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Businessweek Archives

Tax Cuts: Will Clinton Snooker The Gop Or Burn The Dems?

Washington Outlook

Tax Cuts: Will Clinton Snooker the GOP--or Burn the Dems?

Every year, President Clinton uses his State of the Union address to goad the GOP into jumping through a new hoop. Last year, it was his "save Social Security first" vow, which Republicans wound up endorsing even more vigorously. Now Clinton has a new stunt: He is challenging the GOP to cut taxes--as long as relief goes to working stiffs, instead of fat cats.

Clinton's probable proposal will be a $250 billion, 10-year measure--mainly tax breaks for health care, education, and savings. It falls far short of Republican front-runner George W. Bush's $1.4 trillion plan and is much smaller than the $792 billion GOP bill vetoed in 1999. The Prez could certainly have buried taxes as a legislative issue for this year, too, so why is he putting them back in play?STONEWALL? The move is mainly designed to blunt GOP charges that Democrats never met a tax cut that they liked. "This is a game," says R.Bruce Josten, senior vice-president of the U.S. Chamber of Commerce. The goal: "To neutralize the other guys' issues."

With Clinton dangling a deal, Republicans face a conundrum. Do they stonewall, letting their Presidential standard-bearer attack tax-and-spend Democrats while pitching a big tax-reduction of his own? Or do they negotiate a preelection cut of, say, $400 billion, a size Clinton might buy?

There are reasons why some Hill Republicans might be inclined to deal. House Ways & Means Committee Chairman Bill Archer (R-Tex.) is retiring and would love to notch a tax cut on his belt. And aging Senate Finance Committee Chairman Bill Roth (R-Del.) faces a tight reelection fight and would like to show he still has some clout. Other Republicans--mindful of the party's slim House majority--might settle for half a loaf on taxes, if only to show home-state voters they can do something besides wrangle and hold impeachment hearings.

Conservatives will be inclined to ignore Clinton and try to pass another big bill, combining elements of their '99 effort with Bush's proposal. But hard-liners would have to swallow some of Bush's "compassionate" breaks for the working poor and forgo business goodies like a capital-gains cut. The resulting jockeying, Clintonites reckon, would again showcase Republican divisions and point up their soft spot for the country-club set.

If Republicans pass a megabill, Clinton would veto it. To some Bush strategists, that would be dandy. One says Bush would love to trumpet: "Vote Republican--and get a tax cut. Vote Democratic--and don't." But Hill Republicans would be on the defensive, with Clinton bashing them as reckless and the party faithful wondering why the GOP Congress had--yet again--broken a tax-cut promise.

There's a risk for Democrats, too. While tax cuts have had little allure in recent years, one targeted to the middle class could ignite voter interest. If it does, Democrats may find themselves trapped by Clinton's gambit and forced to compete with Republicans over a sizable bill.

That's why the fate of any deal will hinge on the state of the campaign come the fall. If Bush and congressional Republicans look solid, they may shelve the issue until 2001, preferring tax rhetoric to small-bore cuts. But if the election looks close, a deal with Clinton will look more enticing to Hill Republicans.By Howard Gleckman, with Richard S. Dunham; Edited by Lee WalczakReturn to top

Fast and Slow at the Fed

The Senate is rushing to confirm Fed Chairman Alan Greenspan to a fourth four-year term. Within hours of President Clinton's Jan. 4 renomination of Greenspan, the Senate Banking Committee set hearings for Jan. 26. Senate confirmation is a certainty, though it could be delayed by populist Tom Harkin (D-Iowa), who has criticized the Fed's recent rate increases.

Clinton's other nominees aren't faring so well. After a yearlong search, the President nominated ex-Chase Manhattan Bank exec Carol J. Parry in August. Her nomination is unlikely to be acted upon before the elections because Republicans hope to name their own candidate. And the Senate has yet to reappoint Roger W. Ferguson as Fed governor. His term ends on Jan. 31, but he can remain vice-chairman until a new governor is named. Harkin's expected hold on Greenspan could produce a deal approving both Greenspan and Ferguson.Edited by Lee WalczakReturn to top

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