The Magazine

Domestic Strategery

From the January 17, 2005 issue: Is the White House doing the best job to bring the president's daring domestic agenda to fruition?

Jan 17, 2005, Vol. 10, No. 17 • By FRED BARNES, FOR THE EDITORS
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MAYBE WE SHOULDN'T WORRY. President Bush is bravely pushing ahead to introduce personal investment accounts in Social Security and to save the system from insolvency. This is political turf where others, including President Reagan, have feared to tread. And Bush is poised to press later this year for an overhaul of the tax system, making it simpler and producing--we hope anyway--lower rates and a broader tax base. So he is living up to his reputation for dismissing lesser issues as "smallball" and saving his time and political muscle for more significant matters. In his second term, Bush told new members of Congress last week, he intends "to confront problems, not pass them on."

Why, then, are we a bit anxious about the president and his daring domestic agenda? It's certainly conservative enough. The problem is that the White House seems, at times and perhaps inadvertently, to be headed toward undermining its chances of bringing the agenda to fruition. We say this based not only on a few hints or evasions by White House officials, but also on several of Bush's strategic decisions about how he's going to deal with Congress this year on taxes, Social Security, and the budget deficit.

Let's start with taxes. The crown jewels of the president's first term were his tax cuts on individual income, capital gains, and dividends. They lifted the economy out of recession. Without them, Bush probably wouldn't have been reelected. The obvious next step is to make these cuts permanent. The president sought congressional approval of this last year but came up short in the Senate. Now Senate Republicans have a bigger margin. Why not try to lock in the tax cuts as soon as possible? The White House has balked. While Bush's budget proposal for 2006 will assume the tax cuts are permanent, that's not the same as actually enacting them as such. But the White House has its reasons. One is that making the cuts permanent might undercut its bargaining power in the battles over Social Security and tax reform. Our worry, however, is the signal this sends to Democrats and financial markets that the Bush tax cuts could be negotiable, that the president might give up some of the cuts to achieve other goals. That would be a mistake--one worth worrying about.

On Social Security reform, our chief worry is getting it through Congress. The president was barely able to cajole enough House Republicans into supporting a Medicare prescription drug benefit in 2003 when he argued it was needed for his reelection. He no longer has that argument. What could doom Social Security reform is increasing payroll taxes. Bush says he won't do that. But neither he nor his aides have ruled out raising the ceiling on income subject to payroll taxation, currently at $87,900. The president says he refuses to "negotiate with himself" on the precise terms of Social Security legislation. Thus he's been "deliberately mushy" on the tax ceiling, an aide says.

In an otherwise attractive compromise on Social Security, a small hike in the ceiling--to, say, $92,700--may be acceptable. But anything more than that is likely to drive away House Republicans and kill reform. The pressure to raise the ceiling much higher will be enormous. AARP wants a $140,000 cap (with no investment accounts). Republican senator Lindsey Graham of South Carolina has proposed $200,000. Let's be clear about one thing: Raising the ceiling constitutes a tax increase. Bush's record in resisting tax hikes has been exemplary. Still, we worry.

Finally, there's the deficit. The president has promised to cut the deficit in half by the end of his second term. This is a noble goal, and one of Bush's most admirable traits is that he keeps his word. But while cutting the deficit is important, it shouldn't be the top priority. Reagan succeeded by elevating tax cuts and defense spending over deficit reduction. In Bush's case, overemphasis on the deficit is already pinching defense spending and preventing the adoption of the one worthwhile proposal of the Kerry campaign, adding 40,000 troops in two new Army divisions.

Neither frugality nor tax hikes will eliminate the deficit. It fell $103 billion from the projected level in 2004 largely because of an aroused economy. Growth was the key in the Clinton years as well--to the surprise of Clinton's own economic team. The best recipe today for deficit reduction is an economy stimulated by permanent tax cuts and tort reform. That won't help attract Democrats to Social Security investment accounts, but neither will tax increases or austerity.

President Bush's eagerness to carry forward the conservative revolution in Washington begun by Reagan is all to the good. Our worry is that a few missteps might deny him the success that is now within his grasp.

--Fred Barnes, for the Editors