I had no idea. I expected that it could be done by the end of [our] first term.
The whole next decade was a disappointment, but some hard choices were in fact made along the way. We did pass a large tax increase in 1982, and in 1983 a large social-security reform cut the deficit, too. There was a smaller tax-and-spending-cut package even in election year 1984. And a bigger bite was taken in the deficit in the Bush summit package in 1990. But neither Congress nor the presidents would raise taxes or cut spending enough to close the gap.
Well, the question is, what will Clinton do about the two big promises that he made during the campaign? The first was to restore fairness, as Democrats define it, to the tax system and the economy overall, and put in an adequate level of public investment. That is a doable promise. The second was to cut the budget deficit in half while shielding the middle class from any tax increases or benefit reductions. That promise can’t be kept. The math simply is prohibitive. So, how will the Clinton administration craft a program that somehow addresses the real-world facts that they’re facing?
It depends. If he follows the Bush pattern and hangs on to campaign promises that are not consistent with reality, he’ll have a very difficult time.
Blend his two promises. He should simply say, “We can make the system fair and restore public investment.” So in phase one of the package, he could very easily increase upper-income tax rates, as he has promised, plus install the millionaire’s surtax. Then throw in a cut in the [amount of the] mortgage-interest deductions for expensive houses, which is something else that heightens fairness. With these funds, he could propose a modest stimulus package that could be described as public investment, $20 billion or so for education, training, infrastructure and so forth.
Clinton could then say, “The decks are cleared, we have a fairer system and we’re doing what’s necessary in terms of public investment.” We now are left with a $350 billion deficit. We have to cut it in half and the only way that we can do that is through a fair program that shares the burden broadly in our society. Some kind of 50-50-50 package might be salable.
Fifty billion dollars in annual defense cuts phased in over four or five years compared to the present, more modest, cutback plans. Then $50 billion in revenue increases that would have to come out of the middle and upper class-gas taxes, liquor and tobacco excise taxes, and so forth-and $50 billion in expenditure reductions. These would have to come primarily out of medical reform, like higher premiums on upper-income Medicare recipients and taxation of a portion of the employer-paid premiums for private health insurance.
Yes, but I wouldn’t overstate that. There has been a bipartisan reluctance in Congress to face the hard choices, and there has been, over the last seven or eight years, very little leadership creativity in putting together a salable package.
It depends on how you do it. Let’s just take the 50-50-50 package. Cutting defense will be the key. Clearly he has the right guy in [Defense Secretary] Les Aspin. The Defense Department has only been playing footsie so far, with token force reductions and minor cutbacks or stretchouts of new weapon systems. But we have had a radical reduction in the threat-the former Soviet war machine amounts to a rusting pile of pots and pans. So we need a whopping reduction in equipment and R&D spending, and major cuts in the force level. And cuts in defense creates … credibility for asking for tax increases, and for making some of these other things, like entitlement cuts, easier to manage politically.
Well, I think they’re probably more worried about it. After all, that was a fundamental source of the Perot appeal during the campaign. But it will really take leadership to see whether that sentiment can be activated and made effective politically. I think it can only happen in the first six months of a new administration. So now is the time. We’ll find out, one, whether the Clinton administration is willing to take on the challenge and, number two, whether the public will respond.
