Hidden in a capital preoccupied with war, a reduction in the capital gains rate was quietly locked into President Bush's new budget this week.
Such a backseat has recession-fighting taken to Saddam-fighting in the White House that even mid-level presidential aides are unaware that the capital gains cut has been resurrected. That offsets pre-Christmas statements from the White House and Treasury consigning Bush's 1988 campaign promise to oblivion.
The budget will protect capital gains from the Democratic "fairness" attack by surrounding it with other proposals in an anti-recession "growth package." Whether Bush touts it in his Jan. 29 State of the Union message hinges on how much of that address is to be devoted to the Gulf war, which has given the president powerful new political muscle for possible domestic use.
Resurrection of capital gains is Bush's most decisive step away from last year's budget bloodletting. It suggests that confident war leader Bush is going down three roads not in view a few weeks ago: an overture to the Republican right, belated defiance of Democratic congressional leadership and acknowledgment that the cost of capital must be lowered for long-term economic growth.
Capital gains has been promoted backstage by political experts who believe partisan damage can be contained: long-time Bush operatives Robert Teeter and Roger Ailes. They contradict the judgment of nonpoliticians in the administration, headed by Treasury Secretary Nicholas Brady, who are terrified of Democrats exploiting the "fairness" issue.
Teeter has always maintained that a recession is the perfect time to achieve critical mass for the economic necessity of lower capital gains rates. But he argues the cut must be protected by an anti-recession package (presumably including lower Social Security taxes). Although Ailes calls capital gains "good policy and dangerous politics," he believes that in the long run Bush can win the battle. Both think the American people can understand this is no tax subsidy for the rich but an effort to remove tax shackles from entrepreneurs.
Advice from Teeter and Ailes would not go far without the ear of White House Chief of Staff John Sununu. He has always pushed for lowering the rates but has been apprehensive about the fairness issue. He also appreciates the political costs of not fighting.
House Republican revolt against last fall's budget deal stemmed not only from Bush's June 26 abandonment of the no-tax pledge but also from his abandonment of capital gains reduction. The idea seemed doomed in the sorrowful post-election climate when reports circulated that a deal had been struck: Bush would spike capital gains, and his old friend, House Ways and Means Chairman Dan Rostenkowski, would spike the anti-millionaire's income surtax.
Sununu always denied any such pact, and it became clear that a back-room deal would widen the intra-Republican rift. House Whip Newt Gingrich has sent a message that the capital gains issue is "transactional": omitting it from the president's programs would declare war on congressional conservatives. Friends of Housing Secretary Jack Kemp whispered they would urge him to resign from the Cabinet and go into opposition against the president.
Post-election Republican carnage has subsided since Christmas. Sununu and Gingrich, though not the bosom pals of old, are talking again after a silence of months. The White House is quietly reaching out to the right. Putting capital gains back on the table is correctly viewed as the most dramatic way for the White House to bury the budget fiasco.
Locking the issue into the budget looks less like surrender to right-wing threats than strengthened will in the Oval Office. If George Bush can face up to Saddam Hussein's missiles and poison gas, he can stare down Democratic accusations of unfairness.
Selling America on capital gains requires the sort of presidential passion exhibited in selling the Gulf war. Even if that cannot start in the State of the Union, a single line in the budget is evidence that Bush has stepped away from the budget deal that wrought so much havoc for his presidency.