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Dean starts testing the tightrope

Howard Dean can bash business and tax cuts,  but he may still need a political makeover to have a shot at victory.
/ Source: BusinessWeek Online

On the stump, Howard Dean has emerged as a scathing critic of scandal-rocked Corporate America. "Today, economic power is concentrated in too few hands, and not very clean hands at that," Dean declared on Dec. 18 as he unveiled his "New Social Contract.

"It calls for tougher regulation of business, a bigger tax bite on corporations, and an ambitious array of social programs for middle class families — largely funded by companies and the well-to-do."

That's the populist Dean, the firebrand setting the grassroots ablaze in the activist-dominated Democratic primaries. But there's also frugal Governor Dean, whose record in Vermont includes 12 consecutive balanced budgets, two tax cuts, and tax breaks for business development.

Is Dean a peacenik, free-spending, Big Government liberal, as Republicans and some New Democratic critics contend? Or is he a fiscally responsible Democrat simply seeking to protect the health, safety, and 401(k)s of American families by making renegade corporations play by the rules? "A lot of people are wondering, 'Who is the real Howard Dean?"' says Will Marshall, president of the moderate Progressive Policy Institute. "There is a record in Vermont of centrist innovation very much in the Clinton mold. But in the primaries, he's singing a radically different tune."

To have a shot at victory, the physician-turned-pol may have to undergo the political equivalent of cosmetic surgery. That means tempering his crowd-pleasing populism with centrist, pro-growth policies. In essence, Dean will have to craft his version of the "compassionate conservative" fusion pitch that helped a governor named George W. Bush find the path to the White House.

Tax shelter crackdownDean's current leftward tack is designed to motivate his party's liberal base and anti-Establishment independents, just as Bush's faith-based initiative and talk of "traditional family values" fired up the Religious Right. But that will get Dean only so far. To have a shot against Bush, he will also have to come across as something of a penny-pinching progressive.

Dean hopes to lure middle-class investors and upscale suburbanites by promising a return to fiscal discipline — a tough slog for any Democrat, especially one who promises to expand child health coverage, promote universal pre-K education, boost college tuition subsidies, spur urban development, and create new retirement savings accounts. "Dean recognizes how deep a hole we're in and the challenge of getting out of it," says Peter R. Orszag, a Brookings Institution economist who advises the governor and other Democratic candidates.

Dean's Rx for Bush-era deficits looms as a giant dose of cod liver oil for CEOs earning salaries that the candidate says "put 19th century robber barons to shame." His New Social Contract includes a $70 billion crackdown on corporate tax shelters, a $100 billion reduction in business subsidies and tax loopholes, and tougher penalties for errant execs.

But every taxpayer would feel some of the pinch in Dean's America. The central element of his economic blueprint is politically dicey: He urges repeal of all three of Bush tax cuts — something Hill Republicans would be loath even to contemplate. Next, Dean proposes to divide the $3.5 trillion in recaptured tax revenues between deficit reduction and his list of domestic priorities.

He defends his plan by calling the President's supply-side approach a hidden tax of $52,000 over six years on every American family. Dean argues that Bush's cuts in marginal rates have not only failed to spur aggregate demand but have also produced record state deficits that force Americans to pay higher local taxes, property levies, and tuition bills. Still, some Democrats worry about a backlash from middle-class voters who want to keep their generous child tax credits and marriage-penalty relief. In response, Dean advisers say he will eventually unveil a tax-reform package that provides some help to middle-income workers while increasing the share of taxes paid by corporations.

Fiscal watchdog?To show he's not reflexively anti-business, Dean is pushing an economic agenda focusing on entrepreneurs. He'd invest $1 billion to promote urban startups, push a tax credit to encourage development in low-income communities, and double the Community Development Block Grant program to $10 billion. He also promises to create 1 million new jobs in two years through a $100 billion "Fund to Restore America."

Dean's ambitious agenda could test his talents as a fiscal watchdog. "The question is: How high do taxes have to go to pay for all of this stuff?" asks Robert L. Bixby, executive director of the anti-deficit Concord Coalition.

Indeed, unless he were to carry a Democratic Congress on his coattails, he's unlikely to win a full repeal of the GOP tax cuts. That would make it tough to pay for his agenda or shrink the deficit. "I know the numbers, and [Dean's] just don't add up." says Laura D'Andrea Tyson, ex-chair of Clinton's Council of Economic Advisers, a Wesley Clark backer, and a BusinessWeek columnist.

Maybe not, but a more crucial issue is whether voters will respond to Dean's anti-corporate rhetoric. Dems failed to make crime in the executive suite an issue in the 2002 midterm elections. However, the scandals have since spread to that small-investor mainstay, the conflict-riddled mutual-fund industry. Dean is betting that swing voters will be angry enough to replace a compassionate conservative with a tight-fisted liberal. At least, that's the plan.