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An Old War Horse Has His Day


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AN OLD WAR-HORSE HAS HIS DAY

A one-on-one meeting with the President doesn't come along often, even for a powerful Senator. So when Bill Clinton invited Daniel Patrick Moynihan to share his limousine during a Feb. 19 trip to Hyde Park, N.Y., the new chairman of the Senate Finance Committee had a chance to press his views on the tax and health-care issues coming before his panel. Instead, the New York Democrat pushed an issue that's dear to his heart but low on almost everyone else's agenda: welfare reform. Moynihan reminded Clinton that he must follow up on his campaign promises to end welfare dependency.

TRIAL BALLOONS. That's pure Moynihan. While the 66-year-old academic-turned-politician counts himself as an ally of the White House, the thoughtful but quirky Senator is already shaping up as a difficult friend for the President. Moynihan will work hard for the Administration's programs--he played the loyal foot soldier at his first hearings on Clinton's tax plan on Apr. 20--but not at the expense of his own agenda. And he is not inclined to stifle his criticism of Clinton when he thinks that the White House is on the wrong track (table).

Already, Moynihan has publicly questioned the wisdom of Clinton's investment tax credit (ITC). He let it be known that he's no fan of the White House's partisan approach to its stimulus package. He doesn't hide his displeasure that he has had to learn about White House revenue ideas, from higher taxes on Social Security benefits to a possible value-added tax, through trial balloons in the press. And he's especially displeased that Administration officials don't seem to care much about welfare reform, a Moynihan preoccupation for three decades. "I'm pretty satisfied his Clinton's mind is on it," the Senator says. "I'm not sure everyone in the Administration thinks that way."

Because the Finance Committee has jurisdiction over the bulk of Clinton's domestic agenda--55% of all federal spending--these views can't be ignored. As the President found out in January, when an anonymous aide told a reporter that Clinton would "roll right over" the New Yorker if he opposed the Administration's efforts, he needs Moynihan. "It was a real screwup," observes a senior Clinton adviser. Says Brookings Institution political analyst Stephen Hess: "It was so gratuitous, unnecessary, foolish, and juvenile--and inaccurate."

Chief White House lobbyist Howard Paster, a Capitol Hill veteran, has tried to patch up the relationship ever since. "Senator Moynihan has been around the city for a long time," says Paster. "He is going to speak his mind, and he is not going to withhold judgment. The good news is: He has voted with us consistently. There's no sense that he's trying to undercut the Administration."

During the years that he has been moving up the ranks of the Finance Committee, Moynihan has rarely been a leader in tax debates, although he worked closely with former Chairman Bob Packwood (R-Ore.) to craft the 1986 reform law, which lowered rates and eliminated many deductions. But unlike the Clintonites, he is philosophically opposed to using the tax code to promote social policies. That's one reason he doesn't like the ITC.

Still, Moynihan is a successful politician--and no purist. He regularly pushes for tax breaks that benefit New York museums, cooperative apartment owners, and stockbrokers. And he good-naturedly acknowledges the occasional inconsistency. "We're going to have an energy tax, which we need," he told BUSINESS WEEK. "If you have to raise revenue, it's a legitimate area.... It is probably good social policy. Whoops! I shouldn't have said that."

'A DOOZY.' Moynihan readily admits that new taxes are needed to pay for the Democrats' social agenda. But he'll try to rein in any excessive tax-and-spend proclivities. Moynihan is especially skeptical of a value-added tax, which the White House is considering to fund its health-care reforms. He dislikes the hidden nature of the tax and believes it would be a nightmare for businesses to collect. Implementing a VAT along with the energy tax Clinton has already proposed would be "a doozy," he says. "If you think you can do that and a value-added tax in the same decade, then you know more than I do."

The need to fight the deficit may also keep Moynihan from pushing some of his own favorite tax provisions. "There is a very strong case for indexing capital gains," he notes. "But we have been adding $1 trillion in debt each Presidential term since Mr. Reagan, and we're scheduled to add $1 trillion this Administration. That is issue No.1."

The deficit handcuffs will also spur Moynihan's desire to shift more of his committee's attention from taxes to broader social policy. "We think of the Finance Committee as the Finance Committee, but we don't think of it as the committee where most American social policy is located," he says. He rails about bureaucrats in the Health & Human Services Dept. who tend to resist any changes in the welfare system. Work, not dependency on the government dole, is the answer to America's cycle of poverty, he claims. "There is no worse thing for a person than not to have a job," he says. "And there is no finer deed that society can perform than to find someone a job."

Moynihan has thought about these problems at least since his days as a New Frontiersman at the Labor Dept. in the 1960s. After a stint back at Harvard, he returned to Washington as an urban-affairs expert and Democrat-in-residence in the Nixon White House--where he won notoriety for his warnings about welfare dependency and the deterioration of the black family. Nixon named him envoy to India, and Gerald Ford tapped him as U.N. ambassador.

Major-league power. In 1976, Moynihan won a Senate seat in his first bid for elected office. He has generally voted as a loyal and liberal Democrat on domestic issues while taking a more hawkish stance on foreign policy. And he has earned a reputation as a brilliant and eccentric intellectual in the clubby Senate. Moynihan made the big leap to major-league power on Capitol Hill this year when he moved into the vacancy created by the appointment of Finance Chairman Lloyd Bentsen as Treasury Secretary.

How much will he influence policy? Critics charge that Moynihan's desire to work with the White House will make it easy for Clinton to co-opt him. "I don't know if Moynihan has the political strength to stand up to the White House," says Heritage Foundation tax analyst Dan Mitchell. But others suspect he's made of sterner stuff. "Moynihan is in a very powerful position and he has deeply held long-term views," says Lee M. Miringoff, director of the Marist Institute for Public Opinion. "There is no doubt that he is going to force Clinton to move on some issues."

The Clinton Administration doesn't like to be pushed around, especially by a Democrat. But the White House has no choice but to listen to Professor Moynihan's lectures. And if the President does, he might learn a few lessons, not only in economics but also in the tough reality of dealing with social issues.

On using the tax code for social goals

"In the main, our principle is: You want the tax code as little as possible to affect economic behavior. You don't want people

doing one thing and not another thing because there is a tax

advantage."

On Clinton's investment tax credit

"The ITC just has a reputation it has to overcome on the tax-writing committees, in the economics profession, and in the business world, which is that it just invites the kind of manipulation of the tax code which we all said we were against.... It's the '86 principle that is at issue here."

On a value-added tax

"Conservatives are not going to be pleased. They will like the regressivity, perhaps, but they won't like the idea that it's an invisible tax. You can have lots of it. It makes for more public-sector activity than less. We're living off the payroll tax right now.... The value-added is not as simple as it sounds. A good rule is if you can't explain it, you can't pass it."

On the need for bipartisanship

"Health care is either going to be a bipartisan matter or there is no point in even bringing it up. On the Republican side, Senators Chafee and Durenberger and Packwood...have really worked hard on health care. We wouldn't have enough smarts to do it without them--and I wouldn't want to."

On designing a health-care reform program

"First, do no harm.... We have to be careful what we cut open or cut off. We have an elemental problem in health care: We have to persuade the American middle class to go to the doctor a little less often. And the only known way to do that is to make them pay in more immediately visible ways."

On the need for welfare reform

"We can show you with some precision that in 1980, 31.5% of children born in the United States would be on welfare before age 18.... You're absolutely wiped out.... Welfare reform is a huge commitment.... I'm pretty satisfied Clinton's mind is on it. I'm not sure everyone in the Administration thinks that way."Richard S. Dunham in Washington


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