Tax Cutters Vs. Deficit Hawks: GOP Camps Brace for Another Rematch

For Republicans whose blood pressure still rises when they hear phrases like “TEFRA� or “‘budget summit,� the last few weeks have been a bad case of deja vu all over again.

When House Speaker Newt Gingrich (R-Ga.) recently suggested that congressional Republicans defer tax cuts to vote first on balancing the federal budget, he reignited an internal dispute that blistered the party through the Ronald Reagan and George Bush years.

In 1981, Republicans of all stripes united behind Reagan’s sweeping supply-side tax cuts. Then they immediately divided over how to cope with the cavernous hole the package opened in the federal budget.

The deficit hawks--led by then-Sen. Bob Dole (R-Kan.) and Sen. Pete V. Domenici (R-N.M.)--argued for placing top priority on reducing the red ink, even with tax hikes. The competing supply-side camp--headlined by then-Rep. Jack Kemp (R-N.Y.), with support from young House conservatives like Trent Lott (R-Miss.) and Gingrich--insisted that the party should instead define itself in opposition to taxes.

Through the Reagan and Bush presidencies, these two groups jostled for control of Republican economic policy. In 1982, over the objections of the supply-siders, Dole steered through the so-called TEFRA tax hike to recoup some of the revenue lost in 1981. In 1985, Dole and Domenici put together an ambitious spending cut plan, but Kemp--fearing a backlash against its trims in Social Security--led a House rebellion that convinced Reagan to scuttle the package. In 1990, the deficit hawks struck back when Bush--after a lengthy budget summit with congressional leaders--signed a massive tax-hike-and-spending-cut plan that broke his “no new taxes� campaign pledge.

For the deficit hawks, that victory was Pyrrhic. In a rebellion led by Gingrich and Rep. Dick Armey (R-Texas), now the House majority leader, most House Republicans voted against Bush’s plan. The conservative backlash against Bush’s reversal helped sweep him out of the White House--and obliterate the constituency for tax hikes in the GOP.

That was the backdrop of division Republicans faced when they took control of Congress in 1995. Gingrich looked to cross the great divide with a bold stroke: The 1995 GOP budget sought to both reduce taxes and balance the budget by proposing spending cuts far deeper than Reagan or Bush had ever dared. If deficit reduction and tax cuts were the thesis and antithesis of Republican economic thought, Gingrich sought to unify the party behind a new synthesis: reducing the size of the federal government. In that goal, tax cuts and spending cuts were not in conflict, but complementary means toward the same end.

Gingrich’s breakthrough solved the internal GOP problem. Between both chambers, just one House Republican voted against the party’s 1995 budget. But this too proved a Pyrrhic victory. Although the plan unified Republicans, it lost the country: The GOP couldn’t sell voters on its reductions in spending growth, particularly in Medicare. With his two vetoes of the Republican plan, President Clinton revived his presidency and sent the congressional GOP into a tailspin from which it has still not fully emerged.

The failure of the Gingrich synthesis made today’s conservative turmoil inevitable. Forced to moderate their spending cuts, Republicans this year are once again facing the Sophie’s choice of balancing tax cuts against deficit reduction.

The uproar over Gingrich’s suggestion that the party put aside tax cuts “for the moment� to vote first on balancing the budget leaves little doubt about the GOP’s internal balance of power. “If you get to the broad cross-section of the party, the tax-cut faction really represents the base,� said Rep. David M. McIntosh (R-Ind.), a leader among young House conservatives.

But the tax cutters have a dilemma: Although they have the troops, they don’t have a clear strategy. McIntosh wants to pass a substantial tax cut before balancing the budget, but others doubt Clinton would accept that sequence. Sen. Rod Grams (R-Minn.) says Republicans should simply pass a bold tax-cutting budget and dare Clinton to veto it. But many other Republicans--still sporting bruises from the 1995 showdown and puzzling over the tepid public response to Dole’s tax-cut proposal in 1996--are uncertain the party could win such a confrontation.

Despite the erosion in conservative support for Gingrich, the absence of a compelling alternative means his idea of delaying the tax cut isn’t dead, Republican insiders believe. Conservatives read delay as a synonym for diminish, and they’re probably right: Separating the tax and budget votes would almost certainly lead to a smaller tax cut. But the GOP leadership may ultimately conclude that’s an acceptable price for avoiding a replay of its losing 1995 collision with Clinton over a single, all-encompassing tax and spending bill.

None of this complex legislative gamesmanship would be necessary if Republicans and Clinton could strike a deal. But Republicans are increasingly pessimistic. In unison, Republicans interpret Clinton’s decision earlier this month not to support a commission to adjust the consumer price index as a sign that he’s unwilling to cross his liberal congressional base when he needs it to defend him against the swirling ethics investigations.

It’s much too early to write the epitaph for the budget talks. But the pressure on Clinton to disown CPI reductions--like the pressure on Gingrich to defend tax cuts--suggests that the true believers in both parties are unwilling to give much ground to reach consensus.

Each passing week underscores the unlikelihood of finding a magic formula that could satisfy both Armey and House Minority Leader Richard A. Gephardt (D-Mo.). More likely, any viable agreement would steer down the center and disappoint both of them. Yet even that’s not a sure thing. Especially in the House, both parties are fractious to the point where it’s uncertain there’s a majority for any approach. One thing is certain: Reversing the drift toward disarray will take more creativity and nerve than Clinton, Lott and even Gingrich have shown so far.

Ronald Brownstein’s column appears in this space every Monday.