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The Politics Of Prosperity


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The Politics of Prosperity

Both Bush and Gore are hustling to appeal to a new class of upwardly mobile voters whose views are colored by the sizzling economy. Which one has the right stuff to keep the boom going?

C. Joseph Iacobucci is no techie, but he counts himself as one of the New Economy's winners. The 50-year-old Lakewood (Ohio) financial consultant confides that nowadays his clients "have so much money to invest [that] it has become a problem to choose the right strategy for them." Not that much of a problem, though. Iacobucci, a former hospital administrator, says the booming market has sent his earnings soaring "beyond any reasonable expectations."

The Presidential campaign? Like many New Economy voters, Iacobucci is undecided. A classic swing voter who describes himself as "a fiscal conservative [who's] tolerant on social issues" such as abortion and gun control, he has cast ballots for Ronald Reagan and Bill Clinton. He used to vote on pocketbook concerns but now feels "the most important issue is education." As for social spending, Iacobucci thinks it should be a higher priority. "There's so much tax money because of the great economy, we should use part of it to help people who are less well off."

So who will it be, Joe--Republican George W. Bush or Democrat Al Gore? Iacobucci says he'll watch intently during the conventions and debates, then will "vote for whoever I think is the smartest. I don't care whether I agree with them on everything."

With New Economy issues percolating throughout American society, politicians of all stripes are struggling to tune in to this kind of hyper-pragmatism. Increasingly, the major parties are reshaping their doctrine to appeal to Digital Age workers, many of them economically conservative, socially tolerant swing voters who live in suburbia. According to the Pew Research Center for the People & the Press, affluent "new prosperity" workers now account for one-third of all registered voters--a rapidly growing slice of the electorate.

What's more, the confluence of two trends--the Information Age productivity revolution and the record nine-year stretch of prosperity it has spawned--have transformed Campaign 2000. Far from being a typical horse race, the contest looms as arguably the first New Economy election. Tax cuts and culture wars have receded as issues. Education, health care, and concerns about keeping the high-tech boom chugging along have zoomed to the top.

Unfolding amid a burst of wealth creation not seen since the Gilded Age, the election has become less a clash of vivid party ideologies than a referendum on a government spending binge that may dwarf the New Deal and the Great Society. If surpluses keep piling up, "the spending we will get over the next decade will eclipse anything seen before," predicts Stephen Moore, president of the Club for Growth, a group that funds conservative candidates. "Both sides will get the tax cuts and spending they want--and that's not so bad."

As long as the two parties meet somewhere in the middle on spending, Moore may be right. But there's still a gulf between Bushonomics and Gore's Clinton-Plus program. Bush deserves credit for addressing the need to overhaul Social Security by boosting investment returns. But by promising to slash $1.7 trillion in taxes, he could dissipate much of the projected 10-year surplus--leaving no margin for fiscal error.

The Vice-President, for his part, seems to be generally plodding in the right direction. His primary focus on paying off the national debt is in sync with Federal Reserve Chairman Alan Greenspan's view that debt-reduction equals lower interest rates. And Gore's strong backing for education and health care reflects the priorities of New Economy voters. Trouble is, Gore is also doing back-flips to appease his base, mostly in the form of new social programs whose costs could spin out of control. The upshot: Neither candidate has the precise platform New Economy workers want.

Making matters more confusing, both campaigns are sounding eerily similar, with Bush's market-oriented "prosperity with a purpose" agenda up against Gore's activist "prosperity and progress" crusade. That's no coincidence: Both parties hope to shape a message that recognizes the new social mobility--with an echo of the Progressive policies championed by Theodore Roosevelt.SEA CHANGE. Although the analogy can be overdrawn, parallels between the Industrial Age and the Information Age are striking. Then as now, the country was roiled by a sea change in productivity, waves of immigration, and a huge and unevenly distributed spurt of wealth creation. The result: the Progressive reforms of 1901-1917, which put limits on unchecked capitalism with new worker protections, trust-busting, resource conservation, and a drive to improve public education.

"Both Bush and Gore are trying to be New Progressives," says GOP strategist Rich Galen. He believes that prosperity politics--the quest for voters like Iacobucci--will eventually "drive the parties closer together in the search for ways to spread New Economy wealth to a broader swath of society."

As Republicans and Democrats gingerly begin to meld ideas, their ideological fringes--Pat Buchanan's Reform Party populist-conservatives and Ralph Nader's Green Party dissidents--are attempting to attract voters with stark choices. Buchanan is rallying the Old Right under the banner of rabid America Firstism. Nader hopes to build an alliance of environmentalists, anti-globalists, and idealistic students united in their rejection of the corporate ethic.

"Prosperity is producing two major parties so intent on a slightly different slicing-up of the economic pie that they're not presenting voters with a choice," grouses University of Maryland historian James MacGregor Burns. "It's the worship of centrism."

Another hallmark of Campaign 2000 is the disappearance of any semblance of Old Economy political dialogue. Gone are fights over workers' job-security protections vs. business tax breaks. Muted, too, is the traditional battle over guns vs. butter spending. Guns and butter is more like it.

According to Democratic pollster Stanley B. Greenberg, "wealth has made people less materialistic, less angry, and more willing to do things for the good of the country." According to the new Business Week/Harris Poll, 67% of Americans feel that with the economy humming, more money should be directed to the poor. With voters feeling altruistic--and politicians holding buckets under a gusher of tax revenues--the post-industrial agenda will concentrate less on dismembering government and more on using its riches.

Among the new debates: how to divvy up a surplus that the Congressional Budget Office (CBO) projects will hit $2.2 trillion in 10 years; what role government should play at a time when citizens ask less of Washington and care little about partisan politics; and what should be done to help workers whose wages have stagnated during a decade of mind-boggling prosperity.

To grasp just how nouveau riche the nation has become, consider that in 1990 the federal government took in $1 trillion. This year, the take will be $2 trillion. And in 2010, according to official estimates, the hoard could grow to $3 trillion. That means Treasury expects to collect more cash in one year, 2010, than was raised from the first Continental Congress until 1972.

"Just as [at] the turn of the 20th Century, we could be at another `hinge in history,"' says Rutgers University political scientist Ross K. Baker. "The common denominator is rapid technological change." But unlike the turmoil that marked the advent of the Industrial Age, today's prosperity debates are not being played out amid smoldering discontent over the plight of exploited laborers or amid the gunpowder scent of incipient revolt. University of Michigan social researcher Raymond F. Inglehart describes the current mood as "post-materialism," a time when the children of affluence look beyond pay-stub issues to broader quality-of-life concerns.

Another consequence of Info Age empathy, according to Ohio State political scientist Paul Beck, is the rekindling of the reformist ideal. "The Progressive reforms [of Roosevelt and Woodrow Wilson] were in part an egalitarian drive to control excesses of the great wealth created in the Gilded Age," he notes. "We may be seeing something like that now in the interest in campaign-finance reform."

And politicians are starting to see the digital handwriting on the wall. "Both parties are trying to figure out what to do at a time of abundance," says Heritage Foundation scholar Marshall Wittmann. "Bush and Gore are going around saying, `Man does not live by bread alone.' You see New Democrats and New Republicans converging.""LITTLE GUY." Not, however, when it comes to the argument about which candidate best captures the reform spirit. Sitting in an Austin office decorated with two photos of T.R., Bush uber-strategist Karl Rove claims that, like Teddy, Dubya "is an activist reformer with an understanding that the country is in new circumstances."

Back in the Veep's Nashville headquarters, Deputy Campaign Manager Tad Devine says it's his man who embodies the Progressive ideal. "Gore is the heir to that tradition. He cares about the environment and says, `I'll stand up for the little guy."'

Political scientist Baker finds the tussle over Teddy amusing. "I have a hard time seeing either Bush or Gore referring to capitalists as `malefactors of great wealth,' a term Roosevelt used."

In reality, both Bush and Gore are embracing some reformist ideas that are at odds with their parties' past. Case in point: revamping education. The GOP has joined the Democrats to make improving literacy, math and science education, and teacher accountability their top domestic thrust--expanding the federal role in an area dominated by states. That's based on the belief that in the Info Age, education is the best ticket to income security. "Education [has been] transformed" from a mere social issue, says Karlyn Bowman, a demographer with the American Enterprise Institute. "Now it's an economic issue."

Bush and Gore, however, take different paths to reform. Bush wants to give states and local school districts more flexibility to experiment--but would impose federal accountability standards. For districts that fail to boost poor kids' test scores, Bush proposes a radical step--giving low-income parents the option of using public money to shift their children to private or religious schools. Bush also favors tax breaks to help parents subsidize tuition for both colleges and private K-12 education.

Gore prefers to devote $115 billion to a massive program devoted exclusively to shoring up public schools. He would boost school construction, hire more teachers, reduce class size, and expand computerized learning. In contrast to GOP voucher plans, the Veep prefers experimenting with privately run charter schools and giving parents more leeway to choose among public schools. He'd also fund a universal pre-school program and provide generous tax incentives for college.

Who gets the top grades? Gore scores highest for putting his money where his mouth is. But the Veep still seems in thrall to the bureaucratic system championed by teachers' unions. By giving states more leeway to experiment with schooling, Bush may be closer to the public's "we'll try anything" view of public schools. Give him an A for boldness, a gentleman's C for dissembling about his fondness for vouchers.

Bush and Gore are also locked in a fierce competition over who would be best for Americans' pocketbooks, with the tax credit a key weapon of choice. "We have a war of tax credits," says Bruce Buchanan, a University of Texas political scientist. "It's an artifact of `spend-the-surplus' politics."

Overall, Bush would slash taxes by $1.7 trillion over 10 years. His plan reduces the 39.6% and 36% top brackets to 33% and trims the 31% and 28% brackets to 25%. There is a new 10% bracket for the lowest-income taxpayers. Veering from Reaganesque across-the-board rate reductions by trimming rates more at the bottom permits Bush to claim that he's a different kind of supply-sider: a tax-cutter with a heart.

But while Republican base voters love big marginal rate cuts, voters at large are yawning. In 1979, the Gallup Poll found that 62% of Americans cared a lot about slashing taxes. By August, 1999, the number dipped to 21%. Bush is plowing ahead, but the only buzz he's generating on the tax front is over his fistful of "compassionate" tax breaks. He's proposed at least a half-dozen, including incentives for education, health care, and child care, plus breaks for some heirs and married couples. He also has new incentives to encourage charitable giving.

Gore skips rate cuts in favor of targeted breaks that amount to $500 billion over 10 years--bigger than anything proposed by the Administration. He promises tax relief for low-income workers, married couples, and heirs. He creates two new tax-advantaged savings accounts, two write-offs for education, and other preferences for everything from buying health insurance to buying fuel-efficient cars. He has a tax credit for child care and another for after-school expenses."TAX CANDY." What's novel about the Bush-Gore tax-credit duel is how far it veers from the underpinnings of the sweeping 1986 tax revisions. The theory behind reform was that by knocking out small breaks, the tax code would be simpler and more efficient--thus promoting more savings and lower rates.

"The one thing everyone agrees on is that the code is too complicated," says Brookings Institution economist William G. Gale. "Both [Bush and Gore] are making it more complex. This is the undoing of tax reform, with a vengeance." Adds Kevin Hassett, an American Enterprise Institute economist: "Bush is using these little goodies to show he's compassionate. Gore just flat loves them. It's tax candy."

Another New Economy confection: the trend toward new middle-class social programs. To the distress of some economists, many are cast as entitlements--programs that guarantee aid to entire groups without regard to future costs. "We are seeing a new entitlement era," frets Urban Institute economist Rudolph G. Penner.

Both Gore and Bush would expand drug benefits for retirees. But Gore goes much further. He would broaden the existing Medicare program, requiring modest increases in cost-sharing by the elderly. By contrast, Bush relies on private insurance plans partially subsidized with tax dollars.

And Gore wouldn't stop there. He wants to give new grants to the working poor by expanding the Earned Income Tax Credit by up to $24 billion. He is also calling for a new $200 billion savings plan to supplement Social Security. Dubbed Retirement Security Plus, it would not only give workers a tax break for saving but also requires the government to provide a cash match for low- and middle-income wage earners.

To the Bushies, reentitlement smacks of Big Government. Bush "wants to provide tools that allow Americans to empower themselves, not the old entitlement tools," says former Indianapolis Mayor Stephen Goldsmith, the Texan's top domestic adviser.

Confronted by this charge, Gore has a ready answer: After a nine-year boom, it's time to use the surplus to help the economically stressed, among them single working moms and seniors struggling with soaring prescription-drug prices. "We'll deepen prosperity," Gore said on June 13, "and extend it to the homes and hearts of every family."

Although the campaigns differ on approaches, both acknowledge that the government has a role to play in extending prosperity to more citizens. For Republicans, this is a big step away from Ronald Reagan's ringing 1981 declaration that "government isn't the solution--government is the problem." Trinity University political scientist Diana Evans says that while there is continued skepticism about government efficacy, "people [still] want government to solve problems."

But there is a price for activism on autopilot. Less than a quarter of entitlements are means-tested, a way of phasing out benefits for the well-off. Once automatic benefits are codified into law, long-range budget discipline becomes extremely difficult.RISING TIDE. Current entitlements--largely Social Security, Medicare, and the nursing-home portion of Medicaid--eat up an ever-greater share of spending. In 1970, entitlements made up about a third of the budget. This year, it will be more than half. And in 10 years, the CBO estimates the figure will exceed 70%. Robert L. Bixby, executive director of the Concord Coalition, a budget-reform group, calls the trend "alarming. We haven't figured out how to pay for the ones we have, and we're adding new ones."

While the Gorefolk and Bushies duke it out over the best path to social advancement, there is far more accord in the two camps over another New Economy phenomenon, the rising influence of the investor class. With more Americans playing the market, pro-investment policies are being shoved higher on the political agenda.

In 1989, only 32% of U.S. families owned stock, according to the Fed. The figure grew to nearly 49% by 1998. The investor mentality has transformed the Social Security debate from an inflammatory issue into a dialogue about which party has the best plan for private investments that would use the market to bolster the system's anemic returns.

Bush would allow wage-earners to divert about 16% of payroll taxes into private accounts. Gore wants to retain the existing Social Security system but would add a new tax-advantaged savings plan to supplement it. In theory, a swell idea, and one that can boost savings. But by adding on to the current rickety system without tackling underlying reforms, Gore is really sidestepping an issue New Economy voters claim they care a lot about: making fundamental changes to assure that future generations' retirement is more secure.

Republicans think their plan is a winner because young knowledge-economy workers are more comfortable with investing and less risk-averse than their parents. "People are more sophisticated now because they manage their own finances," says Lawrence B. Lindsey, Bush's economic guru. Lindsey sees this as validating Bush's private Social Security accounts. Treasury Secretary Lawrence H. Summers agrees that "people are more deeply connected to the financial system than ever before" but thinks that means they'll favor Gore's debt-reduction efforts.MARKET MAVENS. The public's pro-investment bias may account for the broad support for repealing the inheritance tax--a levy that applies to only 2% of the richest estates. "What's wrong with being a millionaire in America?" asks Senate Banking Committee Chairman Phil Gramm (R-Tex.).

Investors' clout plays out in several ways. For Republicans, it shifts power from religious conservatives toward a more socially tolerant entrepreneurial class. For Democrats, it pushes the party further from the remnants of a business-bashing Left. Says the GOP's Galen: "The New Economy reduces the influence of both fringes."

As moderate Democratic ranks grow in Congress, class-warfare appeals are waning. "My people used to pick up the sports pages first," says top Gore political operative Michael Whouley, whose roots are in the blue-collar politics of Dorchester, Mass. "Now they read the stock tables. New Economy issues are kitchen-table issues."

Although investors enshrine entrepreneurship, they're not willing to give business a free ride in the Digital Age. The period's record wave of mergers arouses the public's traditional suspicions of bigness. The Business Week/Harris Poll found that by 58% to 29%, Americans favor tougher antitrust enforcement.

The Administration's response has been to launch spirited antitrust action against companies deemed to be stifling competition or engaging in predatory behavior. The push was capped by the stunning verdict to break up Microsoft.

It's no surprise that Gore would continue this thrust. What's interesting is that Bush isn't calling for a Reagan-style rollback. With the exception of the Microsoft case--which some Bush aides think was a stretch--the Texan seems within the moderate GOP tradition of antitrust vigilance. "Bush is a small-businessman through and through and is an adamant anti-Big Business guy," insists Lindsey. "A Bush Administration would very much focus on checking mergers, which is an appropriate role for antitrust."

Trust-busting harkens back to Teddy Roosevelt's Progressives. But the Info Economy requires new forms of consumer protection. An emerging frontier: Internet privacy and Web fraud. According to a June 7-8 Fox News/Opinion Dynamics poll, 69% of Americans are "very concerned" about the ability to keep sensitive personal information confidential on the Net.

The Federal Trade Commission is pushing for new online-privacy rules, with Bush backing tough protections. Gore, by contrast, leans toward industry self-regulation. "Bush is talking about much more meaningful protection," says David Sobel, general counsel of the nonpartisan Electronic Privacy Information Center. Former White House Internet czar Ira C. Magaziner disagrees. "In the industrial economy, you created agencies to regulate," he says. "In the Net economy, you empower consumers to decide how much privacy they want or how much porn to filter. People vote with their fingers. Regulators are the backup protection."

Of all the New Prosperity effects, the trend toward micro-politics elicits the most agreement. With Washington-based 10-point plans less relevant to voters, national politicians are reduced to offering bite-size policy morsels. It is the era of the teeny tax credit and the state-run pilot project. "Bill Clinton and [ex-political guru] Dick Morris perfected the art of the policy miniature," says former Labor Secretary Robert B. Reich, a Brandeis University scholar. "Now, everyone is doing it."

Gore, for instance, has developed a "livability agenda" that focuses on such backyard concerns as suburban sprawl, traffic snarls, and the need for more green spaces. Bush promises to accelerate cleanup of toxic waste sites but isn't matching his rival park for park. "Traffic congestion is an irritant, but it's not something voters think is going to get solved," says Bush media adviser Matthew Dowd.

While New Republicans and New Democrats vie to craft new issues for prosperous times--some grand, many minimalist--economists caution that the current debate fails to even hint that today's techno-boom could become tomorrow's techno-bust. Even a New Economy booster like Greenspan feels that productivity gains from the new technological revolution will taper off. When they do, the economy will slow, and the revenue-gusher will, too.

As the Asian economic meltdown or the recent oil-price spike showed, the U.S. also remains vulnerable to external shocks that could trigger a recession. That's why some New Economy thinkers view pols' talk of a national spending spree with alarm. "Entrepreneurial companies live in a world of risk," says Patrick Von Bargen, executive director of the National Commission on Entrepreneurship. "They don't need additional risk from a big-spending government. The pressure from New Economy companies will be to maintain the surpluses."

If that's techies' hope, they should forget it. Bush, Gore, and their more hyperactive congressional brethren are preparing to spend like drunken New Economy sailors on tax plans and expanded social programs. "It's like the [early] 1960s," sighs economist Penner. "We have a peace dividend, a burst of growth, surpluses piling up, and people thinking it will never end."

For now, such warnings are far from the candidates' minds. With the same unquenchable optimism that sees tech-stock traders ride the zigs-zags of the New Economy boom, Republicans and Democrats are spinning agendas based on surpluses that may prove illusory. They are designing new incentives, dreaming up new programs, and seeking your vote with the huckster's cry of TV host Regis Philbin: "Who wants to be a millionaire?"By Lee Walczak, Richard S. Dunham, and Howard Gleckman, with Rich Miller, Lorraine Woellert, Amy Borrus, and Paula Dwyer, in Washington, and with Ann Therese Palmer in ChicagoReturn to top


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