Class war was trumpeted once the budget summit entered its do-or-die phase a week ago at the Andrews Air Force Base officers' cocktail lounge.
A Bush administration official quickly calculated the impact of the Democratic proposal and whispered his findings to the Republican congressman seated next to him. By removing the salary cap on the Social Security payroll tax plus a few other gimmicks, the present top income tax rate of 28 percent would rise -- by stealth -- to 40 percent.
The White House was not buying that, but the proposal revealed what was really going on at Andrews. It was not radical reduction of government spending; the Democrats first proposed a $50 billion increase over five years. This was the old political game: wooing voters by soaking the rich.
Claims by both President Bush and Democratic leaders that the slumping $4 trillion economy somehow will be uplifted by $20 billion to $30 billion in spending cuts are laughable. The item on the table that might generate economic growth is not the modest package of random spending cuts but Bush's call for lower capital gains rates.
Democrats have linked capital gains reduction to raising the 28 percent income tax rate to at least 35 percent. Republican congressional leaders, accustomed to defeat and surrender, were ready to either make that deal or give on capital gains entirely.
But when the officers' club showdown began, House Republican Whip Newt Gingrich and White House Chief of Staff John Sununu each had laid down the line that capital gains cuts are essential to any agreement. Thus, the test for Democrats became how they could compensate by soaking the rich.
Sen. Bob Packwood, senior Republican on the Senate Finance Committee and an ingenious tax strategist, pressed a long-standing White House proposal to limit federal deductions of state income tax payments by the rich. That is class warfare with a twist, undermining the likes of New York and New Jersey, which get the federal system to subsidize their high state tax rates.
If they swallowed that trade, Democratic negotiators would run into New York Gov. Mario Cuomo's buzzsaw. Thus, a new pound of flesh demanded for capital gains reduction: a 20 percent surtax on super-incomes, variously defined as over $200,000 or $500,000 a year.
This is revisiting the bad old days. Since a 20 percent surtax verges on confiscatory, the tiny number of taxpayers affected would do all they could to postpone or shelter income and thus avoid being taxed at that rate. Actual tax revenue would be far less than anticipated, but distortions in investment decisions would be rampant.
"It's strictly symbolic," one Republican negotiator told us. "But how can we really make a political argument back home against taxing the devil out of people making a half-million dollars a year?" Ardent supply-siders in Congress loathe giving in to class warfare politics, but they are willing to pay the price if the capital gains rate drops from 28 percent down to 15 percent and saves the economy.
This tradeoff is behind bipartisan platitudes deploring lack of fiscal discipline. Raging class warfare was only hinted at by Bush in his effective Tuesday night address to Congress. The president decided he could not call for unified national purpose in the Persian Gulf and in the next breath issue an ideological call to arms on tax policy. So, he tersely requested lower capital gains rates and opposed upper-bracket tax increases.
That was enough for Newt Gingrich. He tore the last two pages off the president's address and stuck them in his pocket. It was ammunition to be used at the officers' bar, not only with Democratic class warriors but with fellow Republicans accustomed to sending up the white flag in that continuing struggle.