Time Once Again for Politicians to Flip-Flop on Economic Policy

Over the last few weeks, the Clinton administration has made a big deal about the minimum wage. Suddenly, after nearly four years in office, the White House has decided that America’s working poor are underpaid. Administration officials fume that the Republican-controlled Congress is blocking their efforts to spread the wealth, that Bob Dole’s Senate and Newt Gingrich’s House are trying to restrict the benefits of the nation’s recovery to the economic and financial elites.

True, the GOP has gotten in the way. But what about the first two years of Bill Clinton’s presidency, when the Democrats controlled Congress? Why wasn’t there an increase in the minimum wage then?

The votes were there. But Clinton didn’t want to push it, and in fact many of his key economic policy advisors strongly resisted efforts by Labor Secretary Robert Reich to win congressional approval for a minimum wage hike. The White House wanted to concentrate on its mammoth health-care reform package instead. Administration economists had figured that the costs to business of a federal mandate for universal health-care coverage for workers amounted to the same thing as an increase in the minimum wage. So the White House figured it shouldn’t do both at once.

But now health-care reform is dead, and it’s an election year, and income inequality is one of those “wedge issues” on which Clinton would like to distinguish his economic policies from those of Republican Dole. So Clinton has finally let Reich run with it.

Yet the whole minimum wage controversy is just one more example of how badly mangled, manipulated and massaged economic policy can become during a presidential election year. It’s flip-flop season--and neither side is immune.

Consider Dole’s latest swing on taxes. Throughout his career, Dole has been a deficit hawk. Like George Bush, he thought supply-side theory was “voodoo economics.” As chairman of the Senate Finance Committee in the early 1980s, he worked hard to craft tax increases to help cover the ballooning deficits that resulted from the first Reagan administration tax cut. Dole, an old-style Midwestern Republican with little patience for ideologues, has always prided himself on a pragmatic approach to economic policy. Gingrich wasn’t kidding when, a few years back, he called Dole the “tax collector for the welfare state.”

But that didn’t stop Dole from meeting recently with his erstwhile rival for the Republican nomination, magazine heir Steve Forbes, the latest poster boy for the supply-side set. Forbes ran on the flat tax--a plan designed to revive Reaganomics by reducing the taxes of affluent Americans in exchange for an elimination of most loopholes.

Dole refused to endorse the idea during the primaries, and made it clear to anyone reading between the lines he thought Forbes was kind of wacky. He blasted Forbes’ ideas as “snake oil” during the Republican primaries. But now that he needs a way to distinguish his economic policies from Clinton’s, Dole seems to be flipping. He is said to be on the verge of proposing a major, across-the-board income tax cut, thus energizing conservative Republicans, who so far have offered him only tepid support.

Dole has seen the supply-side light: “What I intend to propose is a sound, pro-growth tax policy,” he says. Yet an income tax cut big enough to make a difference--say of 15%--would blow a giant hole in the effort to cut the deficit. And it would make it virtually impossible for Dole and his fellow Republicans to live up to their pledge to balance the federal budget by 2002--once the Holy Grail of the Republican Congress. Dole has said he is “willing to be another Ronald Reagan” if that’s what the voters want. And now he’s trying to prove it by considering budget-busting tax cuts.

Dole isn’t the only one flipping on taxes, of course. In an effort to deny the Republicans room to attack him during the summer driving season, Clinton has announced he is willing to consider a repeal of his 1993 gasoline tax increase. That tax hike was one of the cornerstones of Clinton’s first budget, and until recently the administration defended the increase as a measure that helped reduce the deficit while also promoting fuel conservation. But once gasoline prices began to rise this spring, Clinton began to cave. Now Congress is considering both a minimum wage increase and a gas tax cut; the only question is whether they will be passed in tandem in order to simultaneously appease Republicans and Democrats.

Clinton is also in the midst of a full-gainer on welfare reform, trying to flip one way while flopping the other. After vetoing a Republican welfare reform package that emerged from Congress, saying it was heartless, Clinton has decided to give federal approval to Wisconsin’s welfare reform plan, which was one of the state-level models for the congressional reform efforts. Clinton has thus put himself on both sides of the welfare reform issue, one that he promised to make a high priority during his 1992 election bid but which got pushed onto a West Wing back burner by the White House’s obsession with health-care reform. Clinton’s new enthusiasm for the Wisconsin plan probably has been helped by the fact that Wisconsin Gov. Tommy G. Thompson is one of the contenders to be Dole’s running mate. Giving Wisconsin a waiver from the federal welfare rules for its plan would thus make it harder for Thompson to use his welfare plan as an issue against Clinton in the general election.

Endorsing the Wisconsin plan, Clinton praised Thompson for engineering a welfare plan that was “one of the boldest yet attempted in America.” He sought to contrast the Wisconsin plan with two welfare reform bills he vetoed after they came out of Congress, arguing that those bills did not combine their work requirements with protections for children of welfare recipients the way the Wisconsin plan does. Yet the Wisconsin plan has been attacked by liberal child welfare advocates who argue it would threaten poor children.

There is an old saying among economists that the American economy enjoys rapid growth during election years because the White House does all in its power to juice things up in order to guarantee reelection. But it seems more accurate to say that the U.S. economy enjoys growth during election years--in spite of presidential policies that are loaded with symbolism and not much else.

The real reason behind the growth: The Federal Reserve Board doesn’t like to raise interest rates in the middle of a presidential election. So the candidates can say whatever they want. It’s Alan Greenspan behind the curtains, pulling the levers.