The Great Bidding War of 1992 is now under way on Capitol Hill and seems unstoppable as election pressures gather momentum. First out of the gate was President Bush with a two-year tax break package that presumably would be paid for with five years of spending cuts. Then came Democrats on the House Ways and Means Committee with a two-year tax break package that presumably would be paid for with five years of tax increases. Alas, later elections will short-circuit bill-paying.
These calculations, offered by the Committee for a Responsible Budget, are enough to make any responsible citizen pray for an impasse rather than a costly, budget-busting compromise. Philosophically, it can be said that both parties are sticking with entrenched positions -- the Republicans for cutting capital gains taxes and the Democrats for socking it to the rich. But in actuality, both parties are offering expensive bills mostly tailored to win votes in Congress and later on at the polls.
What these competing bids will do for the economy is questionable short-run and downright deleterious long-run. All thought of reducing the deficit and moving toward a balanced budget is out the window, rhetoric to the contrary notwithstanding.
By far, the most intriguing element in the measure crafted by Democratic tax-writers in the House is a call to index capital gains taxes to account for inflation, with the objective of reducing levies on newly purchased assets that are held over a long period. This feature, together with a patchwork of other committee-sponsored tax breaks for business, might be favorably interpreted as a swing by the Democrats from wealth redistribution to economic growth stimulus.
To which, we would say, watch your wallets. Probably the real reason the Democrats adopted a limited hangout on capital gains is that this was the only way they could count on the votes of conservative party members from the piney woods of the South, where lumbering interests are eager for a capital gains break. "Overall I think this is a good package," said Rep. Ed Jenkins, D-Ga. Indeed.
The Democrats also uncharacteristically voted to sweeten depreciation rules, reduce the burden on real estate passive losses and a medley of other other pro-business items. They even approved a corporation tax cut, then reversed course. Either they are getting a message from "pro-business liberal" Paul Tsongas or, more likely, they are trying to nail down swing votes on the floor region by region, and industry by industry. Their tactics, we fear, are as phony and contradictory as those found in the two competing George Bush budgets.
Voters have every right to be suspicious of what the politicians are up to. Their initial proposals are neither logical nor soundly funded. If they lead to a feeding frenzy, with each party trying to outbid the other, the nation could be confronted with another raid on the Treasury revenue base reminiscent of 1981 tax cut bill. That's the legislation which plunged the nation into debt and economic decline.