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The Tax-Cut Challenge for Democrats

By Howard Gleckman Ever since the glory that was Greece and grandeur that was Rome, elected leaders have wrestled with a fundamental question: When do you stand up for what you believe is right? And when do you get the best deal you can, even if it means compromising principle?

Last week, Senate Democrats found themselves wrestling with that issue in an unusually public way. While most of America was focused on the war in Iraq, the Senate debated what to do with President Bush's budget blueprint. The question for Democrats: Should they try to scale back Bush's $726 billion "jobs and growth" tax cut -- even if it meant swallowing a tax reduction many of them still felt is way too big? Or should they simply oppose all tax cuts, a strategy that might energize their liberal base but might lead to Bush getting his entire tax package passed by galvanized congressional Republicans.

BAD OR WORSE? In the end, the Dems coalesced behind a compromise plan for a $350 billion tax cut that carried the day on the Senate floor. Before they did, however, the lawmakers and party activists agonized. Just below the surface of the intraparty debate was their disappointing showing in the 2002 congressional elections. Did they lose because they failed to capture their core voters -- an argument for rejecting all Bush tax cuts? Or did they fail because they couldn't attract moderate swing voters -- a view that generally pushes Democrats to compromise?

To Louisiana's canny Senator John Breaux, who orchestrated the split-the-difference deal, it was a no-brainer. Breaux, who's often criticized by liberals for being too close to Bush, says Democrats had no choice but to get their best deal, even if it meant accepting a tax cut they still felt was too big. "We're not in show business," says Breaux. "You get what you can. I'm interested in making government work, not in making statements."

Breaux prevailed, with support from some surprising quarters. Robert Greenstein, president of the Center on Budget & Policy Priorities, a liberal think tank, says Dems would have been foolish to stand on principle and let Bush cut taxes by $726 billion. Greenstein says his bottom line was simple: If the bigger tax cuts become law, aid for the poor will suffer. Asks Greenstein: "How can you not go for $350 billion? It's great to take the principled stand, but in the long run, you get much deeper cuts in basic programs."

HARD TO SWALLOW. Other Democratic liberals went along as well, but with great reluctance. "We were holding our noses," says Roger Hickey, co-director of the Campaign for America's future, a labor-funded advocacy group. "Even at $350 billion, it's an incredibly wasteful and badly targeted tax cut."

Here's the most interesting twist in the debate, however: Will Marshall, president of the Progressive Policy Institute, a middle-of-the-road Democratic think tank that generally eschews liberal nostrums, was lining up more with Hickey than with Breaux, his usual soulmate. Marshall says Democrats should have drawn a line at any budget-busting tax cuts. He says "This tax cut is so egregious, so wrong-headed, so out-of-synch with the moral imperatives of a country at war. Most Americans see this as a litmus test of political responsibility."

Marshall concedes that Democrats were able to support Breaux's compromise and still make their political point. "If you want to run as a fiscal conservative, you could justify voting either way," he says. But, he adds, "if you voted against the whole thing, that's an even stronger statement."

"IT WAS DISASTROUS." In the end, every Democratic senator with an eye on the 2004 Presidential election signed on to the Breaux compromise. Joseph Lieberman (Conn.), John Edwards (N.C.), John Kerry (Mass.), and Bob Graham (Fla.) all chose to split the difference. But former Vermont Governor Howard Dean, the self-described representative of the "Democratic wing of the Democratic party," told my colleague Richard S. Dunham that he thinks any tax cut now is fiscally irresponsible, with a rising federal deficit exacerbated by the costs of war.

Hickey argues that it's critical for Democrats to distinguish their fiscal policies from Bush's in 2004, something made more difficult by compromise. "In the last election, Democrats said they weren't going to have a national message. It was disastrous. Presidential candidates have to have a clear message that they are different from Bush."

Breaux says this misses the point. "We could have won 110% of the base and still lost," he says. "The problem is independents and moderates. The problem is being able to show them you can make government work."

This intraparty squabble is far from over. Now that the Senate debate is over, Congress won't vote on specific tax reductions for months. And it's a good bet that the argument will resume during that debate and stretch through next spring's Presidential primaries, right on to November, 2004. The way it is settled will say a lot about how the party will choose to take on George W. Bush in the race for the White House. Gleckman is a senior correspondent in BusinessWeek's Washington bureau. Follow his views every Tuesday in Washington Watch, only on BusinessWeek Online

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