by Leon Panetta
As the conversation that day wound on, others at the table warned of the potential downsides of significant deficit reduction, especially if unaccompanied by a stimulus package. The Fed might not cooperate, leaving interest rates high and thwarting recovery; drawing $50 or $60 billion a year out of the economy in the form of reduced federal spending might throw the country back into a recession. And after the meeting, the president-elect’s political advisers chimed in, reminding him of the obvious: Tax cuts are more popular than deficit reduction, and he was elected largely because the American people believed he was better equipped to help working men and women get back on their feet. Those were not small matters, and Clinton sized up the risks. At stake were nothing less than the health of the American economy and the future of his presidency, which he had yet to commence.
In his memoirs, Clinton said that at the conclusion of that day’s long meeting, “I decided that the deficit hawks were right.”5 He did not, however, share that decision with the rest of us. I left feeling that while we had made our case, the president-elect still seemed undecided about what direction he would take.
Over the coming weeks, Clinton plunged into the minutiae of the budget. He loved details, and rather than let his advisers hash out the specific cuts and reserve himself for setting broad policy, he dove into the most minute matters. We proposed raising the fees assessed against state-chartered banks in order to cover the full costs of examining their books, a proposal that would raise $1.4 billion. Clinton worried that it might push some banks into insolvency and hurt us politically in North Carolina, a major banking center. We proposed having the government take over the student loan program rather than backing loans made by private banks, potentially saving $2.2 billion. Clinton liked the idea, a version of which he had floated during the campaign, but it required a short-term expenditure in order to set up the new program. We shelved it. We wanted to trim agricultural price subsidies, but each one of those subsidies had a devoted constituency, so cuts there threatened to come at a high political cost. We proceeded with caution. We considered ending below-cost timber sales, where the government allows loggers to fell trees on public land at less than the cost to taxpayers, but recognized that it might increase unemployment in certain areas of the Northwest. We even looked at fees for boaters who were rescued by the Coast Guard. That one tickled Clinton. “So, Harry’s out there drowning,” he mused, chuckling, “and before you can throw him a lifeline, you’re going to make sure he can pay?”
On and on this went. Clinton spent hours going through those proposals one at a time, accepting some, tossing out others. Bentsen famously described Clinton as “the meetingest man I ever met,” and that was evident in January 1993, as he prepared to assume the presidency of the United States by debating how much we could raise from charging boaters to be towed to a nearby dock when their craft ran out of gas.
One inviting target for cuts, though one with a particular political nuance, was transportation. There the budget included dozens of projects that had received appropriations but had not been authorized by the Senate’s Transportation Committee. That made them easy to cut on a principled basis because they had no business being on the books without authorization. And since they amounted to more than $8 billion, eliminating those projects would buy a big chunk of deficit reduction. The trouble was that many of those projects were in the budget because Senator Robert Byrd, the wily West Virginia veteran of the Senate, had put them there, and as the chairman of the Appropriations Committee he was a dangerous man to antagonize. We went ahead and included those cuts in the proposed budget, but we knew we weren’t done with that issue.
As a matter of fact, just before the budget was to go to press, Senator Byrd found out about the transportation cuts and called me. “Leon,” he said, “your budget and appropriations process is going to be extremely important to this administration, and you’re going to need me in your corner.” If we insisted on balancing the budget by cutting those projects, the senator added, his rich accent coating his threat, “I’m not going to be with you.” Nervously, I took that news to Clinton, who understood without prompting from me how difficult it would be to win passage of this budget without Byrd’s help. Clinton folded. As he said, “We can’t afford to lose Byrd.” We restored the projects and scrambled for other cuts to make up the difference.
Our meetings were daily affairs, often lasting several hours, and eating up much of January and February. The president attended all of them, as did Gore, Bentsen, Rubin, Stephanopoulos, Commerce Secretary Ron Brown, Bob Reich, and I. The first lady attended some but not all, and other staff members came and went depending on that day’s issue. It was exhausting and sometimes tedious, but by the time it was over, Clinton understood the range of activity of the federal government better than almost anyone else alive. As far as I know, no other modern president has ever taken the time to examine every line of the federal budget.
Over the course of those meetings, the specifics of our proposal gradually hardened. It would include one dollar of cuts for every dollar of new spending (we had started with the goal of two dollars of cuts per dollar of spending, but fell back when we simply felt we could not cut more and get a deal with Democrats or spend more and hope for Republican backing). It included Gore’s BTU tax, a hike in the top income tax bracket from 31 percent to 39.6 percent (individuals earning more than $115,000 per year or couples earning more than $140,000 would pay a marginal tax rate of 36 percent, while single or married filers earning more than $250,000 would pay a 39.6 percent marginal rate; in 1993, that amounted to increases for about 1.2 percent of all taxpayers). It also included a $30 billion stimulus package and cuts to about 150 federal programs. We aimed to trim the federal workforce by one hundred thousand workers, starting with reductions already made in the White House staff itself.
It did not include a tax cut for the middle class, as Clinton had reluctantly concluded that he could not afford it. The budget also proposed an expansion of the earned income tax credit, allowing poor families to pay less in taxes or qualify for refunds.
After weeks of this feverish work, we prepared to unveil the proposed budget with two speeches by the president, one on February 15 from the Oval Office and the second on February 17 in a formal address to Congress. The first was intended to break the news that we were pushing for a tax increase—and dropping the tax cut—so we knew it would be a hard sell. Clinton’s performance made it worse. He seemed nervous, and his message was confused. More than half of the talk looked backward, concluding that twelve years of Republican rule had favored the wealthy and exacerbated the deficit, and that opportunities for investment had been squandered. All that was true, but as Clinton spoke, he seemed to be stalling and making excuses. What’s more, we were still hoping to court Republican support for the package, which after all did make sizable cuts in federal spending. Blaming them for the problem was hardly the best way to enlist their support for the solution.
Finally, Clinton came to the bad news: “I had hoped to invest in your future by creating jobs, expanding education, reforming health care, and reducing the debt without asking more of you. And I’ve worked harder than I’ve ever worked in my life to meet that goal. But I can’t because the deficit has increased so much beyond my earlier estimates and beyond even the worst official government estimates from last year.”
The stock market fell almost 100 points the next day, and press reaction was a combination of negative and perplexed, as analysts attempted to explain why the administration was simultaneously spending more to stimulate the economy and cutting programs to reduce the deficit. The Los Angeles Times analysis captured the mood well. “The initial reaction in many quarters,” the Times reported, “was one of alarm.”6
But they didn’t call Clinton the “Comeback Kid” for nothing. With much of the staff still reeling from his first performance, he pivoted to his second. And this time he delivered.
As I sat with the
cabinet on the House floor that evening, I was struck by how different this was from any previous time I had come to this chamber to listen to a president. For more than a decade, I had attended presidential addresses with interest and yet a certain detachment—my responsibility had been to consider and react to proposals. Now I was there as a member of a team not only with responsibility to develop a program but also with the job of making it happen.
Although the stakes were enormous and the speech was not complete until minutes before he delivered it, Clinton seemed at ease as he took his place before Congress. He opened with a self-deprecating joke, noting that he welcomed the opportunity to give another long speech, a reference to his much-mocked Democratic convention address in 1988.
He spoke that night with force, interrupted time and again by applause, which even Republicans joined. This speech was everything his Oval Office address had not been. The talk two nights before was negative and backward-looking. Now Clinton reminded Americans that “we have always been a people of youthful energy and daring spirit.” The earlier speech blamed Presidents Reagan and Bush for the present economic difficulties. In the second talk, Clinton seemed almost to recant those statements: “There is plenty of blame to go around in both branches of the government and both parties. The time has come for the blame to end. I did not seek this office to place blame. I come here tonight to accept responsibility, and I want you to accept responsibility with me. And if we do right by this country, I do not care who gets the credit for it.”
In considerable detail, and over the course of sixty-five minutes, Clinton brought forward his budget and economic plan and hinted at the efforts that would follow, health care and welfare reform and a crime bill. He announced a freeze of federal government salaries and explained that his budget—our budget—would cut $246 billion in federal spending. Even Clinton’s acknowledgment that some would pay more under this plan was presented better this time—not as a gloomy repayment for past profligacy but rather as a common commitment to bold action with potentially profound ramifications. “This must be America’s new direction,” he concluded. “Let us summon the courage to seize it.”
It was a triumph. Editorial boards applauded the president’s clarity and willingness to address these serious problems without papering over the difficulties. Bill Schneider of CNN said that “for the first time since taking office, Clinton seemed completely in control.”7 Ross Perot proclaimed it an “excellent speech” and evidence that Washington had “stopped going through denial.”8 And most important of all was the reaction of Alan Greenspan, at whom so much of this was directed. He called the plan “serious” and “credible” and said it represented “a very positive force for the American economy.”9
Not everyone was impressed. Gingrich, predictably, was haughty. “It was a very good speech,” he said, “and a very destructive program.”10 Dick Armey, a swaggering Texas congressman with whom we were soon to tangle, was even nastier. “It won’t work,” he said. “That’s the bad news. The good news is that it will cost Clinton his presidency.”11 Though hindsight is always clear, I can’t help but point out how wrong both Gingrich and Armey were—in Gingrich’s case, half wrong. It was a very good speech.
For the moment, our job was to get the bill passed.
In my first meeting with Clinton, I had held out some hope that there could be bipartisan support for the right kind of budget bill. Perhaps naively, I thought this was a bill that moderates of both parties might be able to agree upon. Clinton had made the case that Democrats were recommending hard cuts, some to programs he and others in the administration favored. Given that, I hoped that at least some Republicans would meet us halfway on some of our tax proposals. Those hopes were soon dashed.
Just a few days after the president’s speech, I went to the Hill to meet with Pete Domenici. I started by pointing out the depth of the cuts we were proposing. “The president really is going through a very difficult process of looking at everything,” I told him. “We’re looking at entitlements, we’re looking at discretionary, and we’re looking at revenues.” Domenici was a good guy and genuinely committed to finding solutions, but this time, he told me, there just wasn’t anything he could do. Republicans felt too burned by the Social Security debate and the Bush tax hike. Republicans, he told me, were going to sit this one out. If there was to be a political price to be paid for raising taxes, Democrats would pay it, and if there weren’t enough votes on the Democratic side to get our budget through, well, that was our problem, not the responsibility of Republicans.
Democrats held solid majorities in both houses, so we could in theory pass this budget without any Republican support, but that meant keeping our own coalition united. That’s never easy, especially for Democrats, and already there were rumblings on the left, where members were concerned that we were holding down cost-of-living increases in Medicare and cutting other popular programs. If we were going to do this without Republicans, we needed to convince liberals in our party that those cuts were necessary to keep the programs—and the government—solvent, while also convincing the more conservative of our members that the tax package was both economically sound and politically survivable. Any concession to the left risked the loss of votes on the right, and vice versa.
At the same time, we also were trying to build support for the budget with the public, reaching out to influential reporters and making our case. For me that came naturally, as I enjoyed my relations with the press and was, I think, regarded as plainspoken and honest. That’s usually a good thing, but my habits of candor were something of a mixed bag in this instance. The occasion was a Washington lunch with a small group of reporters. I was fine during the lunch, but afterward a few of them continued to gently grill me about the budget and other items on the Clinton agenda—economic stimulus, taxes, and the proposed North American Free Trade Agreement, among others. I told them that I thought Congress would ensure that the president had a tough road ahead, that the agenda needed refining, and that NAFTA in particular was in trouble. All true, by the way, but not exactly what the White House had in mind for our messaging.
I woke up the next morning to a headline in the Washington Post that no senior administration official ever wants to be responsible for: PANETTA: PRESIDENT IN TROUBLE ON HILL, AGENDA AT RISK, TRADE PACT “DEAD.”12 Welcome to the White House, I thought. My extremely able—and on this morning, pretty beleaguered—press aide, Barry Toiv, was on the phone seconds after I’d seen the paper, warning me that Dee Dee Myers of the White House Press Office was livid. For a moment, it seemed my job might even hang in the balance. I called Clinton personally and apologized; I hadn’t meant to say that NAFTA was doomed, only that if a vote were held today we might not win it. He accepted my explanation and apology and chose to laugh the whole thing off. “Everybody gets a strike one,” he said.
Publicly, he also let me off the hook. Asked whether he’d taken me to the woodshed, Clinton responded, “I don’t need to take him to the woodshed. I needed for him to get his spirits up a little.” And I did my part, acknowledging that my comments were “a little exaggerated” and making clear that I was expressing frustration with the Hill, not the president.13
That crisis blew over fairly quickly, and we were back to working the Hill day and night for weeks, operating from a war room headed by Roger Altman in the White House and reaching out to every Democrat in Congress. We made good progress at first, and our tally of support inched upward.
We had to make the numbers work, though, and we were still $3 to $4 billion short of our targets, the result mainly of having restored the transportation funding to keep Byrd on our side. That’s when I indulged in a bit of manipulation. Our estimates on deficit reduction depended, of course, not just on hard numbers but on somewhat more debatable assumptions. Unemployment, for instance, contributes significantly to the state of the budget—when people are working, they collect income and pay income taxes; when they’re out of work,
they’re not paying income taxes, and they’re often drawing on welfare. So predictions of unemployment, particularly in years three and four, made a big difference as to whether we could credibly claim to be meeting our deficit targets. With that in mind, I went to our economists—in particular Joe Minarik, who had been my economic adviser on the Budget Committee. The economists were responsible for those predictions, and I asked them to consider whether it might be possible that unemployment could drop a bit faster than they had originally estimated if the economy improved. They looked it over and gave me a half-point improvement in the estimate. That was enough.
From June through August 1993, with Clinton’s presidency still just six months old, we navigated a series of votes through the House and Senate that would define the balance of his time in office. Clinton had other issues on his plate at the time—his first tries at nominating an attorney general were rebuffed by the Senate; terrorists exploded a bomb at the World Trade Center in New York, killing six people; ATF agents stormed the Branch Davidian compound in Waco, Texas, inflaming America’s domestic terrorist right wing; Bosnia descended into chaos; Hillary Clinton’s father died in April; the press fulminated about sloppiness in the White House travel office and imagined it as a full-bore scandal; Byron White retired from the Supreme Court and Clinton named Ruth Bader Ginsburg to succeed him. In other words, another summer in the life of the American presidency. But we soldiered on with the budget, badly needing a win both to set the economy on the right track and to dispel the impression that Clinton’s presidency was flailing.
