Since the mid-1990s, Democrats have played a deftlyexecuted but ultimately evasive game on fiscal policy. As surplusesbegan to appear on the horizon, they parried Republican calls for taxcuts with their own proposals for paying down the debt and "savingSocial Security." This was effective--even ingenious--politics preciselybecause it ducked the root question of whether unspent revenues shouldbe directed toward tax cuts or unmet social priorities. With Congress inRepublican hands, Democrats were hard-pressed to do otherwise. Butballooning surpluses have rapidly undermined the efficacy of thisapproach. If you're not willing to spend projected revenues onsubstantial new programs or direct surplus revenues explicitly tobuttress Social Security (as opposed to just "saving" it by hoardingsurpluses), 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 bepossible for Democrats to prevent a substantial tax cut from becominglaw. But a policy debacle needn't necessarily be a political one. Inpolicy terms, the Clinton administration's 1993 tax-increase bill was adisaster for Republicans, since it substantially raised marginal rateson the highest-income earners and thus partly reversed the Reagan taxcuts of 1981. But politically the Republicans used their defeat to workwonders. By refusing any point of compromise and polarizing the debatealong ideological and partisan lines, they were able to transform theirdefeat into party unity and congressional majorities that they still(albeit barely) hold today.
In other words, the medium- and long-term outlook for Democrats isnot necessarily so bleak. Of course, it's much harder to maintain partyunity to oppose a tax increase, as the Republicans did in 1993, than toresist a tax cut. That's all the more reason to emphasize popular newspending. Only by biting the bullet on the fundamental question ofinvestment in unmet social needs and deliberately polarizing the debatecan Democrats hope to turn a near-term setback into a long-term victory.
It takes guts under any circumstances to oppose a tax cutwith social spending. What's unfortunate for Democrats is that they arefacing this moment of truth at a particularly inauspicious moment. Notonly have they lost the White House and Alan Greenspan (their unlikelyformer ally in opposing tax cuts for much of the late 1990s); they'vealso endured a number of smaller tactical setbacks that have attractedless attention. In recent years, debt pay-down and targeted tax cutshave been the Democrats' tools of choice in fiscal-policy debates. Butrecent polls have shown that the effectiveness of each has diminisheddramatically.
As Senate Democrats learned to their chagrin at a caucus meeting inearly February, paying down the debt no longer trumps tax cuts.Moreover, Republicans seem to have won the political argument overtargeted tax cuts. Last fall George W. Bush repeatedly charged that AlGore's plan amounted to an insidious "picking and choosing" of who gottax cuts. And this tack turned out to be devastatinglyeffective,allowing the universality of Bush's tax cut--however targetedto rich--to trump the selective nature of Gore's.
The importance of losing these effective counterarguments is clearwhen you probe the anxieties underlying the Democrats' evident paralysisand disarray. Recent polls show support running at more than 60 percentfor the president's tax cut--but those same polls also indicate thatthis support is soft, with numerous underlying contradictions in publicattitudes.
Based on conversations with individual senators and their staffs,what is clear is that most Democrats don't so much feel pressure fromtheir constituents to support the Bush plan or fear that they'd bepunished at the polls if they opposed it. Rather, the anxiety stemsfrom a belief in the futility of the effort; it's a matter of watchingand waiting to see who will give up the ghost and go over to the otherside, and not having the old trusty tools like debt pay-down andtargeted tax cuts to galvanize their caucus in opposition. Most believethat senators from Bush-leaning states--Max Baucus (Mo.), John Breaux(La.), Max Cleland (Ga.), Mary Landrieu (La.), Ben Nelson (Nebr.), andothers--will eventually move close to the Bush plan. Others, such as BobGraham (Fla.) and Robert Torricelli (N.J.), may get into a debate abouthow much to reduce marginal rates,an approach that most Democrats see asplaying on the other side's turf.
This is why Georgia Senator Zell Miller's decision to endorse theBush plan in toto got Democrats so spooked. It heightened their alreadydeep-seated fears that opposing Bush's plan was simply a losingproposition, and it came far sooner than most expected. "That shockedpeople 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 ofescalating defections, and the resulting every-man-for-himselfatmosphere have been as crucial as policy differences in creating theparalysis that gripped Democrats in the Bush administration's firstweeks. "At a certain point," said the same Senate staffer, "if it'sgoing 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 persistentdivisions over strategy, even among those inclined to resist Bush'splan. Senator Kent Conrad of North Dakota proposes a three-way splitbetween spending, debt reduction, and tax cuts; others want to focus onthe structure and distributional character of the cut rather than theoverall size; and still others are inclined to play Bush's game andhaggle over different degrees of cuts in marginal rates. Themultiplicity of approaches is doubly unfortunate because many of thesesame 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 eachfocusing on a cluster of plans that are not that far apart. To theextent that there is a division on taxes, it falls less along theconventional ideological lines of liberals versus New Democrats, andmore between the principled and ideologically inclined on the one handand the deal makers from Bush-leaning states on the other.
As just one example, policy experts from the labor-liberal EconomicPolicy 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 onthe other side of the aisle. Republican Senators Jim Jeffords, OlympiaSnowe, and Lincoln Chafee have already signaled they won't support afinal bill with a price tag over $1 trillion; each has also questionedthe Bush plan's lopsided distribution of benefits; and there are signsthat John McCain may oppose the president's current approach more orless along these lines.
Yet even such a relative success in holding back the worst excessesof the Bush plan would leave the Democrats mitigating the scale of theirdefeat rather than actually winning the debate. Bush would still win asubstantial tax cut, for which he would get the main credit. As part ofthe final bargain, making the cut more progressive is better publicpolicy. But as a political approach to fiscal policy, it's defensive andultimately a losing game. So long as the Democrats are pushing only onthe tax side of the equation--making their case on the equity of the cutor the irresponsibility of its size--the best they will be able toaccomplish is to limit the damage, not turn the debate to political orpolicy advantage. If the only alternative to "fiscal prudence" is taxcuts, the Democrats really have no hope.
Here, paradoxically, Democrats should learn a lesson from theirrecently departed leader. If Bill Clinton taught Democrats one thing, itwas 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 thingsbeing equal, shouldn't we want everyone's taxes to be as low aspossible?
But that's the point: All things aren't equal. Fiscal policy, bydefinition, entails choices. It's cutting taxes or paying down the debt.Or it's a tax cut versus "saving Social Security." Or a choice betweencutting taxes and funding a prescription drug benefit and other valuedsocial outlays. What knocked the Republican juggernaut off its rails in1995 was not so much tax cuts-- heavily weighted toward the wealthy--asthe fact that those tax cuts lined up almost perfectly with parallelcuts in Medicare. That correlation proved telling and ultimately fatal.
When Democrats held the White House and could hide behind thepresident's veto pen, the politics of fiscal discipline and tax equitymay have been sufficient. But this was always stopgap strategy. Pollshave consistently shown that middle-income taxpayers are generallywilling to see upper-income earners get big tax breaks as long as theyget a bit of a cut, too--unless, that is, Democrats open up a secondfront in the debate on spending, priorities, and underlying questions ofvalues.
Liberals who blanch at tax cuts know implicitly that this is theequation. But over time, in response to a generation of assaults on thewelfare state and its funding base, that knowledge has become perhapstoo implicit. Liberals are loath to seem the caricaturedtax-and-spenders that conservatives have long depicted them as. Supportfor a prescription drug benefit can't be the third sentence in theargument against tax cuts. It needs to be the headline. Effective taxpolitics requires teasing out these trade-offs and equations, not just inthe mishmash of legislation and policy briefings but in strong rhetoricabout values. Simply arguing over the size of a tax cut is a debate overtaxes, which is inherently friendly to Republicans. Debating thetrade-offs between tax cuts (weighted for the wealthy) and a prescriptiondrug benefit for your parents or grandparents is a debate overpriorities and values, which is inherently more friendly to supportersof activist government.
By the simple logic of numbers, Democrats may not be able to preventa major setback in fiscal policy this year, just as Republicans wereunable to stop the Clinton administration from imposing a major hike inmarginal rates for the wealthy in 1993. But that only makes it moreurgent that Democrats reorient their strategies now and move off thedefensive strategies that sufficed while they held the White House. ManyDemocrats now believe time is on their side, as the public learns moreand more about the consequences of the Bush tax cuts and whom theybenefit most. That could yet be so--but only if they make the rightdecisions now.
