Friday, May 04, 2007

Thoughts on Last Night's GOP Debate

Governor Mitt Romney and Senator John McCain were the overall winners in last night’s presidential debate—but tax, trade, and business polices were the losers, because so little was said about them.

When the Democrats debated last week, they were uniformly in favor of higher taxes and various punishments for business—especially oil—but also drug companies, utilities, insurance, and the usual litany of business bashing.

In the GOP debate last night, there was nothing said about business regulatory polices. And while all the candidates responded to a tax question by favoring lower taxes of one kind or another, there were almost no details, and no protracted discussion or debate.

One statement by Mr. Romney confused me. Namely, he proposed to eliminate taxes on saving and investment including interest, dividends and capital gains for the “middle class.” I don’t know what this means. Was it possible that he is leaving the door open for tax hikes on upper end successful investors? I find that hard to believe given his earlier statements and speeches. But I was confused by the middle class designation—it sounded like a Democratic talking point.

On the whole, I thought Mr. Romney did very well last night on a number of subjects. And he looked very much like a president. But I was puzzled by his middle class reference to tax reform.

Most interestingly, I heard many echoes of Ross Perot and his 1992 independent candidacy from Sen. John McCain. It is very clear that Mr. McCain intends to emphasize spending control and pork barrel busting for the U.S. federal budget. It’s also clear that the Arizonan attaches a higher priority to this than any particular new ideas on tax cuts or tax reform. He did state clearly that he will keep the Bush tax cuts and that is a good thing.

But it was fascinating to me that numerous times—perhaps half a dozen during the debate—McCain referred to “out of control spending” and the need to veto pork measures and make their authors famous.

Of course Sen. Backbone was very strong on defense, the Iraq war, and chasing down the al Qaeda, Islamic jihad terrorists. In other words, strong defense and strong budget cutting. This was Ross Perot’s successful message when the Texas businessman captured nearly 20 percent of the vote and inflicted large-scale damage on President George H.W. Bush. In some sense, McCain’s Perot strategy is very clever, because the Republicans were crushed last November in large part because they lost the so-called Perot independent vote.

Back in 1994, the Gingrich Contract with America Republicans captured the House for the first time in forty years by bringing the Perot independents into the GOP congressional tent. That strategy emphasized federal spending control and deficit reduction over and above broad based tax reform and tax cutting.

In 1996, Steve Forbes ran for president on a 17 percent single rate flat tax program in part as a response to Gingrich timidity on big bang tax reform. When Forbes ran again in 2000, he forced then Governor George W. Bush to include lower marginal tax rates in the Texan’s campaign litany.

What John McCain appears to be doing this year is essentially to say ‘tax rates are low enough and I’ll keep them that way’. But his principle emphasis is definitely on spending cuts and a much-strengthened military posture to fight the global terror war. It’s almost as though Mr. McCain’s implied thinking is to try and shift unnecessary wasteful and pork barrel domestic spending into a much needed buildup in military spending. And again, he is clearly reaching out to what’s left of the Perot independent voters to bring them back into the GOP big tent in 2008.

At one point, McCain referred to overspending as the “burgeoning deficit.” He does want to repeal the AMT and he did mention a simpler, flatter, fairer tax system, but spending cuts are clearly his top economic priority. The McCain strategy has political merit because the GOP can’t win the White House next year unless it recaptures the independent vote. Fixing federal finances and rebuilding defense resources could be a winning message.

Rudy Giuliani referred to his New York City successes in cutting taxes and spending, but last night was not his night. He didn’t project well, he was uncomfortable, almost indecisive in many of his responses, including his confusing answers to abortion questions.

It’s still early in the game, and there’ll be plenty more debates to clarify the GOP race. Of course former Sen. Fred Thompson looms large as a potentially significant player in a Republican party where some polls show that half of likely GOP voters are not happy with the current field.

But I would give first blood to Sen. McCain, whose reach out to the old Ross Perot base was a very crafty gambit.