Democrats Adrift

Since the mid-1990s, Democrats have played a deftly
executed but ultimately evasive game on fiscal policy. As surpluses
began to appear on the horizon, they parried Republican calls for tax
cuts with their own proposals for paying down the debt and "saving
Social Security." This was effective--even ingenious--politics precisely
because it ducked the root question of whether unspent revenues should
be directed toward tax cuts or unmet social priorities. With Congress in
Republican hands, Democrats were hard-pressed to do otherwise. But
ballooning surpluses have rapidly undermined the efficacy of this
approach. If you're not willing to spend projected revenues on
substantial new programs or direct surplus revenues explicitly to
buttress Social Security (as opposed to just "saving" it by hoarding
surpluses), then there really isn't much else you can do but cut taxes.
And that's right where Democrats are today.

Without control of Congress or the White House, it simply may not be
possible for Democrats to prevent a substantial tax cut from becoming
law. But a policy debacle needn't necessarily be a political one. In
policy terms, the Clinton administration's 1993 tax-increase bill was a
disaster for Republicans, since it substantially raised marginal rates
on the highest-income earners and thus partly reversed the Reagan tax
cuts of 1981. But politically the Republicans used their defeat to work
wonders. By refusing any point of compromise and polarizing the debate
along ideological and partisan lines, they were able to transform their
defeat into party unity and congressional majorities that they still
(albeit barely) hold today.

In other words, the medium- and long-term outlook for Democrats is
not necessarily so bleak. Of course, it's much harder to maintain party
unity to oppose a tax increase, as the Republicans did in 1993, than to
resist a tax cut. That's all the more reason to emphasize popular new
spending. Only by biting the bullet on the fundamental question of
investment in unmet social needs and deliberately polarizing the debate
can Democrats hope to turn a near-term setback into a long-term victory.

It takes guts under any circumstances to oppose a tax cut
with social spending. What's unfortunate for Democrats is that they are
facing this moment of truth at a particularly inauspicious moment. Not
only have they lost the White House and Alan Greenspan (their unlikely
former ally in opposing tax cuts for much of the late 1990s); they've
also endured a number of smaller tactical setbacks that have attracted
less attention. In recent years, debt pay-down and targeted tax cuts
have been the Democrats' tools of choice in fiscal-policy debates. But
recent polls have shown that the effectiveness of each has diminished
dramatically.

As Senate Democrats learned to their chagrin at a caucus meeting in
early February, paying down the debt no longer trumps tax cuts.
Moreover, Republicans seem to have won the political argument over
targeted tax cuts. Last fall George W. Bush repeatedly charged that Al
Gore's plan amounted to an insidious "picking and choosing" of who got
tax cuts. And this tack turned out to be devastatingly
effective,allowing the universality of Bush's tax cut--however targeted
to rich--to trump the selective nature of Gore's.

The importance of losing these effective counterarguments is clear
when you probe the anxieties underlying the Democrats' evident paralysis
and disarray. Recent polls show support running at more than 60 percent
for the president's tax cut--but those same polls also indicate that
this support is soft, with numerous underlying contradictions in public
attitudes.

Based on conversations with individual senators and their staffs,
what is clear is that most Democrats don't so much feel pressure from
their constituents to support the Bush plan or fear that they'd be
punished at the polls if they opposed it. Rather, the anxiety stems
from a belief in the futility of the effort; it's a matter of watching
and waiting to see who will give up the ghost and go over to the other
side, and not having the old trusty tools like debt pay-down and
targeted tax cuts to galvanize their caucus in opposition. Most believe
that senators from Bush-leaning states--Max Baucus (Mo.), John Breaux
(La.), Max Cleland (Ga.), Mary Landrieu (La.), Ben Nelson (Nebr.), and
others--will eventually move close to the Bush plan. Others, such as Bob
Graham (Fla.) and Robert Torricelli (N.J.), may get into a debate about
how much to reduce marginal rates,an approach that most Democrats see as
playing on the other side's turf.

This is why Georgia Senator Zell Miller's decision to endorse the
Bush plan in toto got Democrats so spooked. It heightened their already
deep-seated fears that opposing Bush's plan was simply a losing
proposition, and it came far sooner than most expected. "That shocked
people more than they've let on," one Senate staffer recently told me.
"That makes it a bipartisan thing. If he jumps on it," who's next to go?

The absence of any galvanizing basis of opposition, the fear of
escalating defections, and the resulting every-man-for-himself
atmosphere have been as crucial as policy differences in creating the
paralysis that gripped Democrats in the Bush administration's first
weeks. "At a certain point," said the same Senate staffer, "if it's
going to be a battle just to make a gigantic tax cut a little smaller,
you wonder if it's even going to be worth it."

The paralyzing fear of defections has been exacerbated by persistent
divisions over strategy, even among those inclined to resist Bush's
plan. Senator Kent Conrad of North Dakota proposes a three-way split
between spending, debt reduction, and tax cuts; others want to focus on
the structure and distributional character of the cut rather than the
overall size; and still others are inclined to play Bush's game and
haggle over different degrees of cuts in marginal rates. The
multiplicity of approaches is doubly unfortunate because many of these
same Democrats are not that far apart on how to structure a progressive,
across-the-board tax cut--if they thought they could get one.

Even ideological liberals and ideological New Democrats are each
focusing on a cluster of plans that are not that far apart. To the
extent that there is a division on taxes, it falls less along the
conventional ideological lines of liberals versus New Democrats, and
more between the principled and ideologically inclined on the one hand
and the deal makers from Bush-leaning states on the other.

As just one example, policy experts from the labor-liberal Economic
Policy Institute
and the DLC-affiliated Progressive Policy Institute are
both supporting a cheaper and better-targeted tax cut--either onetime
dividends of several hundred dollars rebated to every man, woman, and
child, or a refundable income-tax credit against payroll-tax
liability. This would open up the great undiscovered country of tax-cut
politics--the payroll tax--without opening the mind-numbing issue of the
funding structure of Social Security and Medicare.

Even defections from conservative (or merely wobbly)
Democrats could at least partly be countered by parallel defections on
the other side of the aisle. Republican Senators Jim Jeffords, Olympia
Snowe, and Lincoln Chafee have already signaled they won't support a
final bill with a price tag over $1 trillion; each has also questioned
the Bush plan's lopsided distribution of benefits; and there are signs
that John McCain may oppose the president's current approach more or
less along these lines.

Yet even such a relative success in holding back the worst excesses
of the Bush plan would leave the Democrats mitigating the scale of their
defeat rather than actually winning the debate. Bush would still win a
substantial tax cut, for which he would get the main credit. As part of
the final bargain, making the cut more progressive is better public
policy. But as a political approach to fiscal policy, it's defensive and
ultimately a losing game. So long as the Democrats are pushing only on
the tax side of the equation--making their case on the equity of the cut
or the irresponsibility of its size--the best they will be able to
accomplish is to limit the damage, not turn the debate to political or
policy advantage. If the only alternative to "fiscal prudence" is tax
cuts, the Democrats really have no hope.

Here, paradoxically, Democrats should learn a lesson from their
recently departed leader. If Bill Clinton taught Democrats one thing, it
was that you can never run against tax cuts, per se. Not seldom. Never.
And if you think about it, why should it be otherwise? All other things
being equal, shouldn't we want everyone's taxes to be as low as
possible?

But that's the point: All things aren't equal. Fiscal policy, by
definition, entails choices. It's cutting taxes or paying down the debt.
Or it's a tax cut versus "saving Social Security." Or a choice between
cutting taxes and funding a prescription drug benefit and other valued
social outlays. What knocked the Republican juggernaut off its rails in
1995 was not so much tax cuts-- heavily weighted toward the wealthy--as
the fact that those tax cuts lined up almost perfectly with parallel
cuts in Medicare. That correlation proved telling and ultimately fatal.

When Democrats held the White House and could hide behind the
president's veto pen, the politics of fiscal discipline and tax equity
may have been sufficient. But this was always stopgap strategy. Polls
have consistently shown that middle-income taxpayers are generally
willing to see upper-income earners get big tax breaks as long as they
get a bit of a cut, too--unless, that is, Democrats open up a second
front in the debate on spending, priorities, and underlying questions of
values.

Liberals who blanch at tax cuts know implicitly that this is the
equation. But over time, in response to a generation of assaults on the
welfare state and its funding base, that knowledge has become perhaps
too implicit. Liberals are loath to seem the caricatured
tax-and-spenders that conservatives have long depicted them as. Support
for a prescription drug benefit can't be the third sentence in the
argument against tax cuts. It needs to be the headline. Effective tax
politics requires teasing out these trade-offs and equations, not just in
the mishmash of legislation and policy briefings but in strong rhetoric
about values. Simply arguing over the size of a tax cut is a debate over
taxes, which is inherently friendly to Republicans. Debating the
trade-offs between tax cuts (weighted for the wealthy) and a prescription
drug benefit for your parents or grandparents is a debate over
priorities and values, which is inherently more friendly to supporters
of activist government.

By the simple logic of numbers, Democrats may not be able to prevent
a major setback in fiscal policy this year, just as Republicans were
unable to stop the Clinton administration from imposing a major hike in
marginal rates for the wealthy in 1993. But that only makes it more
urgent that Democrats reorient their strategies now and move off the
defensive strategies that sufficed while they held the White House. Many
Democrats now believe time is on their side, as the public learns more
and more about the consequences of the Bush tax cuts and whom they
benefit most. That could yet be so--but only if they make the right
decisions now.

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