Political cross-dressing by the Democrats ended on January 25 in Washington when their erstwhile conservative patron, Alan Greenspan, abruptly jilted them. Under Bill Clinton’s tutelage, the party of working people held the hem of the Federal Reserve chairman’s dark robes and pretended to be fiscal conservatives, just like him. We must not cut taxes, they insisted piously, we must instead use the burgeoning federal surpluses to pay off the national debt. Greenspan would solemnly bless these expressions of Hooverite restraint.
Then he blew them off. The Fed chairman announced his support for George W. Bush’s broad agenda of major tax cuts and, for good measure, the dismantling of Social Security as we know it. He is, as ever, an astute opportunist. During the Clinton years, Greenspan did his own turn at cross-dressing, making chummy with a Democratic President who followed his directions. Now that a new President from the Party of Money is in power, Greenspan returns to the one true faith–rescuing business and the wealthy from the clutches of government. His pronouncements will inspire a lobbying contest among the upscale interests to see who can extract the most boodle from the Treasury.
Democrats are feeling hurt and disoriented. They fully deserve their embarrassment. Their embrace of conservative fiscal orthodoxy seemed clever at the time–a stalling tactic to hold off more GOP tax cuts for the wealthy–but like so many of Clinton’s too-cute tactics, it was always a dead-end strategy for liberals. An activist party committed to addressing major public problems was, in effect, promising to do little or nothing of significance while massive surpluses accumulated for the next ten or fifteen years. The GOP could say, and did: If the government is collecting so much extra tax revenue, why not give some of it back to the people? Alternatively, Democrats might have proposed a major down payment on healthcare and other neglected social problems. Instead, we got Al Gore’s “lockbox”–much ridiculed because it was always a ridiculous gimmick. Bookkeepers, it turns out, do not make very compelling presidential candidates.
Now, as the economy weakens so quickly that the Fed has moved twice to lower interest rates, Democrats are scrambling to be pro-tax cuts and belatedly trying to figure out what that means. This is the minority party’s first great post-Clinton opportunity to restore its progressive reputation and show that it still has some fight. We have suggestions. First, Democratic leaders in the House and Senate should draw a bright line of principled resistance to yet another regressive tax package (never mind that some in their ranks are already defecting). For two decades, Democrats have collaborated in the Republicans’ hog-feeding splurges, joining in the bidding wars to reward contributors and favored interests. This time, even if the prospects look doubtful, the party must oppose the giveaways–estate tax repeal, another capital gains tax cut, the phony tax incentive for corporate R&D, and other goodies Republicans are putting on the table. If income tax rates are to be reduced, don’t acquiesce again in the Reaganite sleight of hand that cuts the top and bottom rates across the board as though the wealthiest are getting equal treatment with the least fortunate.
The positive principle, in addition to providing emergency stimulus for the economy, should be: Heal the wounded, the people whose incomes and family conditions have been squeezed for a generation, even during boom times. That means delivering the bulk of tax relief, whether the package is $800 billion or twice that much, to those on the bottom half or bottom two-thirds of the income ladder. Don’t try to do this with lots of fanciful conditions that pretend to target particular social problems–just send them the money, as promptly as possible. There are many different ways to accomplish this: For example, suspend a point or two on the payroll tax paid by workers (but not employers) for a specified period of one or two years; or enact a bigger child deduction, progressively larger for families at or below the median household income level; or simply cut the lower-bracket marginal rates (while leaving the top rate alone), with an immediate cut in withholding. The important thing is not to let the principle get lost in tricky details. The principle is: The Democratic Party fights on behalf of the working middle class and poor (even if it disappoints some of its major contributors in the process). When and if the vast public hears this message from Democrats, most of them will probably not believe it. Democrats will not persuade until they learn to make the fight for real.
As for the Federal Reserve, our advice to Alan Greenspan is: Butt out. Greenspan, remember, is the wizard who supposedly “saved” Social Security back in 1983 when his blue-ribbon commission initiated the massive payroll tax increases on working people. Now he wants to save it again by destroying it. If the central bank wishes to preserve its protected status “independent” of politics, the chairman had better confine his Republican ideological preachments to dinners at the club.