NEWTERED

Two weeks later, the smiley faces have all turned sour. Washington is all abuzz over the House Republicans’ aborted coup against their speaker. Why did the anti-Newt plot fail? Not because Hill Republicans love the man. It’s been clear for at least a month that they would oust him in an eyeblink if they could figure out a way to do it cleanly. No, it seems the GOP pulled back from regicide . . . well, ostensibly to protect the budget deal. As one House Republican explained it to the New York Times, they decided at the last moment that bringing down the speaker might “jeopardize the tax cuts and balanced budget,” which would be even more frightening than keeping Gingrich in his chair. Gingrich is a big problem, in other words, but Republicans still generally think that a popular budget deal will help mitigate that problem. Just as Gingrich himself still thinks that the budget deal will help save his job — and improve his abysmally low public standing.

Dream on. The budget deal’s no big deal. And Newt appears beyond salvage.

There are conservative supply-siders who want to scrap the entire emerging budget and start from scratch. The tax cuts involved, the capital-gains rate reduction in particular, strike them as insultingly small. Steve Forbes, for instance, wants a cap-gains rate of zero and thinks the existing top rate of 28 percent is a travesty — a “get lost” message to “the budding Bill Gateses and Andy Groves of the world.” That top rate is too high, no question. It seems likely to come down a bit this year. But let’s face it: Few Republicans are currently willing to set themselves on fire for a radical cut in capital gains. After all, the actual Bill Gateses and Andy Groves of the world somehow managed to become billionaires under the existing cap-gains regime. For the moment, at least, the rest of us may have to muddle through as well.

In another conservative corner, there are spending hawks outraged that the budget deal takes a powder on the government’s domestic programs. They’re right, of course. The bipartisan agreement reached two months ago approves only modest structural reforms of entitlements like Medicare, and instead saves money for that program primarily by squeezing its payment schedules.

It’s a band-aid cure, and before anyone knows it, the band-aid is bound to fall off. Worse, the budget deal endorses five years of aboveinflation growth in so-called discretionary spending. The federal administrative behemoth will expand, a result that contradicts everything the Republican party and conservatism are supposed to embody. It was on precisely that basis that THE WEEKLY STANDARD opposed the deal when it was first announced in May. And if the deal should eventually fall apart, it’ll be okay by us.

But that possibility looks increasingly remote, and advising the GOP to abandon the deal looks like an increasingly impractical project. We do so advise — but we’re not holding our breath. The Republicans are hell-bent on their “historic” budget goal, and chances are they’ll get it.

The only significant partisan issue that remains, so far as we can tell, is taxes. On June 27, White House spokesman Mike McCurry said Clinton would ” veto legislation that blows a hole in the deficit.” The president himself has been careful to demur on this question. “I don’t want to start talking about veto now,” he says. But Treasury secretary Robert Rubin has sent Congress a ridiculously long letter outlining dozens of complaints about the House and Senate tax bills. The president is “deeply concerned” about any number of ” unacceptable” provisions, Rubin reports, and Clinton will have “major objections” if those provisions are not repaired to his satisfaction.

The coolest Republican heads on Capitol Hill want to delay final tax action this year until after they’ve got a bill the president has promised to sign. If hotter Republican heads prevail, however, we bet Clinton does veto the tax bill — just once, for show. We bet he then spends a couple of weeks brutalizing the GOP for being too solicitous of the “very wealthy.” We bet Clinton next turns around and signs an only slightly altered tax bill into law, having faked the Democratic party’s class-conscious activists into believing he’s determinedly on their side. We bet Clinton will claim — and receive — the bulk of public credit for fashioning a “truly middle-class tax cut.” And we fear there’s little the Republican party might do to forestall such unpleasantness. Gingrich now promises that he will withhold the spending bills necessary to fund basic federal operations until the president signs a tax bill Republicans want. Oh, good: another government shutdown. It’ll never happen.

Truth be told, the tax bill is already perfectly “middle-class,” and it is nothing to sniff at. But it’s not all it’s advertised to be, either. The most important bit of relief, a $ 500 per-child credit, may not be available to most families earning less than $ 25,000 a year. The “earned-income tax credit” those families already receive erases their federal income tax liability, and some House Republicans do not want to reimburse them for Social Security and Medicare payroll taxes. That would be “welfare,” House Ways and Means committee chairman Bill Archer insists. Senate Republicans and the White House disagree, and Archer may yet have to give way.

But there is a similar problem with the per-child credit further up the income scale. It’s a problem so complicated that only a single newspaper, the Wall Street Journal, has noticed it. In simplified form, the problem works as follows. A relatively small but by no means atypical class of taxpayers is involved, in families comprising maybe 2 million children. If you are a married couple with three or more children (or a single parent with two or more children), and you have child-care expenses but no itemized deductions, the new child tax credit may well force you to file an ” alternative minimum tax” return. The “AMT” is a sinister part of the federal code that establishes an income-adjusted floor on tax liability. Any part of the child credit that would cut a family’s taxes below this floor will thus be disallowed.

So if Bill Archer does get his way on the earnedincome tax credit, our hypothetical family of five will not get the child credit until it earns at least $ 25,000. Then, as that family moves up the income ladder and owes more income tax, it will get increasingly more of the credit. But as it moves up higher still, the alternative minimum tax will begin to reduce that family’s child credit. By about $ 63,000 of family income — roughly the national median for married filers with three or more children — the child credit will be worth only about 60 percent of its face value. Above this income level, in the next-highest tax bracket, the child credit will then be slowly and perversely increased, until you reach $ 110,000 in annual income.

This weird, unfair, give-and-take effect appears inevitable as long as the AMT isn’t changed. And no one’s talking about changing it. Inflation will make its bite more severe over time, sucking more and more families, over a greater spread of incomes, into the maw. And, weirdest of all, the AMT will hurt worse the more children you have. For some people, it turns out, the child tax credit has a child tax penalty built right in.

For everyone else, the child credit is probably better than nothing. But it’s much too slapdash to merit praise as “tax reform.”

How did Republicans come to this pass, a situation that’s bound to hurt them short-term, and probably won’t much benefit them in the future? Two words: Newt Gingrich. The Republican party in Congress, alas, now stands for almost nothing if it doesn’t stand for a budget deal. That is Gingrich’s doing more than anyone else’s.

In 1995, the speaker made a fetish of balancing the budget in the year 2002. In his messianic way, convinced that he might govern America from the House of Representatives, like Henry Clay in 1812, he managed to impose that fetish on his entire party. Republicans no longer need a deal to balance the budget in 2002; given the economy, it would probably be balanced without a deal sometime late next year. But that doesn’t matter to the current GOP The fetish of 2002 remains everything. Having failed to secure it by force majeure in 1995, Gingrich and the rest of them are doubly determined to deal it into existence in 1997.

So pointless. The budget deal will not save Republicans from their obligation to stand for something. It will not save them from their Gingrich trouble. It will not save Newt Gingrich from himself.

David Tell, for the Editors