After the tax presentation, Roger Altman and Larry Summers argued for a short-term stimulus package to go with the deficit-reduction plan. They recommended about $20 billion of spending and business-tax reductions that at best would give the economy a boost, and at the least would prevent it from sliding back into a recession, which they thought was about a 20 percent possibility. Then Gene Sperling made a presentation of options for new investments, arguing for the most expensive one, about $90 billion, which would meet all my campaign commitments immediately.
After the presentations, I decided the deficit hawks were right. If we didn’t get the deficit down substantially, interest rates would remain high, preventing a sustained, strong economic recovery. Al Gore strongly agreed. But, as we discussed how much deficit reduction we needed, I was concerned about the short-term drag that Laura Tyson and Alan Blinder predicted—and Roger Altman and Gene Sperling feared—might occur. After nearly six hours, we were headed in the deficit-reduction direction. Clearly, economic policy making, at least in this environment, was not science, and if it was art, it had to be beautiful in the eyes of the beholders in the bond market.
A week later, we held a second meeting in which I abandoned the middle-class tax cuts; agreed to look at savings in Social Security, Medicare, and Medicaid; and supported Al Gore’s suggestion of a broadbased energy tax, called a BTU tax, on the heat content of energy at the wholesale level. Al said that while the BTU tax would be controversial in states that produced coal, oil, and natural gas, it would fall on all sectors of the economy, lessening the burden on ordinary consumers, and would promote energy conservation, something we badly needed more of.
For several hours more, we again debated how much deficit reduction we had to try for, beginning five years out and working back to the present. Gore took a hard line, saying if we went for the biggest possible reduction, we’d get credit for courage and create a new reality, making it possible to do previously unthinkable things, like requiring Social Security beneficiaries above a certain income level to pay income tax on their benefits. Rivlin agreed with him. Blinder said it might work if the Fed and the bond market believed us. Tyson and Altman were skeptical about avoiding short-term economic contractions. Sperling and Reich, who was present at this meeting, held out for more investments. So did Stan Greenberg, Mandy Grunwald, and Paul Begala, who weren’t part of the meetings and were afraid I was sacrificing everything I believed in under the influence of people who weren’t part of our campaign and didn’t care about the ordinary Americans who had elected me. In late November, Stan had sent me a memo saying my honeymoon with voters would be short-lived unless I moved quickly to address the problem of jobs and declining incomes. Sixty percent of those who said their finances had worsened in 1992, about a third of the electorate, had voted for me. He thought I could lose them with this plan. George Stephanopoulos, who sat in on the meetings, had to try to explain to Stan and his allies that the deficit was killing the economy, and that if we didn’t fix it, there would be no economic recovery and no tax revenues to spend on education, middle-class tax cuts, or anything else. Bentsen and Panetta wanted as much deficit reduction as we could pass in Congress, an amount less than Gore and Rivlin advocated, but still a lot. Rubin, as moderator, was again keeping his own counsel, but I sensed he was with Bentsen and Panetta. After hearing everyone out, so was I.
At some point, I asked Bentsen how much we’d have to reduce the deficit to rally the bond market. He said about $140 billion in the fifth year, with a five-year total of $500 billion. I decided to go with the
$500 billion figure, but even with new spending cuts and revenue increases, we still might not be able to meet the target of cutting the deficit in half by the end of my first term. It all depended on the rate of growth.
