Newt Lite: Watering Down The Contract With America

House Speaker Newt Gingrich (R-Ga.) invited the circus to perform outside the Capitol on Apr. 5. Clowns and pachyderms mingled with lawmakers as House Republicans' saluted completion of work on their Contract With America. But the revelry masked a sobering reality: Key elements of the revolutionary manifesto are being scrapped, watered down, or rewritten by moderate Senate Republicans and a cadre of middle-of-the-road Democrats.

Even before Gingrich's Hundred Days drew to a close, two pillars of the program--term limits and a constitutional limit on Congress' ability to raise taxes--crumbled in the House. The balanced-budget amendment failed in the Senate. And the centerpiece of Newtonian economics--a huge tax cut--seems sure to be scaled back on the other side of the Capitol.

WON THE BATTLE. What will the revised Contract look like? It will build on the promises of the original but will be more moderate and less likely to rile voters. It will, for instance, limit the regulation-writing powers of bureaucrats--not stamp out new rules entirely. It will sharply cut spending--but trim taxes only modestly. And it will make it harder--though far from impossible--to pursue big-bucks legal claims against business. "There's a go-for-the-throat mentality in the House," notes Senator Ben Nighthorse Campbell (R-Colo.). "The Senate is the house of moderation."

Still, Gingrich and his hard-right conservatives have won a major victory by fundamentally changing the debate in Washington. Now the question is not whether to cut government bureaucracy, but by how much. And the battle is not over whether to grant regulatory and tax relief to business but how best to stimulate job creation in the private sector. In addition, deficit-reduction priorities have shifted from tax hikes to spending cuts. "The Contract is an important document," says Robert L. Strickland, chairman of Lowe's Cos., a North Carolina-based home-improvement chain. "It's the first step toward significant change, a devolution of power from Washington back to the states."

Other execs worry that the House has taken its program too far. "I'm supportive of what's going on in the House as an overall momentum pusher," says Scott G. Mackin, president of Ogden Projects Inc., an operator of waste-to-energy plants. "But I'm looking to the Senate to get the right answers."

The Senate's tax-cut debate will be a key test of the centrists' clout. Influential committee chairmen such as Budget's Pete V. Domenici (R-N.M.) and Finance's Bob Packwood (R-Ore.) will join Democrats in demanding spending cuts before tax breaks. "We are willing to step forward and make deficit reduction the first priority," says Packwood. Senator Phil Gramm (R-Tex.) is pushing a capital-gains cut financed by ending federal research and export subsidies--dubbed "corporate welfare" by critics.

With Senate Majority Leader Bob Dole's backing, a modest family tax cut and capital-gains relief seem inevitable. But the tax bill will fall far short of the $189 billion House plan. And key provisions of the measure will be jettisoned entirely, including more generous depreciation for capital investment.

MEDIA HELP. A similar fate awaits the House's crackdown on lawsuits against business. Senators believe that the House got caught up in a lawyer-bashing frenzy that produced a bill sure to be vetoed. The Contract's controversial "loser pays" concept is a goner. Corporate America has the votes to cap some damage claims, but Senate centrists would set a $250,000 limit on punitive damages only in product-liability cases, while hardliners would include medical malpractice and all other suits. While the Senate moderates now hold the upper hand, trial lawyers are bracing for a massive public-relations blitz by pro-tort reformers (box).

Another business priority, regulatory reform, also will be modified. At Dole's urging, the Senate will make dramatic changes in the way federal rules are written. But it has scrapped the House's controversial plan to freeze all new regulations, opting instead to give lawmakers 45 days to veto them. A big unresolved issue: the threshold at which bureaucrats would be required to perform cost-benefit and risk-assessment analyses before adopting new rules. The House would target regs with an economic impact of $25 million; the Senate prefers $50 million to $100 million.

In pursuing its new Contract, the Senate is trying to have the best of both worlds--the popularity of the House's market research-driven concepts without the radical label successfully affixed by House Democrats. A recent Washington Post poll found that 59% of Americans say Republicans "go too far in helping the rich" at the expense of "needed government services that benefit average Americans." And a Times Mirror poll released on Mar. 30 found that, by a 5-to-3 ratio, voters say Gingrich is "too extreme in his views."

President Clinton is embracing popular elements of the Contract, such as a Presidential line-item veto and a requirement that Congress live under the laws it applies to business. But he's condemning the GOP for "attacks" on programs for children and the elderly. The President "can pick and choose his fights," notes Representative Bill Richardson (D-N.M.). "He can look pragmatic while they look doggedly ideological and extreme." Republicans hope to force Clinton to veto key items such as middle-class tax cuts or welfare reform. Says GOP pollster Anthony Fabrizio: "It will reinforce Clinton as liberal."

Such ideological warfare might be good campaign fodder, but compromise is essential to secure real legislative accomplishments. Gingrich has done more in three months than any Washington figure since Lyndon Johnson. But to really fulfill his grand ambition of remaking government, he must prove to the Senate--and the American people--that he is no mere ideologue.

By Richard S. Dunham and Howard Gleckman, with Mary Beth Regan, in Washington, and with bureau reports

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