June 7, 2001


Since 1994, no one party has held power in all the branches of government, except for the past five months. During that time, few new government initiatives were pursued and the economy performed very well except when high energy prices sapped purchasing power from households.

President Bush has obtained his major initiative, a tax cut that grows with the years. Perhaps those delays will prove to be hazardous to the longevity of those tax changes. Certainly, the sunset provision, which reverts tax law back to current conditions if provisions are not extended before 2011, requires more major tax legislation in the next decade--if only to preserve what has been enacted.

If one or more houses of Congress remain in Democratic hands, some of those provisions will not survive that next tax bill. Certainly, few financial advisors are assuming that the estate tax will vanish after 2010, although it will disappear for that one year in the current legislation.

Also, a second major tax bill, which had been rumored before the end of this year, is now a less likely prospect.

However, the history of split government is not a bad history for the economy. The excesses of either party are checked by the oversight provided by giving some power to the other party. The anti-missile initiative will not be well funded, at least until more assurances that it works can be provided. The Democrats are not likely to have the administration abrogate the 1972 ABM treaty and sharply raise defense spending for a system whose effectiveness remains questionable.

President Bush will not be able to create a judicial revolution in social values with his picks for the federal courts. His choice of Ashcroft for Attorney General suggested that he might try such an initiative. Now he must convince the public in 2002 that they need such judicial changes, a feat that even President Reagan would not attempt.

There will be some compromises. Senator Kennedy's leadership suggests that a patient's bill of rights will be part of any medicare legislation. Minimum wage legislation also will be pursued and probably passed. However, the public wants some say over medical services, especially the 42 percent that the government purchases. Also, tight labor markets in recent years has rendered the current minimum wage meaningless except in some rural areas. As long as the proposal is not too onerous, Kennedy probably will get his minimum wage legislation.

If the banking and credit industries had not already received some changes in recent legislation, Senator Sarbanne might pose a problem with his new chairmanship. He is a populist with economic understanding. Relief for lending institutions is not important to him.

As a rule, the President still has the strongest position. The Congress must dispose of his proposals. If the President is supported by the people, the Congress will stand aside. However, if the President is trying to move the agenda away from the country's consensus, a split government largely will nullify that activity and might penalize the President if he tries too vigorously.

Although some pundits have tried to tie stock market fluctuations to the shift in power caused by Senator Jeffords defection from the Republicans, investors are aware that our government works best when the checks and balances are most vigorously used.

The President got his way with his administrative appointments and his tax initiative. Now he must prove that he can work with the other party, as he claimed in the campaign. Frankly, he doesn't have the votes to do otherwise. And that may be exactly what the American people and our economy want.


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