Wow! What a week in Washington. In the span of a few days the political landscape changed in ways which will influence public policy for the next decade, if not longer.

The term "public policy" sounds terribly dull until you consider that it relates to the core issues which impact every household -- how much you pay in taxes, the extent of government, and how society is organized.

The decision by Vermont Senator James. M. Jeffords to leave the Republican party and affiliate as an independent with the Democrats means that Republicans no longer control both the presidency and the congress. The presidency yes, the House of Representatives yes, but not the U.S. Senate. And in our system of government, two-out-of-three is a sure prescription for moderation.

The rest of the world must look at this transition with awe. We have just turned the political establishment upside-down and not a gun was fired, no dissidents were jailed, and not a single newspaper was closed. Regardless of one's beliefs and views, this is a staggering accomplishment.

The Jeffords switch is a plain victory for political liberals. The conservative agenda is no longer a sure thing in Washington, especially the nomination of conservative judges to various federal courts.

But the Jeffords change-over has further implications. It raises the question of whether a conservative Republican party with a strong social agenda can ever have a clear electoral mandate. You just can't do better than winning the House, the Senate, and the presidency and yet even with such power conservative programs have been largely moderated or throttled.

Except for the tax cut.

The just-passed tax relief measure will be greeted with elation by just about everyone who wants to pay less to Uncle Sam on April 15th. Another happy group will be those who believe that government is too large, that it has too much power, and that there are too many rules and regulations.

Tax relief combined with less government borrowing means fewer dollars will be available for federal programs. More government is out and many existing programs will be cut back. And because raising taxes is the surest form of political suicide it won't be easy to undo the tax plan which has just been approved.

One result of this week's events is likely to be the emergence of more candidates outside the traditional two leading parties. The Libertarians say they are now the third-largest political party. We have a Minnesota governor who everybody laughed at a year ago -- and yet is today the most recognizable governor in the country. We have a socialist congressman, an independent representative, and -- of course -- a very independent senator.

What happens next? In terms of real estate here's where we stand:

• The mortgage interest deduction remains intact, untouched, and sacrosanct.

• The Senate Banking, Housing and Urban Affairs committee will now be headed by liberal Paul Sarbanes (D- MD) rather than conservative Phil Gramm (R- TX).

• Should government sponsored enterprises (GSEs) such Fannie Mae and Freddie Mac be subject to greater regulation? Should they have fewer federal perks? Sarbanes is believed to feel that more regulation is required.

• The effort by bankers to perform brokerage activities faces a new hurdle. Any thought that the Treasury Department and Federal Reserve could get such concept past a Republican Congress is finished because control of the House and Senate is now divided.

• The National Association of Realtors, which was named the 9th most powerful lobby in Washington last week by Fortune magazine, and the National Association of Home Builders (ranked 11th) now face a new cast of committee chairs and back-room power centers.

• States which have tied their tax policies to federal rules will need to re-evaluate their regulations.

• Proposals to get rid of federal departments will become increasingly serious. One concept is to take the Federal Housing Administration, which is now part of HUD and make it into a GSE such as Fannie Mae or Freddie Mac. The money then saved -- billions of dollars -- could be returned to the states on a per-capita basis for use as local governments elect.

The tax relief measure provides for an end to estate taxes -- but not until 2010. This is the one item within the relief measure which remains open to discussion, a provision that creates tax savings worth $138 billion -- but only benefits several thousand super-rich families each year.

Before totally eliminating the tax, estates will be able to protect assets worth $3.5 million by 2009. A higher deductible in 2010 rather than completely eliminating the estate tax will likely be seen as the perfect way to generate additional federal revenues while impacting the fewest people. Most amazingly, many of the rich support continued estate taxes.

Huh? Why would the rich favor a greater tax burden? Perhaps the best explanation comes from William H. Gates, Sr. -- father of Microsoft founder Bill Gates.

"More than a thousand prominent investors and business leaders -- from families that have paid or will pay estate taxes -- have called for reform but not repeal of the tax," writes Gates in The Washington Post.

"What has made America distinct from Europe is our effort not to create hereditary aristocracies and our suspicion of concentrated wealth and power weakening our democracy," he says.

"We underestimate the role of luck, privilege and God's grace in our good fortune. And we dismiss the incredible contribution our society makes to creating the fertile soil for successful private enterprise through public investment."

And Gates adds this idea:

"Imagine that two infants are about to be born. God summons their spirits to his office and makes them a proposition. One child will be born in a prosperous industrialized country, the United States. Another child will be born into a country of society-wide abject poverty. God proposes an auction for the privilege of being born into the United States. He asks each new child to pledge a percentage of his earthly accumulation at the end of his life to the treasury of God. The child who writes the highest percentage will be born in the United States. Does anyone think either child would pledge as little as 55 percent, the current top estate-tax rate?" (See: "A Tax Break's Unfortunate Legacy," May 25, 2001).

For more articles by Peter G. Miller, please press here.

Published: May 29, 2001

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