The Non-Contract With America
Oct 28th 2006, 9:16 am
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The Non-Contract With America
WSJ REVIEW & OUTLOOK
October 28, 2006; Page A6
A joke in Washington these days is that the only thing that can save
the Republicans on Election Day is the Democrats. House
Speaker-in-waiting Nancy Pelosi seems to get this joke, because with
few exceptions she's kept her Members tight-lipped and unspecific: As
New York Senator Chuck Schumer has put it, why take the focus off the
GOP?
This is in notable contrast to 1994, when the Gingrich Republicans
ended a 40-year Democratic House majority by laying out a 10-item
agenda known as the Contract with America. What Democrats are
campaigning on this year is a Non-Contract with America -- mostly
generalities about "helping the middle class" and "ending the
corruption in Washington."
As a campaign strategy, this may well pay off. But if they do win,
Democrats will have to fill their campaign vacuum with something, and
the best clue to what that would be is what they've already proposed.
We've taken some time to inspect these policy priorities and thought
we'd share a few of the highlights, if that's the right word. (Warning:
Keep sharp objects away from drug-company and Wal-Mart shareholders.)
Tax increases. The Bush tax cuts expire in 2010, and any chance that
they'll be made permanent will vanish with a Democratic Congress. The
question is whether Democrats will try to raise taxes even sooner. Most
Democrats voted against the Bush tax cuts, but this week Ms. Pelosi
said on CNBC's Kudlow & Co. that "Democrats like tax cuts. We support
middle-class tax cuts."
The same isn't true, however, for the "investor" tax cuts of 2003 that
coincided with the acceleration of the current expansion. Ms. Pelosi
says reversing these tax cuts "at the high end" would be "an earlier
resort." This would raise the top income and dividend tax rate back to
39.6% from 35%, and the capital-gains rate back to 20% from 15%,
substantially raising the cost of new investment in the United States.
Economist John Rutledge estimates that raising the dividend rate alone
would reduce the value of the S&P 500 stocks by between 5% and 8.5%,
roughly a $500 to $700 billion decline in the wealth of the 52% of
American households that own stock.
"Paygo budgeting." President Bush would no doubt promise to veto any
direct tax increase, but having the power of the purse would give
Democrats plenty of leverage. What if they framed the political choice
as a tax increase on "the rich" versus funding the war on terror?
Democrats have also pledged to restore so-called pay-as-you-go budget
rules, which sound like a restraint on budget deficits but in practice
restrain only tax cuts. They don't apply to the growth of current
entitlement programs or to domestic discretionary spending, only to tax
cuts or new entitlements. This formula would probably take us back to
the 1980s, when Democrats insisted on higher domestic spending while
fighting Ronald Reagan's increases in defense spending.
Health-care regulation. Big Pharma and private insurers, watch out.
Michigan's John Dingell, who would run the Energy and Commerce
Committee, has co-sponsored the "Patients Before Profits Act" that
would gut funding for the new Medicare Advantage plans that are proving
so popular with seniors. Instead, he and the other Democrats who run
health-care panels want to direct all seniors into a single
government-run Medicare drug plan. Another proposal from top Democrats,
the Medicare for All Act, would make all Americans, of any age,
eligible for Medicare and pay for it with a new 1.7% payroll tax on
workers and 7% on employers.
Ms. Pelosi has also pledged to pass, in her first 100 hours as Speaker,
legislation to require the government to "negotiate lower drug prices."
That's a euphemism for imposing price controls on new medicines, which
can take as much as $800 million in research and development to bring
to market. The actor Michael J. Fox is getting headlines for his ads in
favor of Democrats who support stem-cell research, but price controls
would do far more to delay the introduction of new treatments for
Alzheimer's, Parkinson's or cancer.
The union label. AFL-CIO headquarters would be rocking with hope once
again. A job-killing hike in the minimum wage, to $7.25 from $5.15,
would whisk through Congress, and we'd expect that Mr. Bush would sign
it.
But another top priority for Democrats is the Employee Free Choice Act,
which has at least 215 co-sponsors in the House and 44 in the Senate.
This would allow labor to turn workplaces into union shops without an
election or secret ballot. Unions would merely have to gather
signatures from a majority of workers at a work site, which means labor
organizers could strongarm employees who opposed such a petition. This
would almost surely pass the House.
Democrats have also moved well to the left on trade since the Bill
Clinton-Nafta era. Mr. Bush's trade-promotion authority, allowing
up-or-down votes on trade deals without amendment, expires next July,
and there's little chance House Democrats would extend it. The entire
Democratic leadership opposed free trade with tiny Oman and with
Central America, so deals now in the works with Vietnam and other
countries would also be long shots. Sorry, Robert Rubin.
Energy. The Pelosi Democrats favor a "windfall" profits tax on oil
companies and a virtual moratorium on drilling for more domestic oil in
Alaska and on the outer continental shelf (where the U.S. may have more
energy than Saudi Arabia). These policies would make the U.S. more
dependent on foreign oil. There would also be an effort to pass new,
and higher, fuel-mileage mandates, which would make things tougher on
what's left of Detroit. And lobbying would begin for the U.S. to sign
the Kyoto Protocol on global warming and to subsidize, even more than
Republicans already have, ethanol and other "alternative" fuels.
We could go on, in particular in the regulatory arena, where agencies
would be under greater pressure to restrict mergers, among other
things. But you get the idea. A Democratic triumph would produce a
major shift in the national policy debate, and we can understand why
Ms. Pelosi isn't plastering most of this agenda on billboards around
the country. Not everything would become law, to be sure, especially if
Mr. Bush were finally willing to use his veto pen. However, elections
have consequences, and we thought our readers might like to know about
them before November 7.
October 28, 2006; Page A6
A joke in Washington these days is that the only thing that can save
the Republicans on Election Day is the Democrats. House
Speaker-in-waiting Nancy Pelosi seems to get this joke, because with
few exceptions she's kept her Members tight-lipped and unspecific: As
New York Senator Chuck Schumer has put it, why take the focus off the
GOP?
This is in notable contrast to 1994, when the Gingrich Republicans
ended a 40-year Democratic House majority by laying out a 10-item
agenda known as the Contract with America. What Democrats are
campaigning on this year is a Non-Contract with America -- mostly
generalities about "helping the middle class" and "ending the
corruption in Washington."
As a campaign strategy, this may well pay off. But if they do win,
Democrats will have to fill their campaign vacuum with something, and
the best clue to what that would be is what they've already proposed.
We've taken some time to inspect these policy priorities and thought
we'd share a few of the highlights, if that's the right word. (Warning:
Keep sharp objects away from drug-company and Wal-Mart shareholders.)
Tax increases. The Bush tax cuts expire in 2010, and any chance that
they'll be made permanent will vanish with a Democratic Congress. The
question is whether Democrats will try to raise taxes even sooner. Most
Democrats voted against the Bush tax cuts, but this week Ms. Pelosi
said on CNBC's Kudlow & Co. that "Democrats like tax cuts. We support
middle-class tax cuts."
The same isn't true, however, for the "investor" tax cuts of 2003 that
coincided with the acceleration of the current expansion. Ms. Pelosi
says reversing these tax cuts "at the high end" would be "an earlier
resort." This would raise the top income and dividend tax rate back to
39.6% from 35%, and the capital-gains rate back to 20% from 15%,
substantially raising the cost of new investment in the United States.
Economist John Rutledge estimates that raising the dividend rate alone
would reduce the value of the S&P 500 stocks by between 5% and 8.5%,
roughly a $500 to $700 billion decline in the wealth of the 52% of
American households that own stock.
"Paygo budgeting." President Bush would no doubt promise to veto any
direct tax increase, but having the power of the purse would give
Democrats plenty of leverage. What if they framed the political choice
as a tax increase on "the rich" versus funding the war on terror?
Democrats have also pledged to restore so-called pay-as-you-go budget
rules, which sound like a restraint on budget deficits but in practice
restrain only tax cuts. They don't apply to the growth of current
entitlement programs or to domestic discretionary spending, only to tax
cuts or new entitlements. This formula would probably take us back to
the 1980s, when Democrats insisted on higher domestic spending while
fighting Ronald Reagan's increases in defense spending.
Health-care regulation. Big Pharma and private insurers, watch out.
Michigan's John Dingell, who would run the Energy and Commerce
Committee, has co-sponsored the "Patients Before Profits Act" that
would gut funding for the new Medicare Advantage plans that are proving
so popular with seniors. Instead, he and the other Democrats who run
health-care panels want to direct all seniors into a single
government-run Medicare drug plan. Another proposal from top Democrats,
the Medicare for All Act, would make all Americans, of any age,
eligible for Medicare and pay for it with a new 1.7% payroll tax on
workers and 7% on employers.
Ms. Pelosi has also pledged to pass, in her first 100 hours as Speaker,
legislation to require the government to "negotiate lower drug prices."
That's a euphemism for imposing price controls on new medicines, which
can take as much as $800 million in research and development to bring
to market. The actor Michael J. Fox is getting headlines for his ads in
favor of Democrats who support stem-cell research, but price controls
would do far more to delay the introduction of new treatments for
Alzheimer's, Parkinson's or cancer.
The union label. AFL-CIO headquarters would be rocking with hope once
again. A job-killing hike in the minimum wage, to $7.25 from $5.15,
would whisk through Congress, and we'd expect that Mr. Bush would sign
it.
But another top priority for Democrats is the Employee Free Choice Act,
which has at least 215 co-sponsors in the House and 44 in the Senate.
This would allow labor to turn workplaces into union shops without an
election or secret ballot. Unions would merely have to gather
signatures from a majority of workers at a work site, which means labor
organizers could strongarm employees who opposed such a petition. This
would almost surely pass the House.
Democrats have also moved well to the left on trade since the Bill
Clinton-Nafta era. Mr. Bush's trade-promotion authority, allowing
up-or-down votes on trade deals without amendment, expires next July,
and there's little chance House Democrats would extend it. The entire
Democratic leadership opposed free trade with tiny Oman and with
Central America, so deals now in the works with Vietnam and other
countries would also be long shots. Sorry, Robert Rubin.
Energy. The Pelosi Democrats favor a "windfall" profits tax on oil
companies and a virtual moratorium on drilling for more domestic oil in
Alaska and on the outer continental shelf (where the U.S. may have more
energy than Saudi Arabia). These policies would make the U.S. more
dependent on foreign oil. There would also be an effort to pass new,
and higher, fuel-mileage mandates, which would make things tougher on
what's left of Detroit. And lobbying would begin for the U.S. to sign
the Kyoto Protocol on global warming and to subsidize, even more than
Republicans already have, ethanol and other "alternative" fuels.
We could go on, in particular in the regulatory arena, where agencies
would be under greater pressure to restrict mergers, among other
things. But you get the idea. A Democratic triumph would produce a
major shift in the national policy debate, and we can understand why
Ms. Pelosi isn't plastering most of this agenda on billboards around
the country. Not everything would become law, to be sure, especially if
Mr. Bush were finally willing to use his veto pen. However, elections
have consequences, and we thought our readers might like to know about
them before November 7.
