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Back To The Trenches


News: Analysis & Commentary: CONGRESS

BACK TO THE TRENCHES

As Congress launches into the final, frenetic months of the legislative session, Republican leaders still are trumpeting the rhetoric of radical reform. "This will not be an autumn of compromise," says Senate Majority Leader Bob Dole. "This fall, we will win our fight for revolutionary change, vote by vote and bill by bill."

Despite this political chest-thumping, the GOP has had to retreat from much of its original promise of wholesale change. But in America's boardrooms, the thrill of victory outweighs the agony over a few GOP defeats. Far from moping about the dwindling prospects for some key items of the Republican Contract With America, most CEOs feel that the 104th Congress represents a milestone for business: Never before have so many goodies been showered so enthusiastically on America's entrepreneurs.

By yearend, Republican firebrands could deliver on some of business' top priorities. Congress will consider a budget plan, for one, that would wipe out the deficit over seven years. Business also sees hope for passage of a cut in the capital-gains tax and some relief from overzealous regulators.

Executives won't get all they have been pining for. House Republican radicals returning from summer recess are finding that moderate Senate Republicans--often allied with Democrats--are watering down the conservatives' agenda. President Clinton is waving his veto pen to force more concessions. And Senator Bob Packwood's decision to fight an Ethics Committee recommendation to expel him for sexual misconduct poses another complication. Most key items of the GOP agenda must pass through the Finance Committee, which the Oregon Republican chairs.

Some business leaders also worry that hot-button social issues are diverting lawmakers from economic matters. "They better put some money on the bottom line," says T.J. Rodgers, CEO of Cypress Semiconductor Corp. "All this other stuff--like griping about immigrants--isn't going to cut it."

Even if conservative Republicans lose some, though, corporate interests believe that by shifting the debate to the best way of reining in Washington, the GOP already has guaranteed that business will be a winner. "Clearly, dramatic change has occurred already," says John W. Snow, CEO of CSX Corp. "The mood in Washington is fundamentally different from the mood a year ago."

As the battle progresses, issues that matter to business will draw plenty of partisan fire, obscuring signs of the revolution's true progress. These key skirmishes will be critical if Republicans are to turn up winners:

-- BALANCING THE BUDGET. House and Senate Republicans have passed different budget plans that would kill off the deficit in 2002 by slashing more than $1 trillion from projected federal spending. The key is finding a way to curb entitlements, such as Medicare, as well as scrapping entire areas of government largesse--farm subsidies, for example. "They have to eliminate whole programs. Otherwise, they will balloon again," warns William A. Niskanen Jr., president of the libertarian Cato Institute.

Despite early GOP avowals to kill four Cabinet departments, Republicans haven't eliminated any. Corporate subsidies, such as Agriculture's export-promotion program, are intact. Even pet targets, such as the National Endowment for the Arts, remain in business, albeit with reduced funding.

Daniel Mitchell, an economic analyst at the Heritage Foundation argues that the overall budget is what matters most to GOP reformers. "If Congress passes legislation that will balance the budget by 2002," he says, "that is a dramatic change compared with the status quo." Executives agree: Most believe any significant cuts in the deficit will help business by lowering interest rates.

-- CUTTING TAXES. A cornerstone of the GOP plan is a massive tax cut that includes family tax relief and new incentives for business. The House has passed a $350 billion cut over seven years, while the Senate backs a $245 billion measure that is contingent on future spending cuts. Meanwhile, Clinton wants a $105 billion middle-class tax reduction.

Despite early predictions that the GOP would have to ditch much of its tax program because of budgetary pressure, it now appears that Congress will approve key elements of the plan. "If the Republicans get a family tax cut and a capital-gains cut, that would be Revolution with a big R," says business consultant Kenneth M. Duberstein, former chief of staff to President Reagan.

Even though the tax cut is sure to be whittled down to $200 billion or so, business will have good cause to crow if half of all capital gains are excluded from taxation, as proposed. And House Speaker Newt Gingrich will show that unlike Clinton, who wavered on his promise for a middle-class tax cut, the Republicans can deliver.

-- MASSAGING MEDICARE. The GOP's balanced-budget arithmetic hinges on squeezing $270 billion over seven years from Medicare. Republicans are working on plans to restructure the program by increasing costs to seniors who seek fee-for-service care or by issuing vouchers that they can use to buy private coverage. The hope is to slow Medicare's 10% annual growth rate to 6.4%.

Democrats counter that GOP reforms would raid the Medicare trust fund to pay for a tax giveaway. Under pressure, Republicans may have to abandon structural reform and settle for traditional measures, such as lowering payments to providers.

-- LIBERATING BUSINESS. House radicals have passed sweeping reforms that would apply brakes to regulations on business and undercut enforcement of environmental, health, and safety regs. But the measures have been blocked in the Senate by moderates of both parties who view the reforms as extreme. Although House radicals won't get all the relief they want, business is sure to be pleased that the GOP has begun to reverse years of ever-increasing federal oversight. Alexander J. Trotman, CEO of Ford Motor Co., says he's hopeful that Republicans will revamp regulations that "had little or no value to society and reduced the competitiveness of industry."

The GOP is likely to hand business a victory by passing a telecommunications overhaul that would strip controls on cable rates and relax restrictions on the number of stations a broadcaster could own. Winners are the Baby Bells, which would enter the long-distance phone business earlier than expected; some analysts think AT&T, MCI, and Sprint may fare less well with the changes.

By the time Congress wraps up its work near the end of the year, one thing will be clear: The GOP will have presided over one of the most productive sessions in recent memory. To Republican commandos and their business admirers, though, the revolution has just begun.

THE REPUBLICAN REVOLUTION?

Handicapping Congress' chances of passing bills important to business

TAX CUTS

SUCCESS $200 billion in cuts, including capital-gains, family tax relief, and expanded IRAs.

FAILURE A modest, Clintonesque cut of around $100 billion with no significant breaks for business investment.

OUTLOOK Success.

BUDGET CUTS

SUCCESS Scrapping outmoded government programs. Examples: Eliminating farm supports and the National Endowment for the Arts, privatizing the FAA's air-traffic control system. Deep Medicare cuts.

FAILURE Moderate cuts leaving a sizable budget deficit.

OUTLOOK Probable failure.

DEREGULATION

SUCCESS Removing government obstacles to expansion in the fast-growing communications and financial-services industries.

FAILURE Special-interest lobbyists scuttle banking and soften telecom reform.

OUTLOOK Mixed.

REGULATORY RELIEF

SUCCESS Dramatically paring enforcement programs at EPA, OSHA, FDA, and other federal watchdog agencies. Tort reform that limits costly corporate liability suits.

FAILURE Democrats and moderate Republicans block efforts to disarm the regulators and rein in the trial lawyers.

OUTLOOK Success.

DATA: BUSINESS WEEKSusan B. Garland and Mary Beth Regan, with Paul Magnusson and John Carey, in Washington


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