The Washington Times

Of all the political developments of the balanced budget era, the one that has made Democrats happiest is the absence of public clamor for a tax cut. The way this issue plays out this year, against the backdrop of a presidential campaign as well a struggle for control of the House of Representatives, will be fascinating politics.

The president vetoed the Republican Congress’ plan last year with impunity; Republican members of Congress, much to their surprise, were met with a collective yawn when they went home to their districts and tried to bang the drum for the issue in the summer.

Government is raking in revenue in record proportion of GDP, wartime included; yet the people do not seem to feel oppressed. For Democrats, this is the breath of life into faith in the progressive spirit of the American people, a sign that the conservative tide that washed over the land in 1994 has receded at last, an invitation for an activist government to do more to meet people’s needs.

The Clinton White House has let it be known that the president’s budget proposal will include a tax cut once again this year of about $322 billion over 10 years (the GOP tax bill vetoed last year was worth about $792 billion over the same period). Now, one might think that with two numbers on the table, both parties might wish to settle somewhere between them. But there is also a huge policy difference between them.

The Republican plan does such things as ease inheritance taxes, end the “marriage penalty,” decrease marginal rates a bit. The Democratic plan does nothing of the kind. It is “targeted,” in the parlance of our day, and it is targeted with some precision at the middle class and below. What this means in stark, practical terms is that those above the middle class can expect nothing. In the Democratic view, given the needs of those less well-off, those better-off ought to be grateful the status quo is as favorable to them as it is.

This is tolerable to most Democrats now, thanks to the surging economy. If the old redistributionist model was to soak the rich via steeply progressive taxation in order to pay for social programs for the poor, the new model is to leave the top 20 percent or so alone and enhance progressivity by moving more people below that level off the tax rolls entirely, and through a profusion of refundable credits of one kind or another, to use the process of tax “collection” as a means of distribution of transfer payments.

The centerpiece of the Clinton plan is the so-called Universal Savings Account. The idea, available through middle income levels, is for people to start private retirement accounts. In order to encourage people to do so, government will give them the money. First comes a tax credit of $300; then, for those with lower incomes, an additional government matching payment. Politically, it is unlikely in the extreme that Republicans will pass anything close to the Clinton plan. There has been too much vesting in the policy areas that made it into the vetoed legislation last year. More likely than not, what ends up making it to Mr. Clinton’s desk will be various components of last year’s package.

What then? Last year, I thought it likely that Mr. Clinton would sign a tax cut in the spring of 2000, not necessarily out of any great affection for cutting taxes, but in order to neutralize a potentially significant issue for the Republican presidential nominee against Al Gore. Mr. Gore could pocket whatever political gain such a move would deliver, buff his centrist credentials, and be better positioned to attack the GOP proposal as excessive, having established his bona fides. (Mr. Gore has already claimed to see himself as a tax-cutter, trying to draw a distinction between himself and Bill Bradley.)

There’s still a decent political case for such an approach. But it may be that Democrats have concluded that the political salience of the tax issue is now so low that they can safely ignore it – that the tax cut proposed by the Bush campaign is a non-starter with voters and doesn’t need to be neutralized. Moreover, House Republicans would claim a tax cut as a victory, and House Democrats aren’t in general any more fond of House GOP victories than they are of the tax cuts House Republicans propose.

No, Democrats believe the people are with them these days. They are optimistic about retaking the House – and about Al Gore’s prospects, his stumbles hitherto notwithstanding. They are less inclined to move in the GOP direction because they think they will have more latitude in January 2001. There’s a risk here, too. Maybe Republicans can make taxes an issue. To the extent the White House resists a tax cut, the administration helps Republicans draw a line. At the moment, though, it looks like Democrats are betting Republicans can’t make taxes an issue, period.