Do-Nothing Government?

Dec. 21, 2004
Gridlock is not guaranteed, although big tax cuts and big tax increases seem unlikely.

The 107th Congress convenes in 23 days. In 40 days, a new U.S. President will be inaugurated. And Washington, it's now widely expected, will be seized by political gridlock every bit as bad as the capital area's rush-hour traffic jams. Indeed, even as year-2000 Presidential ballots were being recounted in Florida three weeks ago, some people in Washington were already focusing on the 2002 Congressional races -- and the prospect of Democrats capturing the margins necessary to exert leadership. Coming out of a close and contentious election, "the next President will enter the office with no mandate," stresses Bruce Steinberg, chief economist at Merrill Lynch & Co., New York. And, he contends, at the other end of Pennsylvania Ave. from the White House, Senate Democrats "will have an effective veto over all initiatives" despite the prospect of nominal Republican majorities in both houses of Congress. "The crosscurrents of this election will make it more difficult for a new administration to lead and for consensus to be developed on Capitol Hill," agrees Jerry J. Jasinowski, president of the National Assn. of Manufacturers (NAM), Washington, and a Commerce Dept. assistant secretary in the Carter Administration. As a result, asserts Merrill Lynch's politically savvy Steinberg, both huge cuts in marginal income-tax rates and huge increases in spending -- such as a prescription-drug program -- are likely to fall by the wayside. What's more, Social Security reform "will likely fade or be booted to some bipartisan study commission," he believes. However, Michael E. Baroody is not among those embracing the general forecast of forthcoming government gridlock. It's "way too soon to know for a fact" that will be the outcome of last month's election, insists the NAM's senior vice president for public policy. Indeed, Baroody recalls that only a year ago, following the disruptive demonstrations at the World Trade Organization meeting in Seattle, the popular Washington wisdom was that permanent normal trade relations (PNTR) for China -- or any other kind of bipartisan trade legislation -- was dead for the foreseeable future. In fact, first the House and then the Senate approved PNTR this session by overwhelming majorities. "And one of the reasons . . . is that the business community put aside its occasional tendency to divide and conquer itself and really pulled together," says Baroody. "So the common wisdom is often wrong -- particularly if people with clear objectives and a sense of how to pull together decide not to accept the common wisdom." That's apparently how NAM will be positioning itself in 2001, with Jasinowski saying that "the business community looks forward to working with the Republican majority and pro-business Democrats in Congress to promote pro-growth policies that benefit everyone." Social Security, Medicare, education, and tax policy will top NAM's public-policy agenda. Meanwhile, the 2000 Presidential election has taken virtually no toll on David A. Wyss' expectations for the U.S. economy. Wyss, chief economist at Standard & Poor's DRI, Lexington, Mass., sees inflation-adjusted GDP growth averaging 3.7% during the next five years, inflation a remarkably low 2.2%, and the labor force growing 1.4% annually with a 4% unemployment rate at yearend 2005. "Overall, the U.S. economy shows few signs of the imbalances that would end this expansion," concludes Wyss. "DRI foresees continuing growth, albeit at a slower pace, for a few more years."

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