TIME: Almanac 1995

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<text id=90TT2823> <title> Oct. 29, 1990: Not A Class Act </title> <history> TIME--The Weekly Newsmagazine--1990 Oct. 29, 1990 Can America Still Compete? </history> <article> <source>Time Magazine</source> <hdr> NATION, Page 38 Not a Class Act </hdr> <body> After one last round of partisan wrangling, Congress clears the way for a budget deal by playing the politics of resentment By Nancy Gibbs--Reported by Dan Goodgame and Nancy Traver/ Washington and Priscilla Painton/New York Before dismissing the 101st Congress as entirely useless, voters might consider some of its more notable achievements. During their three-week wrangle over the federal budget, the lawmakers exposed a decade's worth of economic gospel as falsehoods while inventing a new set of myths to replace them. They transformed the budget-making process, usually about as gripping as watching weeds grow, into a demolition derby. They invited the middle class to divorce its interests from those of the rich and its sympathies from those of the poor. And they reinforced the suspicion that in a crisis, the first instinct of elected representatives is to plant a time bomb and run for cover. But last week Congress at least cleared the way to passing a budget, thereby averting what would have been the second government shutdown since Columbus Day. After a bitter partisan fight, Congress struggled to reconcile House and Senate versions of a bill designed to cut $500 billion from the deficit over five years. The final plan was bound to extract more revenues from the most affluent taxpayers than the bipartisan proposal that was dumped by the House two weeks ago. But it was also certain to inflict pain on middle-income earners, who were already outraged at the lawmakers' willingness to tax them more heavily than the wealthiest Americans. Once the budget agreement is safely tucked away, probably this week, the lawmakers will be free to go home and schmooze with their constituents--but given the mood in the land, they may dread the prospect. "Look, you tell me, when is the last time you saw a Senator walk into a bar to sit down and talk with the working people?" asks Frank Gasparik, a California salesman and part-time songwriter. "Never. They're probably afraid somebody'd hit them with a bar stool." A reasonable fear, if pollsters are right about the level of voter disgust with the budget debacle. "Will I pay new, higher taxes, even if I think they're unfair?" asks Will Brennan, a business representative for the electrician's union in Chicago. "What choice do I have? I can't go throw tea in the harbor." The rising middle-class resentment to new taxes, especially those perceived as unfair, provided the backdrop for last week's budget denouement. In a belated rush to present themselves as the champions of working people, House Democrats seized every chance to portray their Republican colleagues as lackeys of the well-to-do. These Democrats rammed through a plan that did not include any increase in the tax on gasoline but did retain regressive levies on alcoholic beverages and cigarettes. They proposed a smaller increase in Medicare premiums than the defeated pact would have. Most important, the House Democrats would have taken a whack at the rich by hiking the marginal tax rate for couples earning more than $78,400 to 33% from 28%, with an extra 10% surtax on earnings above $1 million. "What we're doing is getting our house in order," boasted Dan Rostenkowski, chairman of the Ways and Means Committee. "Tonight, equity and fairness make a comeback." It was a take-no-prisoners document designed to embarrass Republicans, and some Senate Democrats would have loved to embrace it. But George Bush, burdened by his many flip-flops, promised to veto any such bill. White House officials privately conceded that the veto threat was mostly bluff: Bush could not afford to shut down the government again. Still the gambit worked on Senate Democratic Leader George Mitchell, who joined his G.O.P. counterpart, Robert Dole, to fight off amendments from left and right. The Senate debate was marked by sharp exchanges from both sides of the aisle. Democrats cheered when Maryland's Barbara Mikulski declared that "the middle class have no more to give. The poor have nothing to give. So, let's go and get it from those who've got it." To Republican applause, G.O.P. Senator Bill Armstrong of Colorado proclaimed that "raising taxes in the face of a recession is a hare-brained idea." In the end, 31 Democrats joined 23 Republicans in approving a plan, favored by the Administration, that would pare projected Medicare spending by $51.6 billion over five years, raise taxes on gasoline, liquor and cigarettes and leave income tax rates unchanged. A House-Senate conference committee then set to work ironing out the glaring differences between the two proposals by Oct. 24, when a short-term resolution to keep the government running expires. The Democrats predict that the final plan will probably contain a gas tax increase, combined with an increase in the top marginal tax rate to 31%. Fearing the cost of continued deadlock, Bush is likely to swallow his lips and sign the bill. All the self-congratulatory bombast on Capitol Hill could not mask the fact that no matter what compromise is eventually reached, the middle class will end up footing most of the bill. Democrats tried to camouflage that unpleasant reality by larding their proposals with provisions that appeared to soak the rich but would only add $60.4 billion to the government's coffers over five years. Republicans attempted to disguise it by denouncing even small increases in income taxes for the wealthiest citizens as an attempt to foist higher rates on everyone. Such maneuvers missed the point: both parties are responsible for the current mess. Democrats are fond of blaming Reaganomics for the fiscal debacle without acknowledging that they voted during the '80s to raise regressive Social Security payroll taxes 30% while preserving such loopholes as the tax exemption on inherited capital gains. That exemption alone costs the Treasury $5 billion a year and benefits mostly wealthy heirs. The fiscal prestidigitation has not abated: the Rostenkowski plan would have socked it to middle-income families by delaying inflation adjustments for a year. That step was needed because the House scrapped a 9 1/2 cents-a-gallon hike on gasoline that would not only raise $45 billion but also encourage conservation and help the environment. Republicans were no more eager to make unpopular decisions. Their preferred alternative to higher taxes was lower spending, but during the summer negotiations they managed to agree only on a paltry $6 billion in cuts when $40 billion was needed. That failure did not stop Idaho Senator Steve Symms from decrying what he labeled a Democratic effort "to make this national crisis into some kind of a modern-day version of the French Revolution where the poor people are facing off against the royal aristocracy." Most taxpayers were not beguiled by false promises of fairness or mobilized by calls to class warfare. Many have long since lost patience with politicians from both parties who called for sacrifice and then voted themselves a pay raise, who lauded fiscal responsibility and then refused to cancel gold-plated weapons systems such as the B-2. Their cynicism was deepened by the Ways and Means Committee's refusal to divulge that it was grafting dozens of tax breaks for industries--ranging from fisheries to nuclear power-plant owners--onto its budget proposal during secret closed-door sessions. "People are tired of bailing out politicians," says Rutgers University pollster Janice Ballou. "The public sees one disaster after the next, and it's always, `O.K., taxpayer, that's another $8 billion that we messed up with. But it's O.K., you can just pay us back.' After a while, the frustration just builds and builds and builds." The spectacle of the past three weeks was all the more disillusioning given the dreams of the roaring '80s. Many middle-class voters genuinely believed the Reagan theme that tax breaks rained onto the wealthy would eventually trickle down to the economy as a whole, that lower taxes would generate so much investment and rapid growth that spending on defense and entitlements could mushroom, and that gaping deficits would not matter. But a looming recession, quickening inflation and mounting evidence that the rich have got richer while much of the middle class has enjoyed no improvement in living standards have changed the equation. "Middle-income Americans feel aggrieved, and rightly so, because they aren't getting as much from government as they used to, and they're paying more for it," says Bruce Fisher, research director for Citizens for Tax Justice. "They're been encouraged to direct their resentment at the poor, especially poor blacks, whom they see as the major recipients of government services." There is, in fact, plenty of anger directed down the social ladder. John Budzash earns $30,000 a year as a mail carrier in New Jersey and is leading a campaign to fight higher state taxes. Like many working people, he resents squeezing out more money for gasoline in order to fund social programs that he finds wasteful. "I work with one guy who works four jobs," he says. "He gets up in the morning, delivers a paper route, goes back home, picks up his next newspaper route, then he goes to work at the post office, goes home and sleeps for a couple of hours and then tends bar at night. When you see that other people don't have the gumption to work one job, and you're telling that person who's breaking his butt that he's got to pick up the tab for someone who doesn't work--I have strong objections to that." If the great budget battle has proved anything, it is that after a decade of political and fiscal sleight of hand, neither party can convincingly claim to be the party of the average American. Democrats may gain a short-term advantage through a "soak the rich" crusade, but in the long run it is likely to backfire if the G.O.P. can convince the electorate that the other party is reverting to its tax-and-spend traditions. The politics of resentment leaves a bitter aftertaste that demagogues can exploit. As the rhetoric escalates between now and Election Day, neither side will earn much trust or support from voters whose anger is aimed directly at Washington's feckless ways. SOAKING THE RICH v. MILKING THE MIDDLE Soaking The Rich Under a plan crafted by Ways and Means Committee Chairman Dan Rostenkowwski, the House proposed raising $58 billion over the next five years by lifting the marginal income tax rate for the wealthiest taxpayers from 28% to 33% and imposing a 10% surcharge on taxable income above the level of $1 million a year. But the proposal would also have hit the middle class by deferring inflation adjustments to tax brackets and personal exemptions for one year. For a family of four with an income of $34,000, such a delay would add $313 to next year's taxes. Milking The Middle Though many Democrats in the Senate found raising taxes of the rich politically alluring, they lacked the votes to buck a threatened presidential veto. Republican leader Bob Dole joined Democratic leader George Mitchell in pushing through a plan that would leave income tax rates unchanged, while cutting deductions of those with taxable incomes of more than $100,000 by 5%. Unlike the House, the Senate also voted for a $0.095-per-gallon increase in gasoline taxes that would raise $45 billion. Percent changes in federal income taxes according to the two plans: <table> <tblhdr><cell><cell>House Democrats Plan<cell>Senate Finance Plan <row><cell type=a>$10,000 or less<cell type=n>-1.3%<cell type=n>0.0% <row><cell>$10,000 to $19,999<cell>-1.6%<cell>-2.3% <row><cell>$20,000 to $29,999<cell>1.0%<cell>2.7% <row><cell>$30,000 to $39,999<cell>1.0%<cell>1.0% <row><cell>$40,000 to $49,999<cell>0.8%<cell>0.8% <row><cell>$50,000 to $74,999<cell>1.4%<cell>1.9% <row><cell>$75,000 to $99,999<cell>1.5%<cell>2.5% <row><cell>$100,000 to $199,999<cell>0.7%<cell>3.5% <row><cell>$200,000 or more<cell>7.4%<cell>3.7% </table> </body> </article> </text>