Easter Week in Washington, D.C. Jude Wanniski April 21, 1998

I’ve often found I can get more accomplished in a visit to the Capital during a holiday break, when all elected officials are out of town. Sure enough, key staff people on Capitol Hill who never have more than a minute to talk to me when the boss is in could burn an hour or two talking to me about what’s going on. The same with the diplomatic community and think-tankers. There was nothing big I learned, but lots of little things:

CHINA: I met the new ambassador, Li Zhaoxing, a very sharp, cheerful man in his late 50s, who peppered me with questions about our stock market and economy, the IMF, and my take on the relationship between China and the United States. I was pleasantly surprised that he treated me as if we had known each other for years, explaining that his predecessor, Li Daoyu, and his staff, had assured him that I was a friend of China. I brought him a graph that Mike Kurtz had prepared for me, showing the tax rates of China, Taiwan, Hong Kong, and Singapore juxtaposed, with the graphic idea that China’s rates are the highest of the four, yet it is the least developed. If it is going to devote hard-currency resources to any part of its economy, I suggested they first at least match Taiwan’s rates, if not Hong Kong’s. The biggest surprise was in discovering that lower level officials here and in Beijing will be allowed to converse with me on the internet -- which they were not permitted to do just six months ago.

BRZEZINSKI: The Institute of World Politics, a graduate school in DC founded by an old friend, Dr. John Lenczowski, had a dinner event featuring a talk by Jimmy Carter’s National Security Advisor, Zbigniew Brzezinski, on the hopeless state of foreign policymaking in the United States today. I sat with Zbig and found that our thinking on external affairs is in almost exact parallel, although there is no economic component in his mix. He argues there is no mechanism in the government devoted to shaping policy toward managing the world, which is our responsibility. It is all ad hoc, with the President not much interested, separate planning staffs at State, Defense, and the NSC, and a vacuum in Congress. In his talk, he was emphatic in his assertion that UN General Secretary Kofi Annan had saved us from blundering into a new cold war with the Islamic world over Iraq. Saddam Hussein is no threat to the region, he said as bluntly as he could. He sees no threat to the global leadership of the United States in the next century and beyond and ridicules the idea that China could be a competitor. His views are not in favor with either party, I think, because they are  threatening to the military/industrial complex.

TAX REFORM: If there is going to be fundamental tax reform in the next few years, my guess is that it will have to be through a crisis of the year 2000 computer problem. Without a crisis that requires simplicity, I heard the Chaos Industry is beating down the enthusiasm of Chairman Bill Archer of the House Ways & Means Committee. It is most understandable, as Archer has been around long enough to know when he sees gridlock on the issue shaping up. He has vowed to seek only one more re-election this November, but the candidates for the GOP presidential nomination are staking out widely different positions that will take an election to resolve. It now seems almost certain it will take a GOP president and Congress to do the job. Archer and President Clinton had shaken hands on reform a year and a half ago, but Clinton’s politics have since changed.

TAX CUTS: I have repeated assurance that the little tax bill that will survive this year will have at least a cut to 12 months from 18 in the holding period for capital gains. The way Treasury scores these things, it doesn’t cost anything, yet it will have positive supply-side effects. It was encouraging that everywhere I went, Republican staffers asked me to make recommendations on how to “spend” the $60 billion surplus that is shaping up for FY1999. There was considerable surprise when I said the time for indexing capital gains had passed. This, not only because we are at the end of the inflation cycle and into moderate deflation, but also because the Roth IRA has entirely eliminated the capital gains tax for a big part of investment going forward. I urged an expansion of the IRA as a GOP campaign plank for the mid-term elections. There is also a little talk of a bipartisan move to eliminate the income cap on the Roth IRA and replace it with a cap on the annual amount that can be contributed, to say $10,000 from $2,000.

GOP: Robert Novak’s syndicated column yesterday quoted Rep. Buck McKeon [R-CA], chairman of an education subcommittee, as saying Republicans are caving in to the President’s education demands on student loans because: “We don’t want to be school lunched.” That is, Republicans continue to operate out of fear that anything they do to downsize government will permit the Democrats to terrorize them for being heartless and cruel to children, the way they did in 1995 over the school-lunch program. This threat from the voters is imaginary, or the voters would have returned Congress to the Democrats in 1996. Clinton’s nationalization of student loans is so costly and unnecessary, for example, that the Democrats would not be able to get the voters worked up the way they did with the free-lunch program, against the backdrop of a snarling Newt Gingrich.

LOTT: In talking to conservative journalists and intellectuals, I found a general trashing of Senate Majority Leader Trent Lott is under way, because of his pleasantness toward Democrats and his willingness to work out bipartisan compromises. My sense is that Lott is perfectly happy to have this claque in the gallery, raging against him and demanding “principle.” Lott is the reason the stock market is as high as it is and the electorate gives such high marks to Congress. It is now Lott’s turn to package a mid-term platform, as Newt did in 1994 with a Contract With America. My guess -- and it is only that -- is Lott will put together a package of ideas that lead in the direction of smaller government, but with a greater emphasis on economic growth. In this new era of surplus politics, if I were he I’d get the GOP committed to returning the income-tax rates to where they were when Reagan left office -- which means repeal of both the Bush and Clinton tax hikes of 1991 and 1993. If Republicans campaign on “cultural issues” this November, they will be “school lunched.”

2000: There is not only a general trashing of Jack Kemp evident among Beltway Republicans. They also have decided to spread the word that he is showing so little interest in running that he is probably not. And a good thing too! Because he is all washed up, lost his debate to Al Gore in 1996, etc., they say. At a black tie dinner I attended Wednesday, at the 50th anniversary celebration of Regnery Publishing -- which is soon bringing out a 20th anniversary edition of The Way the World Works -- a dozen old friends came up to ask me who I was backing for 2000. They assumed Jack was not running. I told them he was, but not on the conventional path of the other 26 candidates. There was a Reuters story on Friday that quoted anonymous “associates” of Kemp that said he would probably not run. I said I did not know for sure, but that Kemp would run and win, that he is the only Republican in the field who the voters would trust with a GOP Congress. Texas Governor George W. Bush is on top of all the polls, except when people polled are told it is the son of the former president, not the ex-President. Then his support drops sharply.