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Democrats could score on economics, but they're blowing it


AT A MOMENT when the Republican economic program has plainly faltered, the Democrats have an unparalleled opportunity distinguish their economic philosophy from that of the Republicans. But the Democrats are in real danger of squandering the opportunity.

The reasons have to do with Democratic confusion about their fundamental principles, with the conflicting logic of presidential and legislative politics, and with the fragmentation of Congress itself. It is hard for a coherent opposition program to emerge from this stew.

The most immediate problem is the role of tax writing committees of Congress. These committees -- House Ways and Means and Senate Finance -- have immense power to bestow tax breaks on industry; their members invariably reap the most special-interest campaign money, and they attract lobbyists like a picnic attracts ants.

To be a member of a tax-writing committee is to be in a perpetual state of moral hazard. "The Ways and Means Committee is so rotten that even the good guys on the committee lose their compass," says one influential Democratic aide close to the House leadership. "Most congressmen and senators never see three-quarters of the lobbyists in town, because the lobbyists only work those two committees."

On Feb. 12, the House Democratic Caucus agreed that the Democrats should devise a tax and budget plan that maximized the distance between themselves and President Bush. The bTC Democratic plan would include a tax increase on the very rich, tax relief for the broad middle class and narrowly targeted tax incentives for business only as a temporary recovery measure.

Democrats, seemingly, were well positioned to carry out this strategy, since the president had decided to defer the portion of his own recovery package that awarded tax relief to the middle class. Here, at last, was a chance for Democrats to embarrass the White House and get back on the side of the working stiff.

But as the Ways and Means Committee worked on the draft bill, the lobbyists also set to work. By the time the bill came back from the committee Democrats to the caucus, on Wednesday, it included a cut in the corporate income tax rate and full indexing of capital gains taxes, consuming most of the revenue to be raised by the higher taxes on the well-off.

The business tax cuts were to be permanent, while the tax relief for the middle class was to phase out after two years. In effect, the money raised by taxing the rich would be recycled . . . right back to the rich. The Democratic Caucus, dismayed with the product, then voted to direct the Ways and Means Committee Democrats to scrap the bill and return with a more plausibly Democratic plan.

Underlying this jockeying for turf is confusion about which of several possible courses makes the most political and economic sense. Is it better to tax the wealthy to provide tax relief for the middle class? Or to tax the wealthy to provide money to generate new investment? Apart from who pays the taxes, should the revenues be used to reduce the deficit? Or should taxes be cut, even if that means a bigger deficit, in order to stimulate recovery now?

In pressing a middle-class tax cut, the Democrats have opened themselves to the charge that they are merely pandering to the voters, not addressing the recession. But that, I think, is unfair. For better than a decade, Republican policies have shifted the tax burden from the well-off to the middle class. It is good policy as well as smart politics to restore tax equity, quite apart from whatever strategy is devised to promote a recovery.

It is also sensible policy to increase federal borrowing during a recession, in order to generate a recovery that will then reduce deficits over the long term. What ought to divide Democrats from Republicans is the question of where that spending should go: to public investment and tax relief for the middle class, or to tax relief for the affluent. However, just enough conservative Democrats share essentially Republican economic views that the majority view among congressional Democrats is not the majority view of the whole House.

Tactically, the Democrats' most pressing need is to devise a bill that can command majority support in the House and clearly define an axis of division with its Republican counterpart. Of course, Democrats can fail to accomplish that task in either of two ways. If their bill is too liberal, it will fail to win passage and will never get to the president's desk. If it is too Republican, it will not be worth the trouble.

Complicating the task is the race for the Democratic presidential nomination. The Democrat who won the New Hampshire primary happens to share many of President Bush's views on business tax relief. Not surprisingly, Paul Tsongas ran strongest among the most affluent New Hampshire Democrats. This does not bode well for Democrats' ability to differentiate themselves from Republicans on tax and budget issues.

Finally, consider this: If Mr. Tsongas or his New Hampshire runner-up, Bill Clinton, continue to seem implausible as the nominee, the heavyweight most likely to be lured off the Democratic bench to run for president is Sen. Lloyd Bentsen of Texas, the chairman of the tax-writing Senate Finance Committee and the most Republican of all the senior Democrats in his views of taxing and spending. So, one way or another, the muddle in the Democrats' economic message is likely to continue.

Robert Kuttner writes regularly on economic matters.

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