BUSINESSWEEK ONLINE : AUGUST 28, 2000 ISSUE
NEWS: ANALYSIS & COMMENTARY

Team Gore's Dilemma
The Veep's campaign faces a tough task: Pleasing centrists--and liberals

As Vice-President Al Gore prepares to accept the Democratic nomination in Los Angeles, the stakes for his party have seldom been higher. Not since 1948 have Democrats put together three straight White House victories. And Gore, despite his combative streak, is no Harry Truman--at least so far. After months of campaigning, he has been unable to make the kind of down-home personal connection with voters that both Truman and Gore's boss Bill Clinton have been famous for. And despite eight years in the public eye, Gore has failed to convince the public of his role in the Clinton era's sizzling record of prosperity.

To help connect the Vice-President to the good times, Democrats plan to turn their convention into a series of ''real people'' vignettes in which average folks explain how the economic boom changed their lives. But the fortunes of the Tennessee Democrat will rise or fall on his ability to use the L.A. convention and his Aug. 17 acceptance speech to recast himself as a strong leader whose don't-rock-the-boat economic policy represents the better choice for voters contemplating a gamble on untried Bushonomics.

''TOUGH TIME.'' Unfortunately for Gore, he'll face an electorate that will force him to head down two tracks at the same time. First, he must champion Clinton's centrist, pro-growth doctrine to woo economically conservative independents. And because of the inroads by Green Party insurgent Ralph Nader, Gore must also halt further liberal defections with calls for increased social spending and a little bashing of Big Oil, polluters, and the pharmaceutical industry. Gore faces a strategic dilemma, notes Terry Madonna, a pollster with Pennsylvania's Millersville University. The result, says Brad Coker, of Mason-Dixon Research: ''He will have a tougher time holding the left than Bush will have with the right.''

The Vice-President's camp is optimistic that his bifurcated approach will work. And Gore is cheered by the boost he received from the selection of Connecticut Senator Joseph I. Lieberman as his running mate. But George W. Bush has made the balancing act a bit harder for Gore. At his convention, the Republican candidate shifted the GOP image from that of a party focused on preserving the wealth of the Old Guard to one eager to provide opportunities and tax breaks for the middle class. ''Bush brilliantly redefined Republicanism,'' says Democratic consultant Hank Sheinkopf. ''That's why he now occupies the center. Gore's job is to push him out. This means shucking off Bill Clinton's [scandal] baggage and taking credit for Clinton's goodies--the main goodie being the economy.''

The choice of outspoken moralist Lieberman will help Gore deflect GOP attacks on Clinton-era sleaze. But despite the stunning Clinton economic record--strong growth, 22 million new jobs, and the shift from deficits to a

10-year non-Social Security surplus projected at $2.2 trillion--voters give Clinton's No. 2 little credit for the good times. A July 21-24 BUSINESS WEEK/Harris poll found that only 8% of Americans give Gore ''a lot'' of credit for the boom.

Still, he doggedly plans to remind voters of his 1993 decision to side with Administration fiscal hawks on the need to gut a $100 billion ''investment budget.'' To Gore, this is a testament to leadership, since liberals howled over the change. But like everything else in Gore's dualistic strategy, this is a two-edged sword. While moderates may view his role as proof that he's a bona fide New Democrat, liberals are reminded of the Administration's many tacks rightward. Besides the deficit-reduction plan, there was support for the North America Free Trade Agreement, the 1996 welfare reform act, and the 1997 balanced budget deal. ''Prosperity was purchased at the price of a lot of Democratic blood,'' says party pollster Mark Mellman.

Nonetheless, Gore is prepared to make his stand on a program of fiscal restraint. This is in stark contrast to Bush, who has built an agenda around big tax cuts and a plan to privatize part of Social Security. While Bush targets nearly all of the non-Social Security surplus for tax cuts, Gore would use at least $400 billion to pay off a chunk of the national debt and pledges to eliminate the debt by 2012. He claims this would not only shore up Social Security for the foreseeable future, but would also lead to lower interest rates. ''The party has moved from 'tax and spend' to 'spend and save,''' says Gore senior adviser Tad Devine. ''Paying down the debt has become an important idea in American politics.''

Gore's stance has won plaudits from bond-market mavens. L. Douglas Lee, president of consulting firm Economics in Washington, based in Potomac, Md., says that thanks to the Vice-President's stress on savings, ''the bond market would be happier under Gore than Bush.'' And while it hasn't helped Gore yet, Federal Reserve Chairman Alan Greenspan says that zeroing out the debt should take precedence over tax-cutting.

Gore's harping on debt-reduction isn't just an actuarial exercise. It's meant to score points with upper-income swing voters whose investment portfolios are very interest-rate sensitive. Indeed, he plans to resurrect much of the responsibility rhetoric GOP maverick John McCain used to appeal to independents during his brief campaign for President.

''TAX CREDITS.'' But while sermons about fiscal resolve may win Gore converts with independents, they leave some elements of his liberal-labor base cold. So Gore has to come bearing gifts: He promises new Medicare benefits, expanded children's health insurance, and jobs for thousands of new teachers in a future Gore Administration. And he has $500 billion in targeted tax credits aimed at lower- and middle-class taxpayers for purchases of everything from fuel-efficient cars to child care to health insurance.

In the end, though, Gore's biggest selling points with the Left and minorities aren't his micro-programs. It's the idea that the poor have been making steady progress under Democrats, and that a President Bush could stop this social mobility in its tracks. ''The liberals will be there in the end,'' predicts Sheinkopf. ''Where else are they going to go?''

When it comes to Social Security, Gore is taking his familiar ''don't-fix-what-isn't-broken'' approach. With the U.S. on a path of hypergrowth, he reckons the retirement fund can stay out of the red for decades. So unlike Bush, who would slice off a piece of the current system to create individual investment accounts, the Democrat wants to leave the current framework unchanged. His new idea: a $200 billion Retirement Security Plus plan that gives low- and moderate-income workers a tax break for savings and provides a government match for those earning under $100,000.

Politically, this reassures seniors that their benefits remain sacrosanct. And it's a winner with the middle class, since RSP's matching dollars amount to an outright cash grant. Nonetheless, economists doubt that low-income workers will be able to squirrel away much money in the accounts. And the Bush campaign insists that Gore's proposal will lead to the creation of a costly bureaucracy to oversee minimal benefits. Particularly with younger voters more willing to take risks with retirement savings, the Texan's call to divert up to 16% of payroll taxes into individual investment accounts may be more appealing.

''LESS COSTLY.'' In the case of Medicare, Gore acknowledges the financial crunch--but he would still pile on new benefits. He backs a new prescription drug plan for seniors that he says will cost $75 billion over five years, although some experts worry that the rapidly rising cost of prescription drugs could push it closer to $400 billion over a decade.

Economists who have studied Goreonomics believe that its impact could be modest when it comes to spurring more growth. Goldman, Sachs & Co. estimates the plan boosts annual growth by only 0.1% for the first five years. By contrast, the Bush plan would add 0.3%. Gore's proposals would add about 0.25% to inflation by the tenth year, while Bush's would have three times that impact on inflation. Goldman economist Edward McKelvey figures that with the economy strong, the Federal Reserve would raise rates by about a quarter point to offset increased consumption generated by Gore's proposals. His take on Goreonomics: It's ''less costly, [but] more confusing'' than Bush's alternative.

An exceedingly modest plan wrapped in futurist rhetoric? That seems to be the experts' assessment of Gore's steady-as-she-goes agenda. But Gore--who derides his opponent as the embodiment of risk--may be running one of his own. By opting to just tweak the government's outmoded bureaucracy, he's playing it safe. But if he underestimates Americans' longing for change, he could play into a Bush strategy built on the premise that sweeping calls for renewal are a better ticket to the White House than paeans to a prosperous status quo.

By Lee Walczak, Howard Gleckman, and Richard S. Dunham, with Paula Dwyer and Rich Miller in Washington

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