PINEHURST, N.C. -- A passionate plea by Housing Secretary Jack Kemp for a growth-oriented tax policy briefly cheered Republican governors, grouchy with President Bush and gloomy over the future.
The annual winter meeting of the GOP governors is not normally a supply-side convention and never has been a Kemp fan club. But the state executives were stirred by his call for reduction and eventual repeal of the capital gains tax as a way out of their precarious fiscal condition.
The governors assembling at the Pinehurst Country Club, mainly survivors of the dreary 1990 election, are not happy about President Bush. Not only do they see abandonment of his tax pledge as politically corrosive but the subsequent budget deal as pushing them deeper into the hole.
Nearly all the governors here face looming deficits caused by the recession and congressional demands on the states for increased spending. Their chairman, Gov. John Ashcroft of Missouri, contends there is simply no voter tolerance for state general fund tax increases. He grumbles that the Bush-approved budget deal makes matters worse by piling more mandated Medicare costs on the states.
Looking toward Washington for help from their Republican administration, the governors get nothing. Treasury Secretary Nicholas Brady was invited here to give them some financing tips, but declined, saying his schedule at this dead time of the year was too crowded. The message to insiders was clear: Brady had nothing to tell them.
That's why what Kemp had to say was so welcome. He preached the supply-side gospel, admitting error in treating capital gains as ordinary income in the 1986 tax reform. Lowering the rate, he said, would permit the growth that is the only answer to state as well as federal budgetary problems. "This is a free lunch for governors," he said. But Kemp did not pretend to speak for the president, conceding that a policy debate is underway about what will be contained in the State of the Union address.
Indeed, the president was a dim, offstage figure at Pinehurst. The first speaker to say a lot about Bush was Dan Quayle, concluding Monday's program. But the vice president avoided domestic issues and instead delivered a pep talk on Persian Gulf policy.
The governors, while clearly in no war mood, are generally supportive of Bush's Gulf policy. So are their voters, they say. What disturbs them is the strategy behind the budget deal. New Hampshire's Gov. Judd Gregg, a longtime Bush loyalist, praised Kemp's approach and complained that the president's team was "too technocratic" and not sufficiently "issue-oriented." The governors observed seated beside them living testimony to the truth of this statement. They believe one of their best-liked colleagues, Gov. Jock McKernan of Maine, was almost defeated because his anti-tax statements lost credibility after Bush broke his pledge.
There was no Bush lieutenant here, not even Quayle, to defend the budget deal. Kemp said only that the recent rise in unemployment from 5.3 percent to 6 percent "cost us more in lost revenue" than the budget deal could gain. In that context, the housing secretary's free lunch sounded pretty good to the governors.