TAX CUTS ONCE PRODUCED UNITY among Republicans, but no longer. When GOP congressional leaders met in House speaker Newt Gingrich’s office on the evening of July 22, talk of a large tax cut generated anger, frustration, and ill will. Bill Archer, the normally mild-mannered chairman of the House Ways and Means Committee, took on Sen. Pete Domenici, who chairs the Senate Budget Committee. “I don’t believe what I’m hearing,” Archer said. Domenici assures the press and public there’s a balanced budget, Archer noted. But he tells us that we can’t cut taxes because we don’t really have a balanced budget. “Well, do we or don’t we?” Archer demanded.
Meanwhile, House Republican whip Tom DeLay sparred with Senate majority leader Trent Lott and Sen. Phil Gramm, DeLay’s fellow Texan and conservative pal. Lott chastised DeLay and House majority leader Dick Armey for getting on a “high horse.” And Gingrich suggested House Republicans might retaliate if Senate Republicans don’t go along with a tax cut.
It’s been three years since House and Senate Republican leaders fought so bitterly. In the early months of GOP control of Congress in 1995, several private meetings turned hostile. Then, too, the issue was a mammoth tax reduction that House Republicans passionately advocated and senators viewed with fear and skepticism. Eventually they compromised on a $ 240 billion cut that President Clinton later vetoed.
This time, common ground will be harder to find. The tax cut proposed by House Republicans is even bigger — nearly $ 700 billion over ten years — and Senate Republicans are wary in the extreme. Senators claim a cut so big has no chance of passing the Senate and can only land Republicans in political trouble. House GOP leaders want them to try for a major tax cut anyway. Gingrich has a strategy for pressuring them to do so: generate a public clamor for paring taxes. “The truth is,” Gingrich says, “you move the Senate by moving the country.”
Actually, moving the country may be easier. DeLay believes the House should approve the tax cut — to be financed out of the projected budget surplus of $ 1.6 trillion — before the congressional recess in August. That would drop it quickly in the Senate’s lap and force action when Congress convenes again after Labor Day, whether Republican senators like it or not. Though sympathetic to this approach, Gingrich has decided against confrontation. Instead, House Republican will be assigned to that up the tax cut while at home during the recess. Their chief talking point? “If you leave the money in Washington, the liberals will spend it,” Gingrich told the Fox News Channel. Gingrich thinks this sound bite is powerfully persuasive, and he may be right.
The impetus for renewed tax cutting was the Congressional Budget Office’s revised estimate, issued July 15, of the surplus over the next 10 years. Gingrich had lobbied CBO director June O’Neill aggressively in May and June to adopt “dynamic scoring.” That means counting the positive effect that economic-policy changes, like tax cuts, have on growth. O’Neill hasn’t exactly embraced Gingrich’s idea, but, according to the speaker, “she’s getting closer.” Says Gingrich, “As a fellow Ph.D., I felt good that our conversations have led to a more accurate score.” In fact, the CBO estimate was increased by $ 1 trillion over the figure in March. This floored even Gingrich. He’d expected a jump, but nothing like that.
Gingrich didn’t hesitate. He summoned House Republican leaders to a meeting on July 16 at which John Kasich, the chairman of the House Budget Committee, gave a briefing on the new estimate. Then Gingrich huddled with Archer on July 19 and Kasich the next day. “The excitement continued to build,” says a Gingrich aide. By late on July 20, Gingrich had the rough outlines of a tax cut that would end the marriage penalty and inheritance tax, trim the capital-gains rate from 20 percent to 15 percent, eliminate the earnings limit on Social Security recipients, and repeal Clinton’s tax hike on Social Security benefits. At the same time, slightly more than half the surplus, or roughly $ 720 billion, would be earmarked for protecting Social Security. This would be done by paying off “loans” taken from the Social Security system. Absent these loans, the budget would never have reached balance in the first place. Rather, this year’s deficit would have exceeded $ 135 billion.
Since last winter, Clinton has insisted any surplus be used to “save Social Security first” — by, in effect, beginning to pay back the borrowed funds. Both Gingrich and Lott agreed, and they sharply limited tax cuts in the 1999 budget. Thus, when Senate honchos gathered in Gingrich’s office on July 22, they weren’t prepared to change course suddenly and seek bigger tax cuts. In fact, they were united against such a move. Gingrich and other House Republican leaders were equally united in favor of it. Nasty quarreling ensued.
Gramm said Republicans shouldn’t over-promise on taxes. He never promised his wife three houses and a car, only that he’d try to make her happy. DeLay shot back that Republicans could at least work hard in pursuit of their goals. “When you don’t work and don’t try, that’s when people lose respect,” he said. “I’ll continue to fight for a tax cut whether you’re with us or against. I’ll fight for tax cuts until I die.”
This didn’t sit well with the Senate contingent. Bill Roth, chairman of the Senate Finance Committee, answered, “We can’t just cut taxes on a whim.” Days later, senators were still infuriated with DeLay and others. As for House Republicans, they were, as one aide said, “disgusted.” They felt the senators were knuckling under to Clinton out of fear he’d blame them for robbing the Social Security fund.
Gingrich concedes a $ 700 billion tax cut won’t be enacted. But Senate Republicans will come around by mid-September and back a scaled-down version. And “in the end, Clinton will switch. [The tax cut] may be smaller by the time he signs it, but that’s why you begin big.” Gingrich may be wrong about this, but he figures that merely proposing tax cuts will aid Republicans in this fall’s election. There’s an issue vacuum in the campaign debate. Voters don’t care about tobacco or campaign-finance reform, and Republicans have already neutralized the HMO-reform issue. That leaves tax cuts and Social Security.
Republicans — at least those in the House — want the surplus devoted partly to Social Security, partly to tax cuts. Democrats want to keep all $ 1.6 trillion in Washington, supposedly to prop up Social Security. Of course, not once during the 40 years they controlled Congress did Democrats do what they’re proposing now, which makes their motives suspect. Still, they believe they can make Social Security the chief issue, and win. Republicans believe they can make tax cuts the chief issue — and win.
Come November, we’ll know who’s right.
Fred Barnes is executive editor of THE WEEKLY STANDARD.
