Week of August 2, 2006

August 2, 2006
Washington, DC
Vol. 41, No. 16a

To: Our Readers


  1. The signature of all Democrat ranking committee members on a call for the pullout of troops to begin from Iraq this year is an important event in setting the stage for the 2006 elections. It means Republicans can no longer claim the opposition is divided and unclear on the Iraq question.
  2. The imminent passage this week of the combined estate-tax-minimum-wage-pension bill (see below) constitutes another Republican retreat in the eyes of the conservative Republican base. The 41 percent increase in the minimum wage follows the education and prescription-drug subsidies as deviations from conservative doctrine.
  3. Neutral Republicans believe Massachusetts Gov. Mitt Romney has the organizational head start in the ’08 presidential primary, in contrast to his anemic standing in the popular opinion polls. Romney looks particularly good in Iowa.
  4. One of former New York Mayor Rudy Giuliani‘s closest political friends assures us that he definitely is running for President. The answer by this backer as to how he possibly could win the Republican nomination with his liberal social agenda is that he would govern from the right as he did in New York City.

Bush Administration

Middle East War: The current crisis in Lebanon is an example of unmet expectations by the U.S. and its Israeli allies.

  1. Bush Administration officials accepted at its word Israeli government predictions that the IDF could clean up the Hezbollah in a week. Now, three weeks later, Hezbollah has come over as a formidable military unit that is far from being swept away.
  2. The Israeli (and U.S.) problem is that the current Israeli government wants neither to conduct a full-scale land war in Lebanon nor to sit down at the negotiating table. That leaves limited war — airpower and cross-border raids — which is not working quickly enough.
  3. The result is that the fabled IDF has suffered a severe a blow to its prestige, while the U.S. position in the Muslim world is worse than ever. That only increases the pressure on the IDF to win its limited war against Hezbollah.
  4. Because of domestic political considerations, there is rare bipartisan support for offensive Israeli action. (A rare exception is Sen. Chuck Hagel (R-Neb.), who delivered a Brookings speech last Friday urging the U.S. role as an honest broker.) But inside the State Department, there are complaints that the U.S. is bound too much to Israel and should open a negotiating channel with Syria.


Pensions-Wages: In a typical act of legislative brinksmanship, the imperious retiring House Ways and Means Chairman Bill Thomas (R-Calif.) left town for the August recess after shoving through a complicated bill which the Senate must now pass, untouched, or else risk grave and dramatic real-world consequences.

  1. This bill has been referred to all fall as the "last train" of the legislative session, the final vehicle for tax and spending provisions. If it passes the Senate, the bill will simultaneously (1) raise the exemption and lower the rate on the estate tax, (2) raise the minimum wage by 41 percent, (3) extend tax credits and deductions (mostly for corporations, but also for higher-education expenses), and (4) overhaul the antiquated defined-benefit pension systems of several large corporations, which face an estimated $450 billion shortfall.
  2. As complicated as the bill is the political situation that surrounds it, now that Thomas and the rest of the House have left until after Labor Day. The acerbic but brilliant Thomas thumbed his nose at a bipartisan, bicameral group of his enemies by painting them all into a corner with his multi-purpose bill. What’s more, he’s almost certain to get his way.
  3. Senate Finance Chairman Charles Grassley (R-Iowa), Thomas’s Senate counterpart and arch-enemy, was furious about Thomas’s maneuver. Grassley had planned to sweeten his version of the pension bill with the tax-extension measure, but Thomas effectively cut him out of negotiations altogether. Thomas showed incredible gall by refusing to walk across the Capitol to meet with Senators, letting them cool their heels for hours while waiting for him and other House members.

    An enraged Grassley later burst uninvited into a meeting of House Republican leaders. He and Thomas, long locked in mutual contempt, attacked each other face-to-face at a Thursday night meeting. But Grassley was undercut by Senate Majority Leader Bill Frist‘s (R-Tenn.) support of Thomas’s plan.

  4. Thomas, the fabled legislative mechanic, didn’t need to negotiate — he arranged it all himself. He added $3.9 billion over 10 years for an "abandoned mine lands" program to attract mining state Democrats, perhaps including Sen. Robert Byrd (D-W.Va.) and to help Sen. Rick Santorum (R-Pa.). He put in the bill state and local tax deductions and deductions for higher-education expenses, among other goodies. Earlier, the bill took on a timber tax break intended to snare Democratic Sen. Maria Cantwell, who is facing a vigorous re-election challenge in Washington state.
  5. Each part of Thomas’s bill has its own importance, but two parts represent must-pass legislation that cannot be minimized or reduced as though they involved mere policy discussions. They have real-world implications that would be seriously harmful for several big players. The first was the pension provision. A failure to pass it by the September 13 deadline would actually mandate a federal bailout of two airlines — Northwest and Delta. If the Senate does not pass Thomas’s exact bill and send it to the President before leaving town later this week, Congress will probably miss that deadline. These air carriers do not spend millions on lobbyists so that they can let such deadlines pass and crush their businesses.
  6. The other hard deadline is the extension of some 40 expiring corporate-tax breaks. Unless passed by the September 15 tax deadline, many corporations will have to adjust third-quarter guidance numbers and possibly restate their earnings for earlier quarters this year. Corporations hate to do this. It would be devastating for several companies’ stock prices, and worst of all, it would antagonize executives just as members of both parties are trolling for their cash.
  7. Interestingly, the most politically charged parts of the bill are also the most legislatively irrelevant. The estate-tax measure does not actually repeal the tax. This comes thanks to the lobbying of the pro-estate tax life insurance industry, and to the relief of Warren Buffet and other wealthy venture capitalists who make it part of their investment strategy to prey on small-business victims of the "death tax."
  8. Likewise, the federal minimum-wage increase is mostly an ineffective, populist gesture, although it is good politics for Democrats. Its main effect will be to eliminate low-skill jobs in areas with a low cost of living and to deprive teen-agers of summer work. (The average wage of a family containing a minimum-wage worker in the U.S. is $45,500.) But it also affects relatively few businesses in a big way — only 6.6 million Americans currently make less than $7.25 per hour, which will become the new minimum wage in 2009. The provision, long opposed by Republicans, has a new appeal to them as part of this larger bill, considering the approach of the fall election. It defuses a good Democratic issue, especially considering that so many House Democrats voted against it.
  9. On the other hand, the moderate Thomas has clearly led the GOP House to violate conservative doctrines. In accepting this bill, Republican lawmakers cast doubt on what they really believe. How bizarre to hear Thomas and other Republicans praise an increase in the minimum wage. Conservatives such as Representatives Mike Pence (R-Ind.) and Jeff Flake (R-Ariz.) tried to soften the higher minimum wage’s impact on small businesses by joining it with a free-market plan to cut their health-care costs — but they were told this would be doomed in the Senate by the "Big Blues" (Blue Cross and Blue Shield).
  10. That a lame-duck committee chairman like Thomas could so dominate Congress is a sign of weak leadership in both the House and Senate, as well as a President detached from the legislative process. At this writing, all this will be passed untouched by the Senate by week’s end. But most Democrats are opposed, chiding Republicans that they became devoted to a higher minimum wage only if tied to the estate tax. Having abandoned its principles, the GOP can’t even get credit from its opposition.

Energy: With yesterday’s overwhelming and bipartisan Senate vote, both the House and Senate have now let states decide on continental-shelf oil drilling in a vast part of the Gulf of Mexico.

In a major departure from the normal procedure on such votes, Sen. Daniel Akaka (D) voted no, in opposition to his Hawaii colleague, Sen. Daniel Inouye (D), as well as to Alaska Senators Lisa Murkowski (R) and Ted Stevens (R). Typically, these four vote together in favor of ANWR exploration and other issues affecting their two states. But Akaka clearly feels the heat in his primary against Rep. Ed Case (D), who has until September 23 to bury Akaka. Case voted against the more comprehensive House version of the bill, forcing Akaka to follow him or suffer the consequences.

The vote of Sen. Hillary Clinton (D-N.Y.) for offshore oil drilling again set her apart from Sen. Edward M. Kennedy (D-Mass.) and other Northeastern liberals. She and Sen. Charles Schumer (D-N,Y.) were the only Senate Democrats from the Northeast to vote for the bill.

House Republican leaders are now talking conference, but given the short schedule and the bad record this year on conferences, they might have to settle for something much more akin to the Senate version of the bill.

House 2006

We restate some calls and update others on the elections tomorrow and next Tuesday.

Colorado-5: State Sen. Doug Lamborn (R) remains the slight favorite in the crowded Republican primary in this highly conservative open district. Colorado Springs Mayor Lionel Rivera (R) and former congressional aide Jeff Crank (R) are the other top contenders. Leaning Lamborn.

Colorado-7: Former state Rep. Peggy Lamm (D) is using the last week to blast former State Sen. Ed Perlmutter (D) for opposing a bill that would allow the use of DNA as evidence to reopen old unsolved rape cases. Lamm’s advertising spots are devastating, painting Perlmutter as extreme and unsympathetic to rape victims.

Her late, negative push probably won’t be enough to overcome a modest lead Perlmutter has built up through positive advertising, in which he uses his sick child to build a sympathetic image. Expect a close result. Leaning Perlmutter.

Georgia-4: Despite her near victory in the first round of the election last month, and despite her strong performance in an extremely nasty debate with opponent Hank Johnson (D), the voters here appear finally to be on to Rep. Cynthia McKinney (D). Her fall in the polls after she took 47 percent in the July 17 primary was astronomical. Now she has climbed only to within 15 points of Johnson. In light of this, we have no choice but to change our initial call, leaning in her favor.

Still, there are approximately 15,000 Republican voters in the district who may have responded to the pollsters, but will not be eligible to vote against McKinney next week because they voted in the GOP primary. There is no party registration in Georgia, but crossover voting is forbidden in the runoff — in other words, the voters can only vote in the runoff if they voted in that same party’s primary last month. They can also vote next week if they did not vote last month. Those who went and voted in the hot GOP primary for lieutenant governor are now ineligible.

In a low-turnout runoff race that could be won with as few as 20,000 votes, this is significant. It also means that McKinney may be closer to Johnson than the polls indicate, and that she still has a chance of winning. Leaning Johnson.

Michigan-7: In 2004, moderate Rep. Joe Schwarz (R-Mich.) came to the U.S. House by winning just 28 percent over a crowded field of conservatives. Michigan’s 7th District, in fact, became the classic case of conservatives’ splitting the vote and letting a moderate into a conservative seat. Schwarz ran for governor in 2002 as a moderate, and he is an ally of Sen. John McCain (R-Ariz.), whom he supported in 2000.

This time, things are different. Just one of Schwarz’s conservative opponents — state Rep. Tim Walberg (R) — is running against him this time, and the race is extremely close. Schwarz now has the endorsements of all his other former opponents, but he is in serious enough trouble that he is filing FEC complaints against Walberg and has not released any of his own polls. The Republican Main Street Partnership, a liberal Republican group, has come to Schwarz’s side with what it estimates will be $1 million in advertising (the real number as of this writing is supposedly closer to $600,000).

Walberg, a former Protestant pastor, has the backing of the Club for Growth, which, as of late June, had raised hundreds of thousands of his $581,000 take. Schwarz had raised $1.2 million this cycle but had spent a million dollars by July 1 on ads and mailers that even his Michigan allies say were not particularly effective. His campaign’s anxious posture says a lot right now.

Schwarz finds himself wedged between the pro-immigration Club and the anti-immigration Minutemen, who are both raising money to push Walberg over the top in the last days, but he hasn’t figured out how to use this to his advantage. Schwarz’s recent votes in favor of bilingual ballots and same-sex marriage could tip the balance in the last two weeks of the campaign. The race is still too close to call, though. Leaning Walberg.

Tennessee-1: Richard Venable remains the favorite in a crowded field. Leaning Venable.

Senate 2006

Connecticut: Ned Lamont (D) is now expected to defeat Sen. Joe Lieberman (D) in his primary. Lieberman only now appears to be figuring out that he may well lose in November if he fails to win the Democratic line and instead runs as an independent. This is the reason for former President Bill Clinton‘s late appearance on his behalf. The precise effect of Clinton’s appearance is unknown for now, but Lieberman began sinking like a stone the minute he admitted he was collecting signatures for an independent run. Lamont has all the momentum going for him to play David to Lieberman’s Goliath.

The debate between the liberal Lieberman and the even more liberal Lamont over the Iraq War is already helping Republicans regain their traditional advantage on national security issues. A Lamont victory will help Republicans even more, even though this Connecticut seat is not winnable for them. Leaning Lamont.

Michigan: Oakland County Sheriff Mike Bouchard (R) will easily win his Senate primary over Keith Butler (R). Likely Bouchard.

Tennessee: Bob Corker (R) will outrun his more conservative opponents tomorrow and seize the GOP nomination to replace Sen. Bill Frist (R). Likely Corker.

Robert D. Novak