Clint's Window: Let the Games Begin (7/29/96)

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	Let the Games Begin Clint's Window by Clint Stretch, Director Tax Legislative Affairs, Deloitte & Touche LLP Monday, July 29, 1996

Clinton vs. Dole: Each faces different pressures.

The first great contest of 1996 -- the Republican primaries -- ended with Bob Dole’s largely predictable victory in late spring. The second great contest -- the Olympics -- is in full swing in Atlanta. We now await the third great contest of the year, the political struggle between Bob Dole and Bill Clinton, which should blast into warp speed when the conventions kick off in August.

Over the next few weeks the Democrats and Republicans will have to articulate positions on taxes, the economy, and the budget and its deficit as they prepare for their conventions. The incumbent Bill Clinton and the challenger Bob Dole face quite different pressures in this task.

Bill Clinton ran on an aggressive platform four years ago. Claiming that he didn’t want the tax system to work in favor of "the rich," he promised to redress the balance by raising taxes on top-income individuals and corporations, and by giving the middle class a tax cut.

He delivered the tax increase and the lower deficit, which has been cut in half in the past four years. He didn’t produce the middle-class tax cut, but managed to dodge criticism. He insists he wants to give the middle class a tax cut, but the country can’t afford the size and type of cuts the Republicans have proposed.

What will Clinton say?

How can we predict Clinton’s probable position on tax cuts? In his first term, he’s displayed two basic responses to Republican proposals for tax cuts.

If the proposed cut is too big or threatens to shift the relative burden of taxation to the middle or working classes (which Clinton believes a capital gains tax cut could do), the President resists the cut as a budget buster or welfare for the rich.
When a tax cut proposal mainly benefits middle-income taxpayers and doesn’t cost a lot, Clinton knows how to step aside or even take credit for the cut. He doesn’t fight over small tax issues, and avoids the tax-and-spend Democrat label. In fact, he’s proposed several smaller tax cuts himself.

So far, Clinton’s avoided most of the major political traps set for him in the tax and budget battles. The President doesn’t have many problems with his record on taxes heading into this political showdown, at least not within his own party.

The GOP grumbles

Bob Dole, on the other hand, has a far different set of problems. With polls showing him as much as 20 points behind Clinton, insiders in his own party are grumbling over his candidacy. Dole has to concentrate as much on rallying the party faithful as on figuring out an economic program to sell to the American people. Dole has much to consider as he frames a tax and economic position.

He needs the support of ardent anti-Washington tax cutters, led by former housing secretary and long-time flat tax supporter Jack Kemp. This group is the same wing of the Republican party that cared so deeply about President Bush’s "no new taxes" pledge. They want an even better promise from Dole: "Read my lips, fewer of the old taxes!"

Signing on to a massive tax cut presents two potential problems for Dole. First, he may have to worry about the appearance of waffling on key issues. He has a not-very-old history of attacking his former presidential rival Steve Forbes for presenting a "radical" tax reform plan -- the flat tax. Dole also has a solid reputation as a deficit hawk. It’s not so easy for Dole to change his position at this level of politics. Lately, he’s been criticized for appearing to flip-flop on many issues: abortion, repealing the assault weapons ban, and tobacco. As a major critic of supply-side economics proponents (who claim that cutting taxes will lead to greater economic growth and increased tax revenues) while in the Senate, it will be tricky for Dole to appear to reverse his position and propose large tax cuts.

The second problem is that Dole needs the support and enthusiasm of traditional anti-deficit Republicans. A tax and budget proposal that Bill Clinton can successfully paint as a budget buster could cause these key Dole supporters to sit out the election.

A big challenge: taxes

What does this mean for this contest?

Clinton will have to be careful not to make any mistakes on taxes. His opponents are looking for an opportunity to attack him. He’ll keep talking about how nice it would be to give the middle class a tax cut, but mainly he can just wait to react to whatever the Republicans propose.

Bob Dole faces growing pressure to present a big tax-cut plan -- and an interesting about-face has taken place.

A decade ago, the Republicans had the Democratic presidential candidates on the defensive. Ronald Reagan pushed for his big tax cut. George Bush pledged no new taxes. Both forced their opponents, Walter Mondale and Michael Dukakis, into the politically fatal position of claiming to be the grownup who must tell the American people they can’t get a tax cut.

Bill Clinton has sidestepped that problem, but the progeny of Ronald Reagan are pushing Bob Dole right into the middle of the same debate. Dole has been left with the dilemma of having to say either "I’ll be the grownup and admit we can’t cut taxes" -- suicide for his campaign -- or of signing on to a big tax-cut plan that will frighten some core supporters and could make him look like a waffler. While Clinton stands above the fray, Bob Dole is being asked to play a part designed 12 years ago for Walter Mondale or Ronald Reagan. Neither position may be all that attractive to him.

Matching tax cuts with spending cuts

Two weeks ahead of the Republican convention, it now looks like the tax-cut faction is putting Dole in a box labeled "supporting a big tax cut." Some possibilities rumored to be up Dole’s sleeve: a rollback of the big tax increases in 1990 and 1993, an across-the-board tax cut of either 10% to 15%, or making the employee portion of the payroll tax deductible.

Then Dole will have to figure out how to address the question of what these cuts do to the deficit. Presidential advisor George Stephanopoulos already has said that President Clinton won’t match a broad across-the-board tax-cut proposal and is thinking of more targeted items, such as a special one-time homebuyer exclusion from capital gains of up to $125,000 on the sale of a home, similar to the exclusion available to those over age 55.

The news to watch in this last big contest of 1996: How will this very savvy politician and leader get himself out of this box? Within the halls of Congress, Bob Dole knows how to compromise a difficult budget and tax issue; now he must choose sides within the more heated corridors of a convention and a campaign.

For now, the contest isn’t really Clinton vs. Dole, but Sen. Dole, the deficit hawk and pragmatist, vs. presidential candidate Dole, seeker of an issue to jumpstart his campaign.