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A Strategic GOP Bungle

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7/19/00 6:30 p.m.
A Strategic GOP Bungle
On tax policy, the perfect is the enemy of the good.

By Bruce Bartlett, senior fellow at the National Center for Policy Analysis

hat a difference a year makes. This time last year, congressional Republicans were busy ramming through an $800 billion tax bill that was so large — and thrown together in such haste — that it was doubtful that more than a handful of congressmen and senators voting for it had more than a passing acquaintance with its key provisions. Predictably, the public knew almost nothing about what was in the tax bill, and cared even less. When members of Congress got home for the August recess, universally they encountered apathy toward their achievement. After Bill Clinton eventually vetoed the bill, Republican protests were minimal.

Of course, the sensible thing to have done in the first place was to pass separately the various provisions of the $800 billion monstrosity. This would have made it far easier for Republicans to explain what they were doing, and made it harder for Democrats to oppose specific tax cuts that polls showed to be highly popular. The failed Republican tax cut of 1999 shows that sometimes, politically, the whole can be less than the sum of its parts. Sensibly, Republicans this year took up the strategy they should have followed last year and have been bringing various tax bills to a vote one at a time. Predictably, they are passing easily, with substantial Democratic support.

The two most important measures are marriage-penalty relief and repeal of the estate tax. Bill Clinton has vowed to veto both. While Republicans have avoided last year's mistake, they have, unfortunately, made a new mistake this year, to the detriment of tax cutting. They are so intent on making symbolic gestures, they are missing a golden opportunity to actually cut taxes and make major improvements to the tax code.

Consider the estate tax. Republicans have been talking for several years about abolishing it. It is an issue of great importance to farmers and small businessmen, key elements of the Republican base, who have made repeal their Number One legislative priority. It also has the potential to resonate with the new investor class of stock owners, many of whom now find themselves with taxable estates as the result of the huge run-up in the stock market since 1994.

While estate-tax repeal actually passed Congress last year as part of the omnibus bill, the effort received scant attention in the press. But this year, when estate-tax repeal came up as a separate bill, it got enormous attention when it passed the House on June 9, with the support of every Republican and 65 Democrats. Since then, the Clinton administration and liberal think tanks have been working overtime denouncing estate-tax repeal — but despite their efforts, the repeal bill slid through the Senate as well on July 14, with nine Democrats voting aye.

Even more interesting than the large number of Democrats supporting repeal, however, is the response from those who voted no: Even they supported significant estate-tax relief. Most interesting was the proposal by New York Democrat Charles Rangel, who will become chairman of the House Ways and Means Committee next year if the Democrats regain control. During consideration of the estate-tax bill in the House, he offered the following substitute, with the full support of Bill Clinton and the Democratic leadership:

1. A 20 percent across-the-board cut in all estate-tax rates, including the top rate, which would fall from 55 percent to 44 percent.

2. An immediate increase in the estate-tax exemption of $150,000, and an increase in the special exemption for family farms and businesses from $1.3 million to $4 million.

While the Rangel substitute would obviously leave the estate tax in place, it is remarkable that Bill Clinton and congressional Democrats were willing to support tax cuts for the richest of the rich. It clearly shows how far the debate has come.

The problem is that Republicans are persisting in their all- or-nothing approach to the estate tax, pushing ahead with repeal despite the guarantee of a White House veto. Since Republicans do not have the votes to override, the ultimate outcome of all this activity will be nothing. At the end of the 106th Congress, the estate tax will still be in place, with tax rates going up to 55 percent.

Alternatively, Republicans could have called Clinton's and Rangel's bluff — and passed a major estate-tax cut that would have become law. But rather than settle for one-third of a loaf, they prefer to have nothing. This is bad politics and bad policy. Republicans should have taken the gift that Clinton and Rangel offered them, and simply come back next year to finish the job.

And if the Democrats retake control of the House, repeal supporters might find that the Rangel substitute was the one and only shot they had at some estate-tax relief.

Something similar has happened regarding the marriage penalty. That is the quirk in the law that causes some two- earner couples to pay more federal taxes than they would pay if each could be taxed as a single. Republicans made abolition of the marriage penalty a high priority.

Unfortunately, along the way the marriage-penalty relief bill took a detour and became more of a general tax cut for many married couples unaffected by the marriage penalty. Indeed, many couples currently receiving a bonus from the tax code by paying less taxes than they would if taxed as singles would receive even bigger bonuses under the Republican bill.

On the Senate floor, Senator Daniel Patrick Moynihan called the Republicans' bluff. He offered a substitute that actually would have eliminated the marriage penalty, but without the additional tax cuts for those unaffected by it. Under the Moynihan substitute, couples could simply choose to file as married or single, whichever way they come out ahead. This proposal would, by definition, eliminate the marriage penalty in its totality. Republicans voted it down while continuing to say, incorrectly, that they were eliminating the marriage penalty with their proposal.

While there is no assurance that Bill Clinton would have signed the Moynihan substitute, he has repeated on several occasions his intention to veto the Republican bill. At the very least, Republicans would have had a fighting chance at a Clinton signature on a marriage-penalty-relief bill, and might even have passed it over his veto, but instead they will probably settle for nothing.

Thus the individual approach to tax cuts that seemed to offer so much promise earlier in the year may ultimately achieve nothing. How did this happen?

What happened is that the political climate changed, but the Republicans didn't change with it. When they started their tax-cut effort this year they assumed that passage into law of any significant tax cut was impossible, given the certainty of a Clinton veto. So the Republican leadership decided to go for symbolic victories only. They would pass as many pieces of last year's tax bill as they could, let Clinton veto them, and then take their case to the people this fall.

Over the last several months, however, the public's attitude toward tax cuts appears to have changed substantially from last year. Whereas last year, tax cuts tended to rank no better than fourth or fifth on the public's list of priorities, they have now moved up close to the top of the list. According to the latest Hotline poll, 28 percent of Americans now name taxes as their Number One issue. Taxes now rank slightly behind education (31 percent) and ahead of health care and Social Security (26 and 22 percent, respectively). Consequently, what seemed politically impossible at the beginning of the year has become possible. But rather than adapting to the changing political realities and using the opportunity to get some tax cuts actually enacted into law, Republicans are simply plowing ahead with their symbolic gestures. This leaves them vulnerable to the charge of a do- nothing Congress that Democrats plan to make their major theme in November.

During the long years of Democratic control of Congress — often with Republican presidents in the White House — Democratic leaders learned to take what they could get. They might settle for half a loaf today, but next year they would be back asking for the rest. They might again settle for half a loaf, but now they were three-fourths of the way toward their goal. That is how we ended up with so much liberal legislation that could never have been enacted in its totality; we simply got it one slice at a time.

Republicans have yet to learn how to play this game. They still seem intent on pursuing a strategy of all-or-nothing. Consequently, they are ending up, far more often than necessary, with nothing. They need to learn to take the breaks that circumstances give them, adapting and adjusting their strategy in response to changing political conditions. Had they taken this approach, it is very likely that we would have seen enacted into law a meaningful cut in the estate tax, and marriage-penalty relief. By refusing to compromise, they have made it likely there will be no tax cuts for anyone this year.

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