Newt's Fingers Get Caught In The Shutdown

For months, House Speaker Newt Gingrich (R-Ga.) has dared President Clinton to make his day by closing down government in a clash of wills over a balanced budget. By vetoing GOP bills to keep the government running while budget talks continue, Clinton has taken the Speaker's bait. So why do Gingrich and other GOP leaders look so down-in-the-mouth?

The answer is summed up in two words: Medicare meltdown. By permitting Clinton to portray Medicare cuts as the core of their fiscal-reform drive, Republicans have opened themselves up for a public pummeling. By nearly a 2-to-1 margin, polls show, Americans blame the GOP Congress rather than the President for the government's Nov. 14 shutdown. That means Gingrich's budget strategy looms as a major blunder for the normally surefooted Speaker.

Still, the budgetary impasse does hold some good news for Gingrich & Co. Despite his GOP-bashing over Medicare, Clinton is moving closer to his opponents' position on key budgetary issues. He has already offered to trim Medicare growth by $140 billion over seven years and cut taxes by nearly $100 billion. And on Oct. 19, the President said he might be willing to accept the Republican goal of a balanced budget in seven years. When the rhetoric cools, a final deal is likely to give the GOP nearly everything it wants: slower growth in Medicare, a big tax cut, welfare reform, and a balanced budget--or something very close to it--by 2002.

"FREE FALL." Such an accord isn't likely to come together much before Christmas. In the meantime, GOP budgeteers are taking a pasting. "Republicans are in free fall," says conservative pollster Gordon S. Black. Adds Patrick H. Arbor, chairman of the Chicago Board of Trade: "In my personal view, Republicans are too strident. They're holding the Administration hostage." The PR pounding hasn't gone unnoticed on Capitol Hill: "We're getting killed," groans a top GOP congressional aide.

Much of this agony is self-inflicted. First, Republicans linked the fate of a temporary government funding bill to an increase in Medicare premiums. By the time they withdrew their demand on Nov. 15, the damage to their image had been done. A GOP attempt to corner Clinton by threatening a default on the national debt failed on Nov. 15 when Treasury Secretary Robert E. Rubin tapped civil-service retirement funds to keep paying investors through December. And by failing to meet their deadline on the budget and most of the 1995 spending bills, Republicans reinforced the view that Congress can't walk and chew gum at the same time.

But Gingrich has a point when he snipes at the White House's "pure demagoguery." These days, Clinton never mentions his own proposal to slow the growth of Medicare. Instead, he blandly vows to balance the budget while protecting mainstream American values. "It's political strategy to get reelected," says Birmingham Steel President James A. Todd Jr. It's also working: "At least Clinton appears Presidential," Todd says.

Clinton's new hardball strategy is not without risks, however. If the stalemate continues--and talks were stalled as of Nov. 15--the President risks a backlash. "It's bound to increase the disillusionment and fury over how this country is run," says Joseph P. Sullivan, chairman of Chicago-based Vigoro Corp. Americans fear deep GOP spending cuts, yet they're furious with Washington for partisan backbiting. "People are not sympathetic to these political squabbles," says Haggar Chief Financial Officer Ralph A. Beattie. "This will intensify calls for a third party."

POLICY VICTORY. Voter wrath is driving Clinton, Gingrich, and Senate Majority Leader Bob Dole (R-Kan.) toward a long-term deal. When the smoke clears, the President still is likely to sign a dramatic budget bill. The probable outcome: sharp deficit reduction by 2002; Medicare reforms that will slow the program's growth by about $200 billion--splitting the difference between Clinton's $140 billion plan and the GOP's $270 billion package; and a tax cut of roughly the same amount, which would also represent a compromise between the GOP's $240 billion package and the White House's $100 billion version.

Clinton will resist GOP efforts to slash the Earned Income Tax Credit for the working poor. But he is likely to accept a toned-down version of the rest of the tax package, which congressional Republicans adopted on Nov. 15. That measure provides a $500 credit for families with children, cuts capital-gains taxes from 28% to 19.8%, and expands individual retirement accounts.

In policy terms, such a deal would be a solid GOP win. But in the battle of perceptions, it's another story. A President once dismissed as powerless may emerge from the budget brawl stronger. And that can only help all Democrats in the fall election.

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