Clinton's Fight To Keep The `New' In New Democrat

In the wake of his embarrassing failure to win fast-track trade legislation in the House, Bill Clinton is vowing: "Wait till next year." But come '98, the President may be taking lumps over more than trade. The Democrats' slugfest over fast track, which only 20% of House Dems supported, is just the opening round of an increasingly bitter party battle over the directon of economic policy.

On issues from Medicare to taxes, Clinton and Senate New Democrats will be knocking heads with House liberals, who view the President's centrism as a rejection of the party's longtime commitment to the poor, the elderly, and the working class. Leading the charge for a return to Democratic "core values" is House Minority Leader Richard A. Gephardt (D-Mo.), Vice-President Al Gore's likely chief rival for the 2000 Presidential nomination. "Fast track highlights a deepening schism in the party on economic issues," says Carleton College political scientist Steven E. Schier.

CROWDED FIELD. The stakes are high. In the short run, a Democratic insurgency would badly weaken Clinton for the remaining three years of his Presidency. Longer term, the dispute calls into question Gore's ability to carry the New Democratic torch across that bridge to the 21st century.

Besides trade, the nastiest fight may well be over tax reform. Spurred by Republican calls to junk the code, Gephardt has rolled out a plan that promises to provide tax relief for the middle class at the expense of business and the wealthy. Families earning up to $60,000 a year would pay a flat 10% income-tax rate. But the preferential treatment of capital gains would be swept away.

Gephardt isn't the party's only tax reformer. Senate moderate Bob Kerrey (D-Neb.) would encourage savings and investment without shifting the share of taxes paid by wealthy or middle-class Americans. His plan would create a super-individual retirement account that shields all investment income from taxation until earnings are withdrawn. Other Senate moderates such as Joseph I. Lieberman (D-Conn.) and John B. Breaux (D-La.) are shopping for plans that stress growth instead of income redistribution.

Clinton, once opposed to any tax code rewrite, is now looking to shape his own pro-growth plan. But it will be a struggle to do that and avoid liberals' charges that he's bowing to the same corporate chieftains who have led him astray on trade.

Democrats are also battling over the future of Social Security and Medicare. Clinton has called for a commission to put Medicare on a stronger financial footing. But that would mean curbing benefits--anathema to liberals who say seniors took enough of a hit in the balanced-budget deal. In the end, Clinton may once again infuriate his party's traditionalists by joining with Hill Republicans to press for a long-term fix.

To make matters worse for the fractious Democrats, the fast-track dispute will come roaring back early in '98. It will pit House Democrats who believe that open markets are key to economic growth against a vastly larger bloc who blame global competition for stagnant wages. "Trade becomes a surrogate for nervousness over the disruption of economic change," says Al From, president of the centrist Democratic Leadership Council.

The Democrats' latest feuding over economic policy is their first real attempt to define the post-Clinton era. The President has pulled his party much further to the center than anyone imagined five years ago. It's now clear that he'll have to fight even harder to keep it there.