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In utterly predictable fashion, Newt Gingrich's leadership failures have thrown Republicans into a terrible crisis.

They should have seized the opportunity at the start of the year to replace him. Now, unless he leaves voluntarily -- a highly unlikely move for a man of the speaker's narcissistic bent -- they risk spending the next 16 months back-stabbing and front-stabbing each other and slipping on the bloody floor. Then, in November 1998, they could lose the majority they struggled 40 years to achieve.

Most Americans are bored by this internecine warfare, but they shouldn't be so sanguine. Soon, it may affect them directly.

While it's dangerous to attribute the stock market's activity to any one event, pay close attention over the next few weeks. It appears that big investors are very worried about the effect on the economy of the meltdown in Congress.

Right after Rep. Bill Paxon, R-Amherst, resigned his leadership post following a failed putsch against Gingrich, the Dow Jones industrial average dropped 130 points. The turmoil will continue, and the decline in the Dow might, too.

The reason is simple: The presence of a strong Republican counterforce to Bill Clinton has been vital to the confidence of the markets. Without it, we'd have nationalized health care, far more government spending and regulation and, almost certainly, higher taxes -- all a drag on the economy.

During Clinton's first two years in office, with Democrats in control of both houses, the Dow Jones industrial average rose a total of 28 percent, an average of 13 percent a year (on a compounded basis). But since November 1994, when the Republicans gained majorities in the House and Senate, the Dow has risen 109 percent, an average of 31 percent annually.

What next? The prognosis isn't good.

Congressional leaders are now embroiled in critical negotiations over the budget and tax relief. Before last week, they had a perfect opportunity to tell the White House: Either accept these modest tax cuts as passed, or the entire budget deal is off.

Now, for the Republicans to stand firm would take a miracle. First, they're divided among themselves. Second, the urge to compromise, to which Gingrich traditionally succumbs when he's weakened or under attack, will be almost impossible to surmount. After all, if the budget falls apart, Clinton can point to the House Republicans and say, "Isn't it a shame they can't get together like adults so that we can reach a sensible agreement for the American people."

Already, Sen. Bill Roth, the Finance Committee chairman, says he's willing to pare back the expansion of individual retirement accounts and will give up on cutting the corporate capital-gains rate and minimum tax.

But the most important part of the bill is capital gains relief for individuals. The GOP plan would cut the top tax on profits from the sale of assets like stocks and bonds from 28 percent to 20 percent. Clinton wants to cut it to 27.7 percent (the fact that he can even offer such a mockery shows how far the Republicans have fallen). Finally, under the House bill, Americans would not be taxed for gains due simply to inflation -- which is only fair.

During the first four years of the Clinton term, the deficit fell nearly $200 billion, not because of cuts in spending (actually, spending rose more than inflation) but because of a 33 percent increase in tax revenues. It's time to stop that trend and let Americans keep more of what they earn. At a time when we're on the brink of a balanced budget, the case for tax cuts is obvious and powerful. Gingrich's notorious lack of discipline has been a major obstacle.

Can he overcome his own innate deficiencies? I said above that it would take a miracle, but, sometimes, in a crisis, miracles happen. Yes, the fall of Gingrich by year-end still appears inevitable. He's been blessed, so far, by having as his antagonists the Gang That Couldn't Coup Straight. But there's still a chance for salvation. He should fire his disloyal lieutenants (if he can) and rally the ragtag troops for one last stand: real tax relief or no budget deal.

If he fails, he should do the right thing himself. Resign graciously and let someone more gifted in the art of majority leadership take over. Reasonably adult successors might include Reps. Chris Cox, Bob Livingston, Steve Largent and Dennis Hastert. Nov. 3 looms.
Washington Post

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