Worthy Fights: A Memoir of Leadership in War and Peace

by Leon Panetta

  To be fair, Republicans had been burned too. When they had endorsed cost containment for Social Security as part of their deficit reduction budget during the Bush presidency, Democrats turned the issue against them, charging that they were undermining security for the elderly, a reliable and easily spooked voting demographic. And going back further, when Reagan nominated Judge Robert Bork to the Supreme Court in 1987, Democrats, led by Senator Kennedy, waged a furious and highly ideological campaign against him. The politics of personal destruction may have been perfected by Gingrich, but both sides practiced it by the time Clinton became president. And with leaders on both sides feeling beaten up, they were not enthusiastic about exposing themselves again.

  Nevertheless, as I told Clinton that afternoon, I did hold out some hope of bipartisan agreement on a budget, and I argued that any deal would be better if members of both parties joined it. The Senate had some Republicans—Bob Dole of Kansas and Pete Domenici of New Mexico were two I mentioned—who might be persuaded to support an overarching deal that included both revenue and cuts. On the House side, Gingrich and his aggressive partisans would be unreachable, but I had worked closely with Bill Frenzel, a moderate Republican from Minnesota, for many years. He retired in 1991, but there was a tradition of deal-making on the budget that might be resuscitated if Clinton’s package included something for everyone. Moreover, Bob Michel was still minority leader, and he believed that both parties had a responsibility to govern.

  Finally, Clinton asked about investments. Throughout the campaign, he had argued for federal investments in education, technology, and research—promises that were going to be hard to keep if deficit reduction was going to be his central goal. “You can’t do everything,” I responded, “but you can make some key investments.” What would guide those decisions, I said, would be his vision for the country, what programs he chose to invest in, and where cuts could be made to accommodate those new investments. As I stressed to him then, “This is not just about who you’re going to screw.”

  Clinton laughed at that, and though he took no notes, I could see him file away fact after fact mentally. We had been scheduled to talk for an hour, but more than three passed before I snuck out the back door and returned to the airport.

  It seemed to me that the meeting had gone well. As we prepared to part, he asked if I might be interested in the budget director’s job. I said I would be prepared to support his budget, either as chairman of the House Budget Committee or as his OMB director, if offered the job. I returned to California wondering what would happen next.

  I appreciated Clinton’s intuitive grasp of politics, his obvious intelligence and astonishing ability to sift through facts. What most impressed me then and later, though, was his empathy for average people. He read a budget document and saw intuitively the way that changes would ripple out into the world.

  There were drawbacks to Clinton’s gift: He could talk an issue into the ground as he searched for its real-life implications. There was, at least in those early days, no such thing as a short meeting with him. Still, we enjoyed each other. He later wrote that he was impressed by my “knowledge, energy, and down-to-earth manner,” and that certainly was true of me with regard to him.

  No word came immediately from Little Rock, so I returned to Washington in early December to prepare for the coming congressional session. One Sunday evening, I attended the Kennedy Center Honors and was sitting near the left aisle in an orchestra seat. I was dressed in my tuxedo and accompanied by Frank Vaca, a good friend and lobbyist for the dairy industry (his name, in both Spanish and Italian, means cow), when an usher quietly approached and asked if I was Congressman Panetta. After I assured him that I was, he told me I had a message in the lobby. It was from Warren Christopher, and when I called him back from a lobby pay phone, he asked if I would come to Little Rock that week to accompany the president-elect for an announcement.

  A little unsure of the etiquette involved, I gingerly asked whether I was being offered “that position.”

  “The president-elect wants to ask you to accept that position,” Christopher responded. He also asked if I had any objection to Alice Rivlin’s being named my deputy. To the contrary, I was honored to have her on board, and told him so. Needless to say, I don’t remember much about the rest of the Kennedy Center program that night.

  I didn’t mention the conversation to anyone but Sylvia, and the Clinton team insisted on keeping the announcement quiet until the president-elect could make it public, but nothing stays quiet for long in Washington. The next day, as I was making the rounds in the House, members sought me out to congratulate me. I played dumb. The newspapers were less constrained. Even before I had publicly been offered the job, they were soliciting reactions to my appointment.

  On December 9, I flew to Little Rock and was taken to the Hilton, where a reservation had been made for me under the name L. P. Currie—chosen, I presume, because Betty Currie was Clinton’s personal secretary. After briefings from Christopher, George Stephanopoulos, and Harold Ickes, Clinton introduced his economic team to the press.

  The biggest name on that team was Senator Lloyd Bentsen, whom Clinton nominated to be his first secretary of the treasury. Tall, elegant, almost regal, Bentsen was perhaps best known for his withering dismissal of Dan Quayle during their 1988 vice presidential debate. Staring down at Quayle after Quayle compared himself to John F. Kennedy, Bentsen let him have it: “Senator, I served with Jack Kennedy. I knew Jack Kennedy. Jack Kennedy was a friend of mine. Senator, you are no Jack Kennedy.” That remark defined Quayle’s image for the campaign, but in a sense it was uncharacteristic of Bentsen, who was a moderate, fiscally conservative millionaire at ease with leaders of both parties. (He had once been the youngest member of the House, and when he won his Senate seat in 1970, he did it by beating Congressman George Bush, whom many Texas Republicans viewed as suspiciously liberal.)

  Clinton also nominated Robert Rubin as chair of a new entity, the National Economic Council. Bob had experience on Wall Street at Goldman Sachs, had advised the president-elect on economic issues during the campaign, and was also a strong advocate for controlling the deficit.

  Taken together, then, Clinton’s selections of Bentsen, Rubin, and me signaled that his approach to his presidency—at least in its approach to budgets and spending—was indeed going to be a departure from Democratic orthodoxy. In fact, some of the early reaction to our appointments was praise—from Republicans. Senator John Chafee of Rhode Island, a ranking Republican on the Banking and Finance committees, called Bentsen “thoughtful and sound” and said I was “someone who is concerned about the deficits and is willing to do something about them.”3 As those comments suggested, Bentsen, Rubin, and I were regarded as “deficit hawks,” determined to cut spending and, if necessary, raise taxes in order to reduce or eliminate the deficits that were absorbing an increasing amount of government spending. In the battle that was about to ensue—one that would in many ways define the Clinton presidency—Bentsen and I were to occupy one camp.

  The Clinton economic program began, in perfectly Clintonian fashion, with a large public seminar on the economy. On December 14, less than a week after Clinton had named his economic team, the president-elect hosted a two-day gathering in Little Rock that brought together policy makers, academics, and business leaders from around the country to discuss the state of the economy and proposals to get it back on track. That meant long discussions over arcane matters—exactly what Clinton loved most. He presided over the entire ten-hour discussion, swiveling in his chair at the head of the table and grilling participants with an array of questions. NPR and C-SPAN carried the event live, though it’s hard to imagine any listener as attentive as the president-elect.

  With those conversations still ringing in our ears, Clinton and the economic team convened for the first of a series of defining deliberations in early January. As we did, the Bush administration dealt us one last difficulty, a
nnouncing that the projected budget deficit for the coming year had leapt by 30 percent. We now faced a shortfall of $300 billion, with later years soaring even higher unless action were taken now. Those increased estimates added to the burden on Clinton, since his campaign promise was to cut the deficit in half in four years.

  Within Clinton’s team, there were distinct factions over how seriously to regard the deficit and how aggressively to attack it. Bob Reich, Clinton’s old friend and his newly appointed secretary of labor, believed the emphasis of our program, at least at the outset, should be on stimulating the still-sluggish economy and investing in areas such as education and technology. Bob, whom I thought of as the administration’s conscience, was a formidable advocate, and was joined by George Stephanopoulos, who had played an important role in the campaign and was preparing to become the administration’s chief spokesperson. In addition, the campaign people—James Carville, Gene Sperling, and Paul Begala—questioned the political value of deficit reduction, since cuts invariably are painful and since their chief concern was reviving the economy quickly so the president could reap the electoral rewards of recovery. Finally, there was Laura Tyson, the newly named chair of the Council of Economic Advisers. Laura approached these questions not from the perspective of politics but rather from a deep conviction that government existed to help those most in need, and that protecting and expanding social programs was thus essential.

  Those colleagues represented what you might consider the “left” of our team. They were not opposed to deficit reduction, but they argued that it should not trump social programs, economic stimulus, or investment.

  On the other side of the debate were me and my deputy, Alice Rivlin, along with Bentsen; Rubin; Larry Summers, Rubin’s deputy; and Roger Altman, the new deputy at Treasury. In addition, Vice President Al Gore believed in—and had voted in Congress for—deficit reduction. His style was to discern the president’s views on the issue and then help inform and guide them, but he did so against the backdrop of his own deeply held beliefs formed as a representative from Tennessee. As with those on the other side of these discussions, none of us were absolutists. We were Democrats too, and none of us argued for deficit reduction at the expense of a decent society. We too saw value in investment and the need to protect the elderly, the impoverished, and other vulnerable members of society. Our central argument, however, was that deficit reduction helped liberate the private economy and free the government, long-term, to achieve precisely those goals.

  The debates between those camps, and later in Congress, was in my view one of the most consequential acts of government during my years of service.* It tested the values of both parties and the resolve of the president. And though the debate may seem remote from this point in history, it represents an example of government successfully identifying a need and accomplishing a task of great importance. It thus seems important to me to revisit it at some length in order to understand how in 1993 we embarked on a series of decisions that would, for the first time in nearly half a century, balance the federal budget.

  The Clinton-team deficit debate began in earnest on January 7, even before Clinton had been sworn in as president. His economic team was summoned back to Little Rock, this time without the subterfuge of assumed names and SUVs with tinted windows. Clinton set aside five hours for the meeting, and Rubin organized the session, deciding not to argue on behalf of any policy position himself but rather to lead the conversation and move it between the various advisers.

  We were scheduled to begin at nine that morning, but Clinton was habitually late in those days, and this was no exception. While we awaited his arrival, the rest of us chatted and drank coffee around a large conference table that dominated the room. It was mostly small talk, but there was a powerful sense of significance to the day—all of us recognized that we were opening a debate that would determine the new presidency’s place in history. Clinton finally arrived, and we all sat down at the conference table. He and the first lady and vice president sat to my right at one end of the table. Most of the economic team spread out to my left, and much of the campaign staff sat across from us.

  Rubin made brief introductions and outlined the agenda, then turned to me to open the formal meeting. I dove immediately into what I regarded as the principal challenge confronting us: The deficit, I said, was large and growing and threatening to swallow up other priorities. Every dollar spent to service the national debt was a dollar that could not be used to lift up the poor or care for the sick, so deficit reduction would over time give us money to spend on those who needed it. Clinton had heard this before, in our meeting a few weeks earlier. As I made my pitch, he nodded but did not speak.

  Others then filled in. Laura Tyson outlined the state of the economy and warned that without some change in approach, growth would be slow over the next few years, held back by skittish investors and high unemployment. Alan Blinder presented a series of charts explaining the relationship between federal spending, interest rates, and economic growth. His presentation suggested an appealing economic idea—bringing down the deficit would likely encourage Alan Greenspan and the Federal Reserve to lower interest rates, which would generate growth—but raised a daunting political cost. If the result was to delay an economic recovery, the benefits might not be realized for years and thus could cut short the Clinton presidency. It all depended on interest rates dropping and the bond market responding.

  In Bob Woodward’s account of this meeting, he recorded the president-elect’s response, and though I can’t recall Clinton’s exact words, Woodward’s reporting mirrors my memory of Clinton at that moment. As Woodward wrote, “Clinton’s face turned red with anger and disbelief. ‘You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?’”4 There was unfortunately some truth to that.

  When the discussion returned to me, I had my own stack of charts, and I riffled through a long list of potential places to cut spending—ideas that I’d accumulated through my time on the House Budget Committee. Defense, of course, was one, as were entitlement programs such as Medicare. In some cases we could reap significant savings not by cutting benefits dramatically but rather by limiting growth in the programs. Still, nothing is painless when it comes to deficit reduction. And the politics of this issue could be brutal on all sides—any Medicare savings could be attacked as robbing from the elderly, any fee or tax as stealing from working families, and any defense cut as weakening America.

  One overarching uncertainty involved another aspect of Clinton’s campaign and vision for the country. As a candidate, he had made a forceful pitch for reforming health care, and he was committed to pursuing some sort of revamp of that system in his first term. As we discussed the budget that January morning, however, none of us knew precisely what he had in mind, nor how much it might cost or save. Alice Rivlin suggested that for the purposes of the budget, we should consider health care a wash—in other words, it would neither add to the deficit nor subtract from it. Others thought it might tip one way or the other, and some later estimates suggested that it might require an additional $100 billion a year in federal spending to implement and enforce a mandate on all employers to provide health insurance and to extend Medicare to more of the unemployed. It was telling and portentous, though, that predictions varied wildly and that the proposals were vague.

  On the other side of the budget discussion was revenue. There, Clinton was wrestling with his pledge to advance a middle-class tax cut against the arguments made by me and others that the first priority should be to cut the deficit. It was possible to do both, of course, but that would only deepen cuts or require other sources of revenue. Into that conversation suddenly charged Al Gore with a proposal to impose a tax on energy, known as the BTU tax (British thermal units are a common measure of energy). Gore liked to think big—he specifically urged Clinton that day to be bold—and the BTU tax certainly fit that bill. It
could help close the deficit and encourage the development of alternative energy sources like solar and wind power by making them competitively more advantageous.

  All of that sounded good, and it was the kind of idea that had often been raised in Washington think tanks. Like many proposed new taxes, it came with complicated questions. How would we collect it, for instance? Was it a tax on oil producers or refiners or gas stations? And what were the politics of the idea? I assumed it would cost us support in oil-producing states; Bentsen, from Texas, viewed the idea warily from the start. As chair of the Senate Finance Committee, he was very aware of the political pressures that could confront the BTU proposal; there is no more formidable lobby in Washington than the oil lobby, and in this case the tax’s complexity would make it especially hard to defend. Bentsen instead favored raising taxes on top incomes and corporations, sin taxes, and possibly a gas tax.

  Still, Gore’s proposal survived that first meeting, and we began to build our budget with it in play. It also allowed Clinton to cling to the idea that he could still cut income taxes for the middle class and reduce the deficit by making up the losses taxing energy.

  My focus remained on the deficit, and I presented the president-elect with three alternatives at that January meeting. The most ambitious would bring the deficit down to $195 billion over four years; the least would reduce it to $240 billion in that same period. I favored the lowest possible deficit, and liked the symbolism of getting it under $200 billion, which I thought would send the right message to the Fed and the markets. Alice Rivlin, along with most of the economic transition team, and Al Gore agreed. Tyson worried about cutting too much, too fast. Clinton kept his counsel.

  Finally, there was the issue of economic stimulus. “It’s the economy, stupid,” was Clinton’s well-known slogan during his campaign, and though the economy showed some signs of improving by early 1993, many of those at the table worried that without a jolt in the form of business tax credits or an injection of short-term federal spending, the recovery could falter. At our January meeting, Clinton seemed inclined to back some stimulus, though he did not settle on a figure or a precise way to allocate it.