It should come as no surprise that the main contenders for the Republican nomination have decided to fight it out on the basis of that old Republican perennial: tax cuts. What is surprising is the way the fight is now shaping up between Sen. John McCain and Texas Gov. George W. Bush.
McCain sounds like President Clinton when he attacks Bush's tax cut plan. "It's fiscally irresponsible to promise a huge tax cut that is based on a surplus that we may not have," he told Bush in Friday night's South Carolina debate. "My tax plan is about the same as yours for middle-income and lower-income Americans. It places a top priority on saving Social Security. It offers a needed tax break for middle-income people. And it begins paying down the national debt."
But the oddity goes beyond the fact that McCain is sounding Clintonian in calling for a smaller tax cut, targeted to the middle class and less generous to the rich. Another surprise is that normally, in a GOP presidential primary, it's the front-runner who offers the more modest tax cut proposal, while the challenger tries to shake things up with the root-and-branch tax cutting plan. Steve Forbes tried that against Bob Dole in 1996; and Pat Buchanan bludgeoned then-President George Bush with the tax issue in 1992.
Not this time. George W. Bush has been on record for more than a month with a five-year, $483 billion tax cut plan -- a proposal which is actually very similar to the one congressional Republicans failed to enact last year. Not only will Bush's tax cut be bigger than McCain's, it will also be more heavily weighted toward reductions for high-income earners.
Last week McCain played up the merits of his soon-to-be-released plan by attacking Bush for giving tax breaks to wealthy people who don't need them, while failing to shore up Social Security or pay down the debt. "Sixty percent of (Bush's) tax cut goes to the wealthiest 10 percent of Americans," McCain said. "That's not the kind of tax relief that I think America needs."
When the Bush campaign heard those words, they thought they saw blood in the water -- McCain's. Not only because the Arizona senator seemed to be ceding Bush the tax-cutting mantle, but just as importantly because McCain's criticisms sounded very similar to those that Democrats routinely hurl at Republican tax cut plans -- not usually a winning strategy in a Republican primary. McCain apparently sensed that vulnerability and conspicuously avoided that "tax cuts for the wealthy" line of criticism when he took Bush on in South Carolina.
Bush and McCain actually agree on a host of changes, like eliminating the so-called marriage penalty and scaling back the inheritance tax. But the key difference is in how each candidate deals with marginal income tax rates. Most significantly, McCain's plan would not lower the 39.6 percent tax bracket now applied to the wealthiest 1 percent of Americans -- the centerpiece of Clinton's 1993 budget bill -- while Bush's would. Rather than decreasing the highest marginal tax rates, McCain's increases the amount of money you can make and still be in the lowest, 15 percent tax bracket. In other words, McCain lowers taxes for middle-income taxpayers.
McCain is clearly banking on the idea that, in prosperous times, the appetite for tax cuts is simply not as strong as it once was. McCain staffers say that they intend to fight not on the size of their tax cut but rather on how "responsible" it is -- code for how much of the surplus it will leave for shoring up programs like Social Security and paying down the national debt.
Not that McCain has completely sworn off the anti-tax elixir. His campaign is now running ads in New Hampshire calling for a permanent ban on Internet taxes -- something that Bush, like most governors, opposes. McCain is no newcomer to the idea of banning online taxation. But pushing the issue aggressively should allow him to open up a second front in the tax debate, one in which he can beat Bush hands down and nullify whatever advantage Bush gets for his broader plan.
McCain's willingness to fight Bush on these grounds shows just how much the politics of taxes has changed in the 1990s. For most of the last 30 years, tax-cutting was the silver bullet of Republican electoral politics. Whatever else did or didn't work, Republicans could always fall back on the magic of tax cuts, and the bigger the better. Democrats could never hope to compete in the realm of tax-cutting since steep tax cuts threatened to de-fund their prized government programs. Just as importantly, GOP tax cut proposals could be counted on to play to the public perception that the Democrats were the party of tax-and-spend profligacy.
But at some point in the 1990s the old tax politics simply lost its magic for the GOP. For all the Republicans' success in the 1994 election, the authors of the GOP's Contract with America were actually quite careful not to call for a rollback of President Clinton's 1993 tax increase, which raised taxes for the wealthiest Americans. Two years later, when Bob Dole tried to save his flagging presidential campaign with an across-the-board 15-percent tax cut, his efforts went nowhere.
The most telling sign of the decline of Republican tax politics came in 1999 when congressional Republicans, fresh from their impeachment debacle, tried to go back to basics with a $792 billion tax cut bill. Over the summer, senators and representatives fanned out to their districts to rouse public support for the proposal but, again, the groundswell of popular support simply never materialized. Tax cuts were actually rather low on the public's list of priorities; education, Social Security and health care were much higher. The reason McCain's gambit may work is that this basic attitude held even among Republicans.
The change has two roots. One is the country's general prosperity: Most people are doing well enough that the prospect of tax cuts doesn't have quite the allure that it did in more economically challenging times. But the deeper reason is the public's renewed belief in the possibility of effective government action. Voters are still very cautious about large-scale efforts like enacting some form of universal health care. And pollsters still receive ambivalent or negative reactions when they ask generic questions about "government spending." But ask about Social Security, Medicare and education and the answers start to sound very different.
McCain is also banking on the persistence of another strain of Republican economic policy thinking, one that gets less attention today. Before the Reagan era, Republicans were at least as keen on balanced budgets as they were about tax cuts. And in the Northeast, that strain of Republican fiscal conservatism still has many adherents.
Former New Hampshire Republican senator and McCain supporter Warren Rudman was famously concerned with balancing the budget during his tenure in the Senate. And even Lindsay Graham, a dyed-in-the-wool-conservative McCain supporter (who was also one of the House impeachment managers) seems comfortable supporting McCain's stance. "It's a smaller tax cut," Graham recently told me, "but it's paid for. I like that. It doesn't rely on any illusory surpluses."
One of the political successes of the Clinton administration is that it has allowed Democrats to capture the old Republican terrain of fiscal discipline.
And there's one more thread to the story. The current GOP tax debate may have its greatest impact next November. Ever since Bush unveiled his tax cut plan late in 1999, Democratic strategists have been sharpening their electoral knives and waiting impatiently to pounce. Bush's plan does avoid giving Democrats some of the fattest targets included in earlier tax cutting plans, such as steep cuts in the capital gains tax. But in its general outlines, it is much the same as the one that fizzled for congressional Republicans just last year. Holding to such a plan could leave Bush at a loss for words when Gore charges him with imperiling popular programs like Social Security and Medicare.
If Bush gets pushed further in the direction of touting just how big his tax cut proposal really is, Democrats will be jotting down everything he says, waiting to use it against him later this year.