Newt Gingrich: World Class Leader Jude Wanniski October 9, 1990

We have House Minority Whip Newt Gingrich to thank for pulling the nation back from the brink of disaster. He was the man on the margin, all alone in believing he could stand and win against the President of his own party and the senior leadership of both parties in Congress. If he had not opposed the grotesque Budget Deal the summiteers produced, the President would not have had to go on national television to ask for its public support. It was the President's appeal for austerity that not only alerted the nation to the policy road he had chosen but also offered a way for the electorate to register disapproval of that choice. Had Gingrich failed, I would have seen only a bear market and economic decline for at least two years and perhaps longer, given the chances of sliding into a vicious policy cycle. The parallel with 1929 struck me last week, as I had dinner with Gingrich and his wife Marianne, hours before the critical vote. Had President Hoover the advantage of a Gingrich in the GOP congressional leadership in 1929, perhaps the Crash would have been averted, along with the Depression and the global conflict that followed. Yet, as The Wall Street Journal reported Monday:

His performance enraged officials in the administration, some of whom are now putting out the word that Rep. Gingrich is desperate for a deal that will put the controversy behind him -- so desperate that he would even agree to higher income-tax rates on the wealthy in exchange for a capital-gains tax cut.

It's true that Gingrich is now working to negotiate a tradeoff of a lower, indexed capgains rate for a higher income-tax rate. He had opposed the tradeoff before it was absolutely clear on September 29 that the President was unwilling to fight for capgains at all. Gingrich had been assured all year long by Richard Darman and John Sununu that there would be no deal without a cut in the capital gains tax. They swore this oath up and down Pennsylvania Avenue, which is the only reason Gingrich, and the rest of the growth wing of the GOP, stood still for the President's breaking of his no-new-taxes pledge. As long as he could not break Darman's hold on strategy — aimed at cutting an inside deal without the involvement of the American people — it was clear there would have to be give on taxes in order to get capgains. What was shocking to Gingrich is that the White House would capitulate completely, giving everything and getting nothing. Gingrich, the leader of the GOP's growth wing in Congress, had been double-crossed, and his deceivers ever since have been portraying him as the grasping and invidious betrayer.

Gingrich knew before the vote last Thursday that he had won, at least in the sense that a clear majority of the House Republicans had sided with him. The only way the Budget Resolution could pass would be if the Democrats provided all the votes necessary. This would leave Republicans free to blame the Democrats for the recession. Gingrich, though, was clearly trying to manage events in a way that would avoid splitting the GOP and avoid an embarrassing loss to the President. At 7:30 a.m. Thursday morning, Gingrich's close friend, Rep. Yin Weber of Minnesota, raised the idea with Sununu of trading the "bubble" for capgains. Sununu, who had called Weber trying to peel him away from Gingrich, was taken aback by the idea, but rejected it on the grounds that it was too late.

It should be noted that Sununu and Darman had been more than willing to make this tradeoff at the summit, subsequently advising an aide of Senator Bob Packwood of Oregon that his opposition to the tradeoff was responsible for killing capital gains. It should also be noted that Darman has been insisting since early 1989 that his strategic genius would eventually produce a capgains cut without giving up the higher income tax rates.

Turned away by Sununu, Gingrich arranged a 1 p.m. meeting with Senate Minority Leader Bob Dole in Dole's Capitol office. Dole, who had given capgains a lower priority than making a budget deal, was the first GOP leader last year and this to give up on capgains. But Dole had been impressed the day before at a lunch that some 18 GOP Senators had with Federal Reserve Governor Wayne Angell. Angell, a Kansan who came to the Fed via Dole's patronage, advised the Senators that no matter what the Congress did on the budget, the Fed would have great difficulty easing monetary policy if the dollar fell on the exchange markets. He also argued that a capital gains cut -- which would lower long-term interest rates by increasing the demand for dollar securities -- was about the only tool he saw available that could break the economy's slide into what could be a much longer and deeper recession than had been imagined.

At the 1 p.m. meeting, which was perhaps the most cordial meeting that had ever taken place between Dole and Gingrich, Gingrich said he would end his opposition to breaking the income-tax "bubble" if it meant getting capital gains. It was a clear offer to prevent a split in the GOP, but with a concession to Democrats as well on the top rates. The Medicare provision that so inflamed backbenchers in both parties would also have to be dealt with, Gingrich suggested. This proposal would have meant reopening the deal, holding off for 24 hours on the scheduled vote. Dole thereupon communicated the offer to Sununu, who rejected the idea instantly and harshly, "jumping down Dole's throat," according to one account. That was that.
If Sununu had carried the offer forward, there would have been a chance of rescuing the package. But after several days of round-the-clock pressure, the President's chief of staff was strung out, reacting furiously to Gingrich as the source of his problems. In truth, Senate Majority Leader George Mitchell would have taken a last-minute offer as a sign of weakness, offering a ridiculous tradeoff that Gingrich would have spurned.

We are now in only a slightly better position, with a small chance of wringing a decent capgains tax out of "the process." At his press conference this morning, the President indicated he will buy a tradeoff if it's a good one. The problem is that George Mitchell will not allow a tradeoff that Gingrich can accept. This means the White House, driven by the President's determination to "get a deal" instead of reviving the economy, enters this latest turn in the process in a thoroughly compromised position. Sununu actually remains opposed to any tradeoff, clearly motivated by a desire to punish Gingrich. And as today's press conference demonstrated, the President himself continues to sidestep chances to defend the Reagan Revolution and supply-side economics. It isn't a terribly encouraging situation.

And yet, the fundamentals remain as promising as they always have been. We have to remember that the President's negotiator, Richard Darman, chose to throw in the royal flush he was dealt for a chance to draw to an inside straight. A majority in both House and Senate favor a capgains cut and would vote for the 15% rate George Bush campaigned for in 1988. Bob Teeter, the President's pollster, tells me he thinks the President would win hands down in a public brawl with Mitchell over capgains. If the Democrats now overreach, acting badly in the next 10 days of negotiation, partisan juices could flow sufficiently hot in the GOP to produce a last-minute showdown in the political arena — the budget deferred until after the elections. The GOP leadership will now be developing its alternative to the budget the Democratic committees of Congress will be assembling, and Gingrich will not be dealt out of that hand. We can be sure it will look much better to the electorate than the inside straight that Darman could not fill.

The best news for us, though, is the emergence of Newt Gingrich as a world-class leader. He had already demonstrated an ability to terrorize the opposition by standing on principle, bringing down Speaker Jim Wright last year. His victory last week against the assembled might of both parties was nothing less than astounding. Jack Kemp unsuccessfully challenged his President and party congressional leaders in 1982, on a fundamental budget issue, the TEFRA tax increases. The press corps can't recall the last time a member of Congress was successful in leading such a revolt. Nor can I. The closest comparison that comes to mind is Henry Brougham, a member of the House of Commons in 1815, who successfully led a tax revolt against the Crown and the leadership of Parliament. Brougham stirred up the grass roots against the income tax of the Napoleonic War. His success paved the way for a century of growth and prosperity in the United Kingdom.

Win or lose in the next ten days, Gingrich has established himself so thoroughly as a growth force to be reckoned with that it is now hard to imagine a prolonged U.S. economic decline.