2) The “Image Is Everything” Package of Symbolic Gestures. The balanced budget amendment is of course first on this list; if Newt Gingrich’s concern really were a balanced budget, he—like Ronald Reagan and George Bush before him—could have proposed one at some point during his career. The reason none of them has done so is the one that Peter Peterson and others have pointed out repeatedly in these pages: nearly three fourths of all federal spending goes either for defense, Social Security and other pensions, Medicare and other medical programs, or interest on the national debt. Neither party wants to touch those categories—the Republicans, as we will see, actually want to increase several of them—and there is not enough money elsewhere in the budget to make much of a difference.
The Contract’s provisions on “family values” are mainly modest tax cuts. It provides a $5,000 tax credit to people who adopt children (its way of sending an anti-abortion signal), a $500 per child tax credit instead of today’s per child tax deductions, and a $500 tax credit for those who care for elderly parents or grandparents at home. These tax breaks, of which the most important is the $500-per-child tax credit, are the Republicans’ version of a “middle-class tax cut.” They would be limited to families with taxable incomes under $200,000, or 99 percent of all American families. A month after the election Representative Richard Gephardt, who will be the Democrats’ minority leader in the new Congress, proposed similar tax breaks for families with taxable incomes under $75,000 (more than 90 percent of all families), and the Clinton administration promised its own scheme of middle-class tax relief.
The Contract requires parental consent before children participate in any federally funded survey of public opinion on sensitive subjects, including “family or individual sexual behavior or attitudes” or “any illegal or self-incriminating behavior.” It proposes to deal with crime through longer mandatory sentences for drug crimes and reductions of the legal loopholes that get prisoners out early. To accommodate the larger number of prisoners, it recommends an extra $10 billion to build new prisons over the next six years, although there is no clear proof that increasing the prison population reduces crime. It spends several pages outlining a plan to deport illegal immigrants convicted of crimes, including $14 million for construction of a “Criminal Alien Tracking Center.”
The foreign affairs and national security portions of the Contract are surprisingly vague on basic military questions—how much to spend, on what kinds of equipment, for what missions where. Instead the Contract recommends that a “blue ribbon panel of independent defense experts” look into all such issues. The closest it comes to tangible recommendations are an emphasis that “firewalls” should protect Defense Department money from being transferred to other agencies (not a significant practice in any case) and a “renewed commitment to a National Missile Defense.”
The latter is of course a revival of the Reagan-era plan for a Strategic Defense Initiative, or “Star Wars,” shield against incoming missiles. The contract does not even pretend to offer a rationale for reviving a missile-defense system, even though the arguments against it are even stronger now than they were when Ronald Reagan first proposed the Strategic Defense Initiative a decade ago. (As William Broad of The New York Times demonstrated in his book Teller’s War, tests indicating that the system might work were largely rigged. Despite breathless early reports that Patriot missiles had destroyed Iraqi SCUDs during Operation Desert Storm, later analysis showed that the Patriots had been largely ineffective against this relatively primitive threat.) The “renewed commitment,” to missile defense, moreover, is merely a gesture, for the Contract does not mention spending any money on the scheme. Nearly all of the other provisions of the “National Security Restoration Act” are clauses meant to keep US forces from being entangled in United Nations activities.
3) The “Let’s Pretend” Package of Specific Proposals. Where the contract is most specific it is likely to prove most troublesome for Republicans. It is full of promises the Republican majority cannot or will not fulfill.
The “Citizen Legislature Act,” with its endorsement of term limits on representatives and senators, may be the most hypocritical single chapter in the long saga of American political expedience and hypocrisy. The Contract calls for a vote soon after the new Congress convenes on two competing schemes for term limits. The more permissive of the two would limit representatives to six terms in office and senators to two, or a maximum of twelve years in either house.
Forget the merits of this issue for a moment. Forget even the fact that turnover in Congress is near its historic high. Nearly one fifth of all House members in the 104th Congress will be in their first term, suggesting that voters know how to impose term limits themselves. The chutzpah of the proposal is its most impressive feature. Virtually every member of the Republican leadership that initiated and publicized the Contract is a living violation of the idea of “Citizen Legislators.” Newt Gingrich will soon begin his seventeenth year of Congressional service, five more than his Contract allows. Bob Dole will soon begin his thirty-fifth year. Phil Gramm has been in Congress for sixteen years; Trent Lott, for twenty-two; Alan Simpson, for eighteen; Robert Packwood, for twenty-five. About the only prominent Republican who would still be able to serve if the Contract were now law is Dick Armey, who was elected to the House in 1984—and even he would be beginning his final two-year term.
Shortly after the election, Armey suggested that with Republicans in control of the House, “maybe the nation’s desire for term limits will be diminished.” Other Republican leaders have indicated that when the Citizen Legislature Act comes to the floor it will have a grandfather clause nowhere mentioned in the Contract, exempting today’s representatives and senators from replacement by citizen legislators. “If we break this contract, throw us out,” said flyers issued by the House Republican Conference. “We mean it.” No you don’t.
Nor does the contract mean anything serious about federal spending. A principled conservative fiscal program would start by pointing out that over the next six years, federal budget deficits will total about one trillion dollars. Some economists and “deficit doves” have argued that such deficits themselves are less harmful than the draconian belt-tightening measures necessary to eliminate them. Presumably the Republicans don’t agree—if they did, why would their Contract include the Balanced Budget Amendment? Yet their contract gives no indication of where even a small share of the trillion dollars necessary to close the gap might come from.
Most federal spending, as I have said, goes for medical care, pensions, defense, and interest on the debt. The Contract, amazingly, contains not a single word about controlling medical costs, by far the fastest-rising category in federal and state spending. Its welfare reform package includes a limit on spending for today’s main welfare programs. But these represent only about 1 percent of the entire federal budget, and the Contract’s welfare package as a whole would probably increase welfare costs. (This is because the Contract recommends replacing welfare with “workfare,” which limits benefits to two or three years and then requires recipients to take jobs. Most welfare analysts believe that “workfare” could possibly bring about changes in a culture of welfare dependency, but all experts say that it would be more expensive to administer than today’s plan, not least because it entails large expenditures to find, provide, and supervise jobs.)
What the Contract says about the military implies greater spending, and what it says about Social Security requires bigger budgets. Social Security is one of the two great middle-class entitlements (the other is the tax deduction for mortgage-interest payments). For nearly two decades, politicians from both parties have tried to preserve its universality while making it subtly more “means-tested,” so that fewer benefits go to the retired rich. The main device for doing so has been to include a portion of Social Security benefits in the taxable income of retirees. This approach approximates “means testing,” since the poorest recipients are in very low tax brackets. It is also fair, since today’s Social Security recipients receive much more from the program than they and their employers put in. The surplus is additional income, which should be taxed.
The Contract would undo this twenty-year effort with a variety of tax breaks for Social Security recipients. The breaks would be most valuable to retirees who are already the richest—exactly the opposite of what principled conservatives or supporters of a balanced budget amendment should be trying to do. What principle could lie behind this proposal? The Contract’s rationale for new tax breaks for the elderly reads, in its entirety:
Americans over the age of 65 number more than 30 million and constitute more than 12 per cent of the population. Two important areas of concern for them are Social Security and the cost of long term care.
Therefore, give them tax breaks. There is nothing Republican or Democratic about this position. It is the logic of the welfare state in undisguised form.
The Contract contains one other important budgetary proposal, its recommendation of cuts in the capital-gains tax. The cuts would come in two forms: a reduction by half in the tax rate itself, and an adjustment of any capital gains to offset the effects of inflation.
Unlike the Contract’s position on prison-building or term limits, the capital-gains proposal derives largely from the remnants of supply-side ideology. Republican theorists have argued since the early Reagan years that the best way to increase US rates of savings and investment would be to lower or even eliminate the burdensome tax on capital gains. In reality this tax is not very burdensome. Its maximum rate is lower than the maximum tax on ordinary income (28 percent for capital gains, versus 39 percent for income), and no Social Security or Medicare taxes are applied to capital gains, as they are against income. The result is that rich people with much of their income in capital gains pay a lower overall tax rate than even minimum-wage workers, all of whose income is subject to payroll taxes.
Democrats have long argued that decreasing the capital-gains rate would make the tax system more regressive without making the economy any more productive, since much of the activity it would stimulate would be a simple re-arrangement of assets in search of tax gains. (Michael Kinsley summarized the economic arguments against cutting the capital-gains tax in The New Republic, December 12, 1994.) But so far the debate about the Contract’s capital-gains clause has not addressed its blatant unfairness. Instead it concerns the way the tax cut will be “scored” for budgetary purposes.
For the last few years the Congress has operated under budget-control legislation. Under these rules, if Congress does something to reduce federal revenue, through a tax cut or other change, it has to find some offsetting way to raise more money or cut other expenditures. The Republicans say that these rules are no impediment to cutting the capital-gains tax, since the cut will stimulate so much new growth that the government will collect more revenue at lower tax rates. This is the old supply-side hypothesis of the Laffer Curve and the Reagan years, but Republicans now call it “dynamic scoring” of budget effects, in contrast to the stodgy, “static” thinking of Democrats.