Parsing an Ascendant GOP's Economic Prescription

Polls suggest Republicans have a good chance of taking the House of Representatives this fall and a slim shot at the Senate. So what would a GOP congressional majority do to revive the U.S. economy?

Republican rhetoric offers little help. To the quiet discomfort of a few GOP politicians and several who advise Republicans on economics, this year's campaign, so far, has little of the substance that accompanied the 1994 Republican renaissance with then-House leader Newt Gingrich's "Contract with America."

Comments by Senate Republican leader Mitch McConnell a few weeks ago are typical: "Virtually every bill they [Democrats] pass adds more burdens on the very people we need to get us out of the recession and create jobs. If a bill doesn't kill jobs or make it harder to create them, they're not interested. It's time for a different approach."

This may be smart politics. Why be specific and give the other side a target, when you're winning by riding a wave of voter frustration: Don't like the Obama economy? Vote for us.

The closest Republicans come to a public economic agenda are speeches by their House leader, John Boehner, who promises more detail later this month to blunt Democratic efforts to paint Republicans as the "Party of No."

For now, a few themes are evident.

One is that the spending-heavy Obama is a failure, often extrapolated into arguing that government spending is inherently bad.

"The common logic among Washington Democrats is that government spending creates jobs when that money is used to build a hiking trail or a playground," Mr. Boehner said, disapprovingly, during an Aug. 24 speech in Cleveland.

Adds GOP Rep. Paul Ryan: "We are not Keynesians. We don't believe in demand-side stimulus. We're going to stop the spending spree."

That's easier to promise than do. Even spending foes, once in office, tend to spend. "Prior to the Democrats' takeover of the Congress and the White House in 2008, the Republicans ushered in the largest expansion of federal spending since the heydays of Lyndon Johnson's Great Society in the 1960s," says Alaska's Joe Miller, who beat incumbent Sen. Lisa Murkowski in the Republican primary.

"You're going to have a whole bunch of people coming here who aren't going to want to vote for any spending bill—maybe defense? maybe not?—to fund the government," predicts Vin Weber, a former Republican congressman. That could force GOP leaders to rely on Democratic votes for spending bills to keep the government running, hardly a recipe for curbing spending.

And some Republican advisers counsel against an abrupt cut in government spending while the economy remains weak. "I don't think right now is the time to make massive spending cuts. Now is the time to announce a path to restrain spending in the future," says Columbia University's Glenn Hubbard, co-author of "Seeds of Destruction," an attempt to offer Republicans the outlines of an economic agenda. His favorite idea: Fix Social Security for the long run by raising the retirement age and tweaking benefit formulas, and—if there's a political imperative to help today's economy—package that with a temporary payroll tax cut to spur hiring.

Business-friendly tax cuts are another Republican theme. Renewing all the Bush tax cuts is a top GOP priority. But what else? Massive government borrowing is a constraint. "We have a debt situation that makes even the fiercest supply-sider a bit nervous," Mr. Weber says.

Douglas Holtz-Eakin, a Republican economist, suggests a big corporate tax overhaul that cuts rates now to spur business investment and hiring and ends tax breaks in the future to offset the lost revenue. His pitch: Do only things to help the economy today that also spur future growth. Harvard University's Greg Mankiw argues that since the Federal Reserve can't cut interest rates any further to encourage spending and consumers are wisely trying to save more, the best fiscal substitute is a temporary investment tax credit to induce more business spending.

The absence of a coherent Republican agenda reflects more than the usual lack of consensus. The gap between current congressional leaders and tea-party activists is huge.

For now, that argues for sticking to slogans, promises to "end uncertainty" and vows to repeal Mr. Obama's health-care legislation. After the election, that portends deep tensions.

The leadership's avowed interest in promoting free-trade pacts, for instance, may not be shared by the populist Republicans who are winning primaries. This year's challenge for Republican leaders has been to keep their moderate senators from voting with Democrats; next year's may be keeping newly elected Republican senators from opposing bills passed by a GOP-led House. The dynamic is unusual: Republicans haven't held the House with a Democratic Senate and White House since Woodrow Wilson.

Barack Obama ran for president and won on a call for "change." But he had an agenda, and has managed to push a good chunk of it through Congress—fiscal stimulus, expanded access to health care, rewriting the rules of finance. His problem is that none of these legislative successes are popular.

Many Republicans are running on "anger." That may win the election; it's hard to turn into a legislative agenda.

By David Wessel, Economics Editor, The Wall Street Journal and author of the new book "In Fed We Trust".

Read the article at The Wall Street Journal.