Fat-Cat Revolutionaries : The beginning of a tax-cut bidding war cannot disguise that GOP policies tilt toward the Fortune 500

Will Americans believe a “middle-class bill of rights” from Bill Clinton?

In any event, the war against the federal budget deficit is over, and the tax-cut bidding war for middle-class hearts is about to begin. If 1995 politics was a TV show, it would be “Can You Top This?”

The battle of the 1996 presidential nominations is also beginning, and besides facing the Republicans, Clinton may also have an unexpected rival in his own party--Rep. Richard A. Gephardt of Missouri, the Democratic leader of the House, who offered a tax-cut plan of his own. Gephardt says his party lost in November because it (read: Clinton) did not fulfill its 1992 promises to protect working-class and middle-class Americans. The tax combat will be Gephardt’s thinly veiled campaign to recapture his party. A blue-collar drum roll, please.

As for the Republican crusade against Washington, that’s almost over, because just about every connected GOP lobbyist with two nostrils and a three-digit IQ is being offered a huge salary and a bonus--Would you like a Porsche? How about a stock option?--to work for the Chemical Spill Assn. or the National League of Derivatives Distributors. Starry-eyed Republicans now love the capital’s interest groups and French restaurants like they’ve never loved them before. Boy geniuses who labored over the GOP’s “contract with America” are preparing to explain why there may not be term limits, a line-item veto and a balanced-budget constitutional amendment after all. Sorry folks, we tried.

None of this will necessarily help the President, who has to spend the next two years saying how much he cares about the middle class, because he spent his first two years breaking important 1992 campaign promises. His new promises--tax credits of $500 for every child of under age 13 in a family making below $75,000 a year; deductions of up to $10,000 per child for college-tuition payments, and restored IRA deductions--have some appeal. But one reason for his generosity is that he knows the GOP Congress won’t enact anything he proposes. And if he lets Gephardt hog the tax spotlight, too many Democrats might get the idea that the Missouri congressman would be a better nominee in 1996.

As for the Republicans, their contract proposes a $500 tax credit for each child in families making up to $200,000 a year, as well as a capital-gains rate cut focused on the upper brackets. Key leaders insist they can go higher and will not be outbid. But remember that before Clinton’s stumbles gave the GOP the tax-cut issue in 1993 and 1994, the earlier failures of the Bush Administration--the broken read-my-lips promises and the never-ending capital-gains emphasis--gave Democrats the tax advantage in 1990 and 1992.

Which side will command it next is the big question. The GOP has the opening edge, but Democrats do have a chance to rebound, based on a GOP triple Achilles’ heel: tax advantages to the wealthy, obsequiousness to tax lobbyists and a tilt toward what can be called “Texanomics.”

As 1994 turns into 1995, the GOP’s principal--and legitimate--claim to leading a revolution on Nov. 8 has to do with the contract’s promises to cut Washington politicians down to size and reform congressional procedures and staff excesses. But voters are suspicious of any group of politicians. The newest Gallup poll just found that the contract has become a major pivot of GOP credibility: By 71% to 19%, voters insist the GOP actually enact its contract rather than bring it up for debate; and 57% want term limits to apply to senior GOP leaders--even if they have to retire.

Suppose, however, that term limits are quietly scuttled at the same time as the GOP is busy fighting for capital-gains tax cuts--the party’s old Bush era priority. This new GOP could start looking a lot like the old GOP.

What voters really want, as incoming Speaker Newt Gingrich has understood better than most, is a full-fledged political revolution. But the events of recent weeks suggest that GOP legislators will come up short on two vital Washington dimensions: first, the evidence that they, too, are being corrupted by their new power and perks; and second, the extent that the unfolding blueprint of GOP tax-change ambitions mirrors the objectives of key corporate and financial lobbies--epitomizing what the public fears about interest-group power in Washington.

The hubris among the new movers and shakers is unmistakable. Gingrich, a man with an ego of rock-star proportions, is promoting a reorganization that would make him the most powerful Speaker of the House since czar Joseph G. Cannon, 90 years ago. In the Senate, Republican Mitch McConnell of Kentucky, the party’s expert on campaign finance, now pronounces reform unlikely--perhaps because the GOP is able to tap so much more money. Nor does anyone expect the Republicans to push serious lobbying regulation. Unfortunately, the new Congress is about as likely to crack down on fat-cat lobbies and big-money politics as Sicily is to expel the Mafia.

The confrontation over taxes should display all this in Technicolor. Clinton’s proposals probably don’t stand much chance, but he should profit if the new feistiness of Gephardt and the House Democrats stalls the GOP tax juggernaut, which would slow down the rest of the Republican’s planned 100-day blitz. Gephardt’s tax proposals actually raise a more intriguing counterpoint than Clinton’s to the GOP program of a 50% reduction in the capital-gains tax.

Gephardt’s ideas are far more broadly based, because he is trying to move toward a new tax framework for Middle America. The first approach is a wage-based tax credit for all individuals and families making up to $75,000--not just those with children; and the second aims at creating a tax break to help employees rather than just shareholders. In a recent speech, he noted that although productivity in U.S. business has gone up 18% in 12 years, workers’ real wages have gone down 4%. So he wants to set up incentives, when productivity rises, for companies to reward their employees as well as their shareholders. This could mark the beginning of a watershed economic empowerment.

Meanwhile, as taxes heat up, Republicans are back-pedaling in some other contract areas--GOP congressional leaders are losing interest in term limits now that their own careers are at stake. And assuming the Supreme Court will spell out in 1995 that congressional term limits require a constitutional amendment, the new Congress will do little more than pretend support. As for giving the President the line-item veto to trim legislative pork, also in the contract, the incoming leaders now oppose any permanent change. In January, it will be their pork.

The promised balanced-budget amendment, in turn, may well be passed by Congress with technical inadequacies that make it unacceptable for ratification by the states. Then consider early December’s collaboration by GOP congressional leaders in passing the controversial General Agreement on Tariffs and Trade during a lame-duck session of Congress--it was part of a legislative “Christmas Tree” including special help for the big auto companies and TWA! Procedural integrity may already be going the way of “read my lips.”

The Republicans have a particular peril in treating the electoral revolt against Clinton as a mandate for their own ideological brand of tax cuts and reduction of government. Just as Clinton misread the middle-class frustration of the 1992 election to justify big-government health reform, the Republicans may misread 1994 to promote a regressive tax blueprint and a minimalist view of government that was never on the ballot--creating what might be labeled “Texanomics.” Texas, remember, has a consumption tax instead of a progressive income tax, coupled with relatively low spending for social welfare and education, and key Texas legislators want to apply similar guidelines to the nation. This, of course, is not spelled out in the contract--and New York and Los Angeles may not be thrilled.

The “Texification” of the national GOP is extraordinary. In the Senate, the new power behind the throne is Texas Sen. Phil Gramm, a former economics professor at Texas A&M; and a major exponent of the GOP’s blueprint for reducing federal welfare and safety-net outlays by returning these functions to the states. The new House majority leader is Rep. Dick Armey, a former economics professor at North Texas State, who favors a new “flat” income tax in which multimillionaires, teachers and plumbers would pay the same 17% rate. The third high-powered advocate is Rep. Bill Archer of Houston, incoming chairman of the pivotal House Ways and Means Committee, who favors replacing the progressive federal income tax with a regressive national sales tax.

True, these are not immediate objectives, but they tell us that the long-term thrust of GOP tax ambition is not a popular revolution but an affluent counterrevolution --less the stuff of Thomas Jefferson than the Fortune 500.

Policies like these may break the applause meters at the Petroleum Club of Houston, but they make 1980s Reaganomics look moderate by comparison. Middle-of-the-road Northern voters may be stunned, especially if the current business recovery, starting its fifth year in March, gives way to a recession and renewed public fears about shrinking safety nets, collapsing pension funds and corporate layoffs.

Under such circumstances, the 75% to 85% of angry Americans who now tell pollsters that corporations, financiers and the rich have too much power in Washington could hit 90%. Whether Clinton and his party can grasp any such opportunity is not clear, but Lamar Alexander, the former Tennessee governor turned GOP presidential candidate, worries that by 1996, Republicans will be perceived as part of the mess in Washington, not part of the solution . Quite conceivable--and while the coming tax brouhaha may not be the decisive battle, it will be an important first test.