bull Run because they focused on numbers, while the President focused on the concerns of ordinary people. House Majority Leader Dick Armey knows full well that the kiddie credit won’t have any positive effects on an economy either sliding toward recession or already in one. He also knows a capgains exclusion would jolt the economy into gear. All he and Gingrich really have to do is push these ideas to the forefront as part of the GOP strategy, not worrying about whether or not the President will agree or not. The point is to show concern for the health of the economy and the citizens who are stretched to their limits. The Democratic President could not stand up to that kind of challenge.

One of the real difficulties that Gingrich has in his Republican ranks is a hard-nosed belief, especially among some Southern Republicans, that a recession will help defeat Bill Clinton -- so why avoid one. In my few days in Washington this week, I talked to some partisan Democrats who believe that Republicans as a whole would take recession over expansion if they had to choose, for that reason. I had to explain that I only find this kind of stridency south of the Mason-Dixon line, where the GOP is in ascendance. Northern Republicans are not nearly as macho when it comes to threatening debt default or the blowing up of entire government agencies. Texas Republicans such as Sen. Phil Gramm or House Majority Whip Tom DeLay represent the most extreme macho men in the GOP. Newt Gingrich has some of this fire in his belly, but as we have observed in recent weeks, he has been much more willing to compromise.

Instead of denouncing President Clinton’s small government rhetoric as a fraud, why not test him? Dick Armey, who has long advocated taking apart the welfare state brick by brick instead of with dynamite, should show some creativity in the period ahead. The President is offering a reasonable deal on how to keep the baby alive instead of cutting it in two. Given the divided government we have at the moment, the only answer is joint custody.