Deciding on the tax increases was no easier than choosing the budget cuts. The toughest issue for me was the BTU tax. It was bad enough that I was going back on my commitment to cut middle-class taxes; now I was told we had to raise them, both to reach the $140 billion deficit reduction target in the fifth year and to turn the psychology of the bond market. The middle class had been shafted in the eighties, and Bush had been crippled by signing a gas-tax increase. In one fell swoop, if I proposed the BTU tax I would make the Republicans the anti-tax party again, largely to satisfy the hunger of the prosperous interest-rate setters for a little middle-class pain, in this case about $9 a month in direct costs, rising to
$17 when indirect costs, in the form of higher prices for consumer products, were included. Lloyd Bentsen said that he had never had any fallout from voting for energy taxes, and that Bush was hurt by signing the 1990 gas-tax increase because of his “read my lips” pledge and the fact that the most militant anti-taxers were hard-core Republicans. Gore again pushed for the BTU tax, saying it would promote energy conservation and independence.
Finally, I gave in, but made some other changes in Treasury’s tax proposals that I hoped would reduce the tax burden on average Americans. I insisted that we include in the budget the full $26.8 billion cost of my campaign proposal to more than double the tax cut for millions of working families with incomes of $30,000 or less, called the Earned Income Tax Credit (EITC), and for the first time offer a more modest EITC to more than 4 million working poor Americans without dependents. This proposal would ensure that, even with the energy tax, working families with incomes of $30,000 or less would still receive a meaningful tax cut. On the campaign trail, I had said at virtually every stop, “No one with children who works full-time should live in poverty.” In 1993, there were a lot of people in that situation. After we doubled the EITC, more than four million of them moved out of poverty into the middle class during my presidency.
As we were trying to close the deal, Laura Tyson said she felt she had to point out that there was no significant economic difference between a fifth-year reduction of $140 billion and one of $120 or $125
billion. Congress would probably pare back whatever I proposed anyway. She argued that, if it eased our political problems or was simply better policy, we would save ourselves some headaches by reducing the figure to $135 billion or even a little less. Reich, Sperling, Blinder, Begala, and Stephanopoulos all agreed with her. The others held out for the high number. Bentsen said we could save $3 billion by dropping the estimated cost of welfare reform from the budget. I agreed. After all, we hadn’t developed our proposal yet, and the number was just a guess. We knew we’d have to spend more on training, child care, and transportation to help poor people move from welfare to work, but if we moved enough people off the rolls, the net cost might go down, not up. Moreover, I believed we could pass welfare reform separately with bipartisan support.
Later, Lloyd Bentsen added a final piece to the plan, removing the $135,000 earnings cap on the 1.45
percent payroll tax that funded Medicare. This was necessary to make sure that our numbers on extending Medicare’s solvency added up, but it did ask for more from the wealthiest Americans, whose top rate we were already proposing to raise to 39.6 percent, and who would almost certainly never cost the Medicare program as much as they would now pay into it. When I asked Bentsen about it, he just smiled and said he knew what he was doing. He was confident that he and other high-income Americans who would pay the extra tax would more than make it back in the stock market boom that our economic program would spark.
