Daily Kos has a good breakdown of Presidential aspirants for '04 right here, and there are some excellent observations in the comments.
Friday, November 22, 2002
The Burton Theory of Taxation
All taxes hurt. Even a billionaire is hurt (at least theoretically) by a $1 tax. So there's not way we can raise money for the government without hurting someone at least a little. Unfortunately, we still need to raise money for the government to operate. Therefore it comes down to the question of who do we hurt and how much.
In my (modestly named) theory, taxes should be based on causing the least pain possible while distorting incentives as little as possible (with one exception to be mentioned later).
I don't think issues of "fairness" should enter into the equation much at all, for the simple reason that we don't have an easy way to determine someone's "fair" share of taxes. One person may make money in way that depends greatly on the government (as, perhaps, an employee of a defense contractor); someone else may make money in a way that has little to do with the government (as a gardener, perhaps). Is it "fair" to charge them the same in taxes? Who knows? Should someone who is more likely to be mugged pay more for police protection? There are just too many variables to ever determine anyone's "fair" tax burden, so I'm not even going to try.
Nor am I going to try to base taxes on moral or economic "worth" (an argument with which many other people put great stock). An argument that They earned it isn't going to carry much weight with me, since the alternative is taxing someone who also presumably earned it (with one notable exception). All taxes have to come from someone who otherwise has legal right to the money involved, and I don't think that the government should be in the business of ranking relative merit to determine who gets to pay the next dollar in taxes needed. Again, it's just not something that lends itself to quantification. Was Dick Cheney so worthy at Halliburton that he merited the pay of 1 million minumum wage employees? What about Larry Flynt? Probably not (to either), but I don't think there's any way to decided that question fairly. I'm fine with letting the market decide compensation (with a floor below which it can't go), but that's not the same as letting the market decide taxation. Just because the market rewards Larry Flynt with millions more than it rewards a bricklayer, doesn't mean that he shouldn't pay more in taxes (nor does it, in itself, mean he should pay more).
By "least pain", I don't intend to guess the amount of personal psychic trauma caused by paying taxes. I mean this to measure the greatest disruption in buying power and in lifestyle. By this measure, taxing a billionaire $1 million would be far less painful than taxing 1000 people barely scraping by $1000/each. While the billionaire may not like paying $1 million in taxes, it won't affect his buying power as much as a $1000 tax would to someone barely scraping by (even a $500 million tax wouldn't have the same real day-to-day effect on a billionaire's life as a small tax would on someone in poverty).
If causing the least pain were the only measure worth consideration, we could simply slap a 100% marginal tax on high incomes until they were broght down to everyone else's level or until the government were fully funded. But that's not the only issue. We also need to take into account how taxes will affect the incentive to work, save, and invest. Obviously, a 100% marginal tax bracket gives no incentive to do anything but sit around all day. Just as obviously (to anyone not in the current administration), the difference between a 39% marginal tax rate and a 36% marginal tax rate probably isn't enough to change anyone's motivation. But there is an obvious difference between the motivation provided by a 90% marginal tax bracket and a 30% one. [Remember: For the purpose of motivation, what matters is the marginal tax bracket (that is, the tax on the next dollar earned) not the overall tax bracket. If all your income up to now is tax free, but any income above it is taxed at 100%, then there's no incentive to work overtime or get a raise even though your overall rate of taxation may still be very low.]
There is another way in which taxes can distort things other than simply placing a brake on motivation, they can cause people to change their behavior. If the government declared tomorrow that all people named William didn't have to pay taxes, there would be a mad rush as people changed their names and almost all new babies would be named William. This wouldn't have anything to do with the intrinsic goodness of the name, just a reaction to tax incentives. There are real life examples of this all around us. Property taxes in Charleston used to based on the amount on streetfront taken up by a house, so most old houses in Charleston are very narrow and go far back from the street. There's nothing that made this design more desirable in Charleston than here in Nashville, but the tax structure gave people an incentive to build those houses in Charleston and not in Nashville. Currently, Federal income taxes are lower on capital gains on investments and real estate than they are for earned income. In addition, earned income is assessed payroll taxes to pay for Social Security and Medicare and capital gains aren't. This serves to distort incentives, making capital gains more attractive than earned income.
If we put all this together, we come up with the outline of an ideal tax code. It should cause as little pain as possible, so it should take very little (if anything) from those on the low end of the economic spectrum who would suffer the most harm from any loss of income. It should also cause the least disincentive as possible, so at no place on the income scale should marginal rates be high enough completely discourage economic activity. Nor should an ideal tax code distort economic and noneconomic choices without good reason*. I would also add that an ideal tax code would be as simple as possible, because I consider having to hire an accountant or tax preparer to be a distortion of behavior (and an economic inefficiency).
People may disagree, but this is what an ideal income tax structure would look like for me:
1) All income treated the same, whether it came through labor, through investments, or even through inheritance**. That means no payroll taxes and no lower rates for capital gains. This will cause the least distortion of economic behavior.
2) A personal exemption from taxes for all income to well above the poverty line. The amount of this exemption would be higher for those with children, just as the poverty line is higher for those with children. The harm caused by the loss of any income to someone living in poverty or close to it is far greater than the harm caused to others by loss of income. This would make sure those most vulnerable didn't get hurt.
3) No other exemptions or deductions for anything other than charitable contributions***. Nothing. No deductions for interest paid on mortgages, no deductions for childcare or health care, nothing. You want a simple tax code, this is your baby. Once you start introducing complications, things go downhill fast. This would keep the tax code easy and simple to understand, and would eliminate distortions. The fewer the exemptions, the lower rates can be for everybody.
4) A steeply progressive tax code, with brackets starting at 5% for income just above the personal exemption, going up at 5% intervals from there. I'd probably cap the brackets at 45% for income over $1 million and 50% for incomes over $5 or 10$ million, maybe with another 5% tacked over $50 million, but these are pretty much arbitrary numbers (I've never understood why someone making $200 million is in the same bracket as someone making $200 thousand). At no point would there be a huge disincentive to earning more, except perhaps at the top end (and that would still be a mild disincentive). Even with so many brackets, you could still look up the exact amount owed in the back of the instruction booklet.
5) Corporations and LLCs would be subject to taxation as if they were people, same rates and everything. If income was distributed as dividends, it would be taxable at the individuals rate but the corporation wouldn't have to pay taxes on that portion of income. Stock owned by overseas investors would still be subject to taxation in America and so would income earned in America by overseas corporations. This would eliminate the weird distortion we have now in which a corporation competing against an individual is at a competitive advantage since it pays less in taxes. If would also eliminate the situation in many companies in which profits aren't distributed as dividends because major shareholders don't want to pay taxes on all that income. Of course, it would completely eliminate the incentive to incorporate offshore to avoid federal taxes. This added tax burden would be partially offset by corporations no longer having to pay payroll taxes on their employees, and perhaps even by savings on tax preparation and accounting (should they choose not to try dodging their share of taxes).
That's it! A five-step tax code. Of course, there would still be reams of fine print defining what was and was not income and making it hard to shield income from taxation, but it would make things better for the vast majority of Americans. It would also shift a large part of the tax burden to corporations, and away from individuals (one of the great unnoticed stories of the last twenty years is that corporations pay less than half the tax burden they did in 1980).
This is also, needless to say, impossible in today's political climate. There hasn't been a move towards a simpler tax code since '86, and it made the code considerable less progressive. Bush's tax bill not only make the code more complex, but it also made it far less progressive. Too many special interests have too much invested in the current structure to want it to go away completely. Of course, we're also unlikely to see many politicians falling all over themselves to raise taxes on their donor base even if it meant lowering taxes for the people in greatest need.
Even if a tax structure like this is impossible to implement politically, we can still work towards one like it incrementally. The easiest place to start would be to insist that all future tax cuts come out of the lowest bracket (which we all pay), rather than out of the highest (which most of us don't). We could also do something to reduce the burden of payroll taxes on the working poor and to eliminate tax dodges at the high end of the spectrum.
* Some taxes that distort or discourage behavior would be worth keeping around, because the behavior in question is worth discouraging but shouldn't be made illegal. I'd include tobacco, gasoline, and alcohol taxes in this category. I don't want the government telling people they can't smoke, they can't drink, or they can't drive around all guzzling gas; but I think these activities are harmful enough to discourage through the tax code. The taxes raised, of course, could be easily earmarked to ameliorate the damage caused by the activitt in the first place. I realize that taxes on this activity would hit the low income harder than the high income, but it would still be worth it.
**There are "fairness" questions to be raised on both sides of the inheritance tax debate, depending on whether you focus on the dead guy who is leaving the estate or the live guy who's getting it without having done any work. I think it's easiest to sidestep this by simply declaring inheritances to be taxable income. It would be easy to make personal effects below a certain monetary value exempt, as well as to make very low interest loans available to those who inherit one major asset (a home, a business, or a farm) so that taxes can be paid over time without selling the asset.
***Charities would be the flip side of taxes on tobacco, etc. Charitable giving is an activity that we want to encourage and it's fairly simple do so. Even though we want to encourage home ownership, a deduction for mortgage interest really acts as a subsidy of those who can afford to buy homes by those who can't (especially since someone with a large mortgage and a high tax bracket saves considerably more than someone with a small mortgage and a low tax bracket). It's better to make tax rates as low as possible and allow people to buy homes or not as they wish.
Clarification: Corporations and self-employed individuals would still be able to write off legitimate business expenses, as income taxes would only apply to net profits, not to every penny taken in. There would, however, be strict oversight to make sure only actual cash out-of-pocket expenses were used. I'd probably disallow the practice of applying previous year's losses against this year's taxes (and I'd definitely discontinue the practice of corporations aquiring defunct companies with huge previous losses just to cut taxes in future years).
I've been told that my blog has been unreadable for the last few days by Mozilla and the latest Netscape. If you have either and can read this, please leave a comment.
Update: Are any of you that have problems also having problems with other blogspot blogs?
I changed my archive template a few days ago, but I haven't touched the main template.
I'm wondering if it could be a blogspot problem.
Updated Update: It seems to be fixed now, please email if problems crop up again.
Thursday, November 21, 2002
Secret Transcript, Not For Dissemination
As transcribed by playwright Jim Sherman:
George: Condi! Nice to see you. What's happening?
Condi: Sir, I have the report here about the new leader of China.
George: Great. Lay it on me.
Condi: Hu is the new leader of China.
George: That's what I want to know.
Condi: That's what I'm telling you.
George: That's what I'm asking you. Who is the new leader of China?
George: I mean the fellow's name.
George: The guy in China.
George: The new leader of China.
George: The Chinaman!
Condi: Hu is leading China.
George: Now whaddya' asking me for?
Condi: I'm telling you Hu is leading China.
George: Well, I'm asking you. Who is leading China?
Condi: That's the man's name.
George: That's who's name?
George: Will you or will you not tell me the name of the new leader of China?
Condi: Yes, sir.
George: Yassir? Yassir Arafat is in China? I thought he was in the Middle East.
Condi: That's correct.
George: Then who is in China?
Condi: Yes, sir.
George: Yassir is in China?
Condi: No, sir.
George: Then who is?
Condi: Yes, sir.
Condi: No, sir.
George: Look, Condi. I need to know the name of the new leader of China. Get me the Secretary General of the U.N. on the phone.
George: No, thanks.
Condi: You want Kofi?
Condi: You don't want Kofi.
George: No. But now that you mention it, I could use a glass of milk. And then get me the U.N.
Condi: Yes, sir.
George: Not Yassir! The guy at the U.N.
George: Milk! Will you please make the call?
Condi: And call who?
George: Who is the guy at the U.N?
Condi: Hu is the guy in China.
George: Will you stay out of China?!
Condi: Yes, sir.
George: And stay out of the Middle East! Just get me the guy at the U.N.
George: All right! With cream and two sugars. Now get on the phone.
(Condi picks up the phone.)
Condi: Rice, here.
George: Rice? Good idea. And a couple of egg rolls, too. Maybe we should send some to the guy in China. And the Middle East. Can you get Chinese food in the Middle East?
I've noticed over the last 10 weeks that the easiest ways to get hits on my site are to write about guns, mention Bill Clinton's penis, and call people names. The next best way is to mention the ins-and-outs of daily Beltway politics. So, in a concerted effort to drive away visitors, I 'm not gonna do that stuff for a while (though I will write one post on guns).
I'm really not interested in Bill Clinton's penis, so I'll leave that one to the conservatives still obsessed with it, and calling idiots idiots gets old real quick. There are people like Joshua Micah Marshall, Daily Kos, and MyDD who are much better than I at following politics as it happens. There are also sites like Atrios and BuzzFlash that are really good at keeping up with the latest right-wing outrages.
As I've pointed out before, I think political people in general and politicians in particular need to decide where they stand on the issues before they enter the arena. If they can't sit down with a pad of paper and sketch out where they stand on the major issues of the day without once thinking about major contributors or interest groups, if they don't genuinely hold convictions of their own, they've got no business in politics. So, as an exercise in putting my money where my mouth is, I'm going to spend the next few weeks laying out where I stand on the issues that face us as a nation and as citizens of the world. I'll try to stick to one topic per weekday (usually, but not always, in one long post), and will almost exclusively use my own words (though I'll make a spot every once in a while for those who I agree with on that particluar topic).
I won't, in the next few weeks, comment on current events much at all, nor will I comment much on what other bloggers are saying (unless it happens to coincide with my topic). This, of course, may change if events dictate, especially if we go to war in Iraq. So that's it. One topic per weekday until I run out of shit to talk about. If anybody gets bored, there are a lot of links on the left side of the screen to explore.
Update: I will, at times, post a few odd tidbits like the conversation above, but not very often.
I didn't think it quite fair to quote myself in the last post, so I'll do it now. This is something I wrote a while back:
As economic disparity increases, so does crime and political instability. Nations without upward mobility, without a social safety net, and with massive disparities in wealth survive only by military and police repression. This is not only worse for the poor, it's worse for the wealthy.
A police state constrains the mobility of the rich. It forces them to live in constant fear, walled off from the rest of society; and it forces them to put blinders on to ignore the realities of life for their fellow countrymen.
Making a Point Through Quotes
No man is an island, entire of itself; every man is a piece of the continent, a part of the main..
- John Donne
We may not have come over on the same boat, but we're all in the same boat now.
- Jesse Jackson
The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself..
- Daniel Patrick Moynihan
Evil requires no suffering or repentance to be cured, only the numbing sedation of bourgeois democracy and prosperity for decade after decade after decade until the pattern becomes so ingrained that not even an economic disaster can affect it. .
- Robert Kaplan
We can have a democratic society or we can have concentrated wealth in the hands of a few. We cannot have both.
- Louis Brandeis
Those who oppose all reform will do well to remember that ruin in its worst form is inevitable if our national life brings us nothing better than swollen fortunes for the few and the triumph in both parties and business of a sordid and selfish materialism..
- Theodore Roosevelt
Everyone has a stake in creating a less anxious, more egalitarian society. In fact, from the point of view of the currently affluent, the greatest danger is not that a class-conscious, left-leaning political alternative will arise, but that it will not.......there will be no mainstream, peacable political outlets for the frustrations of the declining middle class or the desperations of those at the bottom. Instead, it is safe to predict that there will be more crime, more exotic forms of political and religious sectarianism, and, ultimately, that we will no longer be one Nation, but two.
- Barbara Ehrenreich
Marat we're poor, and the poor stay poor. Marat we don't want to wait anymore. We want our rights and we don't care how. We want our Revolution NOW!
- Peter Weiss
This is why I say it's the ballot or the bullet. It's liberty or it's death. It's freedom for everybody or it's freedom for nobody.
- Malcolm X
Wednesday, November 20, 2002
|"What a mystery is this, that Christianity should have done so little good in the world!
Can any account of this be given? Can any reasons be assigned for it?"
|You are John Wesley!|
When things don't sit well with you, you make a big production and argue your way through everything.
You complain a lot, but, at least you are a thinker and not afraid to show it. You are also pretty
liked by people, and pretty methodological about your life and goals. You know where you're going.
Some people find you irritating, so watch out for people leaving you out of things they do.
What theologian are you?
A creation of Henderson
That seems pretty much right, especially the parts about complaining and irritating people.
(found via Junius)
Stop the Insanity
Did I miss something? Are women now being paid and treated equally to men all over the world? Are they no longer being battered? Are they no longer having problems finding adequate healthcare, safe neighborhoods to live in, and good schools for their kids? Are women no longer being sold into prostitution in Thailand and India? Are they no longer being beaten for not covering their hair and bodies in Saudi Arabia and Iran? Are they no longer being sentenced to death for having premarital sex in Nigeria? Are they no longer afraid to walk big city streets alone here in America?
In short, has every real problem facing women all over the world already been solved? If not, I want to stop hearing about a few really, really rich women not being allowed to join a golf club in Augusta Georgia. There are much more important things to talk about and work towards.
Tuesday, November 19, 2002
The Tax Cut
Taxes aren't the only economic issue that the Democrats need to make a big splash on, but it's the one people notice most. For too long, the Republicans have gotten away with referring to the tax and spend Democrats. Better the airwaves be filled with Republicans whining that the Democrats want to cut taxes for ordinary people and raise them for rich folks. At least that way there'd be clear battle lines, with the vast majority of the voters benefitting much more from Democratic proposals than Republicans ones. In the last 20 years, the tax code has been tilted increasingly toward the rich and corporations and the tax burden has been shifted onto the backs of the middles class (check out Kevin Phillips' book The Politics of Rich and Poor). A Democratic proposal should try to rectify some of that tilt while garnering political support from people who may not agree with the Democrats on all social issues, but don't agree with the Republicans on economic ones.
Matthew Yglesias wants to eliminate payroll taxes and a lot of other people have suggested cancelling Bush's tax cut for the highest bracket and using that money to cut payroll taxes. The former idea has its merits, but isn't workable anytime soon (although I'd love to eliminate payroll taxes and fund Social Security out of general revenue, I just don't see it happening). The second is a very good start, but doesn't go far enough.
My own suggestion would be to make payroll taxes deductible (right now we all get taxed on the money we pay into Social Security as if it were regular income rather than money we pay in taxes), lift the cap on payroll taxes (currently pay over $80,000/year doesn't get payroll taxes taken out), and make income completely tax free up to the poverty line for everyone. That's right, no one pays a dime in payroll or income taxes on their income up to the poverty line. With the bigger personal deduction and with payroll taxes becoming deductible, this would give every under $100,000/year a tax cut.
Currently, a worker making $15,000/year pays over $1000/year in payroll taxes no matter how many deductions or dependents (since payroll taxes don't have deductions and start on the first dollar earned) and likely didn't get a dime from Bush's tax cut (since all workers pay payroll taxes, but many don't make enough to pay income taxes). A plan like mine would help a lot of folks who are struggling to get by, and would be easy to explain (always a plus when pushing a policy). It would also go a long way to restoring the progressivity in the tax code which got chipped away during the Reagan administration. Think people would be willing to keep the inheritance tax (which is only paid by the top 2% of estates) if it meant a tax cut that helped everyone? Me too.
(You'll notice what time I posted this. That XBOX sure kicks some serious ass. I started playing, then looked up and it was 4am)
Putting People First
Ever since the New Deal, the Democratic coalition has been primarily an economic one. Northern ethnic whites, urban blacks, and rural southern whites all voted Democratic because they had common economic interests. Then as now, the Republican Party was the party of the bosses, of the industrialists, of the millionaires, of the corporations, of the insurance companies, of all the people who had power because of their money and their positions in life. The Democrats were the party of the guys who didn't have power unless they banded together. Their votes counterbalanced the people who didn't need to vote to have influence.
This idea of the Democratic Party as a primarily economic coaltion started to fall apart because of the 60's and the Civil Rights movement. Lots of southern whites left the party because of integration, even though it was still where their economic interests lay. Lots more stayed out of economic self-interest, even though they disagreed with the Democrats on racial issues. Much the same dynamic has come into play as the Democrats have become publicly associated with gun control, feminism, gay rights, and legalized abortion.
In all these cases, people who agreed with the Democratic Party on economic issues began to vote against it because of social ones. Of course, there were also people who began to vote for the Democrats solely on social issues, but they were outnumbered by the ones voting the other way. As this transformation took place, the Democrats went from an absolute electoral majority to an even par with the Republicans in voter support. The Republicans road the Christian Coalition, the NRA, and the anti-60's backlash from a permanent minority to their current control of every branch of the Federal government.
Despite what it's done to the Democratic coalition, the gains of the Civil Rights movement (to ethnic minorities, to women, and to gays) have been worth the cost. America is a far better place than it would've been had Lyndon Johnson not chosen to sacrifice the southern dominance of the Democratic Party to further the rights of blacks; it's a far better place than it would've been had we not opened the door to women as equals to men in the workplace, in the home, and in society in general; and it's a far better place than it would've been had we forced gays and lesbians to stay in the closet. Whatever the price, making our country a more free, open, and tolerant place has been worth paying it.
The good news is that we won. It may not look like it right now, but we won on every social issue you can name (guns being a special case, neither really a social issue, nor an economic one). The process has already been set into motion, and there's nothing the wingnuts can do to stop it. My generation is far more open-minded about race, about religion, and about sex than my father's was. My son's is more open-minded than mine. By my great-grandkids generation the idea that we ever had laws against gay sex, that we ever had separate schools for blacks, and that we ever considered women as anything less than equals will be hardly believable. So, when you look at the current situation, at least know that we've won permanently on some really big issues.
Given that the progressives have won most of the big social battles of the last 40 years, I say it's time to deemphasize social issues and make the Democratic Party an economic coalition again. This is not to say we should give back the hard won social gains of the past, just that we should attempt to move the focus of electoral politics once again towards the bread-and-butter issues that win elections for Democrats (just as Republicans will continue to use social issues as wedges between black and white, between gay and straight, between religious and secular...because that's how they win).
Now, making economic issues the focus of the Democratic Party won't be easy, but it's doable. The Republicans will try to make elections about the social policies that win them votes, not about the economic policies that even most of their supporters don't agree with (*), but that won't be the biggest problem. The biggest problem will be untangling Democratic policies from the web of donors who keep the party funded.
Right now, the economic polices that would win the most support for the Democratic Party also happen to be the ones that their donors agree with least. As long as the banks, insurance companies, and drug companies can buy themselves influence from Democratic politicians, they will (even if they'd really prefer Republicans to win). As long as they continue to buy influence, the Democrats will be unable to take the economic positions that will win them electoral majorities. Of course, the Democrats also need money to win elections, and they get this money from their donors. There's a kinda chicken-and-the-egg dynamic going. That's why I said this would be tougher than fighting off the Republicans' efforts to make every election about Acid, Amnesty, and Abortion (with their modern sidekicks Guns, God, and Gays).
The most obvious change would be to the positions Democratic candidates take on economic issues. No longer can they try to be marginally better than Republicans while trying mightily not offend anyone who might write them a check. Playing it safe and refusing to take a stand allows the opponents to pick the issues to do battle with. This is how we've allowed the Republicans to position themselves as the Lower Taxes Party when they're really the Lower Taxes for Corporations and Rich Folks Party. The Democrats haven'[t put forth any realistic proposals other than opposition to tax cuts (never a winner electorally). Instead, they should've put forth their own proposal that dramatically lowered the tax burden on the middle and working classes while doing next to nothing for the top end. Unfortunately, plans like that don't get pushed by people trying to keep their donors happy above all else.
I'd also suggest a change in image for the Democrats, but not anything superficial. The Republicans have gotten a lot of mileage out of kicking the so-called "liberal elites" who are supposedly trying to make life hell for white male heterosexuals like myself. Now, a lot of that is pure bullshit and a bunch more is due to the confusion of the academic left (which is virtually powerless in real life, but tends to make itself a good target) and the political left as typified by unions and other power brokers within the Democratic Party. There's not much that anyone can do about leftist intellectuals pontificating and right-wing talking heads making it seem as if they represent the Democratic Party. We can, however, craft an alternate image for the party that revolves around family and community. That's the kind of thing that appeals to people regardless of their race or religion (and it'll make the talking heads look like the idiots they are when they try to say that Democrats are against families). A simple change in emphasis would work miracles in the PR department.
Monday, November 18, 2002
They Went ThatawayThere's been a lot of speculation as to what direction the Democrats should go now. A lot of people (most of them moderates or conservatives) have said that the Democrats should become more moderate in order to capture the center. A lot of other people (most of them liberals) have said that the Democrats should become more openly progressive in order to energize their base. Since everybody else seems to be using this opportunity to push what they wanted to do anyway, I thought I'd join in.
As I've said before, the Democrats really didn't suffer a very big loss on election day, it just feels that way because the country is so evenly split. The Democrats could get by without any major changes, and still win their share of elections without any major difficulty. Like everyone else, I'm going to ignore this and suggest that the Democrats do what I wanted them to do anyway.
My solution: Go far left on economic issues, inch towards the center on social ones, and outflank the Republicans on foreign policy (by making things like trade and energy conservation into national defense issues while being tough as hell towards terrorism). This will make the biggest issue between the parties be the one where the Democrats have the biggest advantage, while forcing foreign policy into less of the black-and-white sort of thing that becomes a dick measuring contest.
(This was part of a much longer, inconherently rambling post that I swear I'll work on right after I get some pizza and play games on my XBOX for a few hours)