After a cold, soggy April, spring has finally come to Washington. But even the riot of colorful cherry blossoms, tulips, and azaleas isn't enough to cut the gloom slowly seeping through the capital. The economy is showing renewed signs of sluggishness. Congressional gridlock, proclaimed dead a few weeks ago, is back. And President Clinton is finding his political judgment questioned by everyone from Capitol Hill Republicans to gadfly Ross Perot to his own budget director.
Indeed, Clinton may be getting vertigo from his downward spiral. His tax stimulus program--an investment tax credit and a targeted capital-gains cut--appear doomed. And his public support, eroded by unpopular stands on homosexuals in the military and a propensity to break campaign promises, has plummeted to a record low for a fledgling President. Some 57% of voters agree that "Bill Clinton is trying to do too much at once, and has lost his focus on issues that are most important for him to deal with," one recent poll says. No wonder the normally ebullient Clinton was reduced at an Apr. 23 press conference to wondering: "What could I have done differently to make it come out differently?"
Time for an est seminar and a long soak in the White House hot tub? Not yet. True, Clinton is licking his wounds from the loss of the Administration's $16 billion "emergency" spending package, killed in the Senate by a GOP filibuster. But the fight over the heart of his economic program--$500 billion in deficit reduction, plus new spending and tax breaks to promote investment and infrastructure--is just beginning. And the President stands a good chance of winning approval for much of his program.
NO FILIBUSTERS. Business executives, in particular, shed few tears for the stimulus package. Bennett King, chairman of Albuquerque's Aztech International Ltd., a maker of industrial cooling systems, was glad to see it die. "All we're doing is adding to the deficit," he says.
But Clinton's drift is causing growing anxiety. "The question now is whether he has the real leadership to make something happen," says John V. Roach, CEO of Tandy Corp.
The President will have the opportunity to show his stripes during the coming budget debate. He faces stiff bipartisan opposition on many provisions, including the ITC. The credit "doesn't do anything for the deficit, and it makes the economy more inefficient," grouses Senator Bill Bradley (D-N. J.), who would rather pare back a proposed two-percentage-point increase in the corporate tax rate.
Unlike his ill-fated stimulus plan, Clinton's budget proposal will be considered under parliamentary rules that rig the game in his favor. No filibusters are allowed. And the final budget totals must match deficit targets approved by Congress in March. That means any Republican fighting a tax increase or liberal Democrat opposing a spending cut must offer an alternative to keep the deficit from growing. "There's no room for a filibuster," says Rahm Emanuel, political affairs director at the White House. "We can even afford to lose a few Democrats."
That will help keep the program more or less intact. "In broad outlines, it will be the President's package, but there will be some important peripheral changes," says C. Clinton Stretch, tax-legislation director at Deloitte & Touche. The biggest items--such as boosting the top individual tax rate to 36%--are protected, because big revenue-raising substitutes are tough to come by.
KILLING FIELD. The key arena in the budget brawl will be the Senate Finance Committee, which controls entitlements, health care, and taxes. Nearly 80% of the proposed deficit trims must pass through the committee, where Democrats enjoy only an 11-9 margin. Republicans will embarrass the Democrats by uniting against higher taxes on Social Security benefits. And business lobbyists will push to kill lesser provisions, such as increased taxation of foreign subsidiaries of U. S. companies.
Putting on a game face, many White House officials vow to redouble their efforts to pass their main budget package. "What we're worried about is protecting as many of the President's priorities as we can," says White House Communications Director George Stephanopoulos. "And we're going to fight for every bit of the President's program we can get through this process." But the White House will most likely settle for some summer jobs, childhood vaccinations, and loans for small businesses.Nevertheless, the return to economic basics cheers Patrick "Mack" McNamara, an unemployed carpenter commiserating with friends at Shannon's Lounge, a working-class bar in Hoboken, N. J. "I had hoped the economy would be his primary thing," he says. "That's why we pushed for him."
But to win on the budget, the peripatetic Clinton will have to keep his eye on the main chance. In recent weeks, the White House has hit Washington with a policy glut that has left the Administration exhausted and floundering. It has been hard for the economy to get much attention amid the passion to reform campaign finance, lobbying, education, and welfare. Inescapable foreign challenges--the leadership crisis in Russia, the slaughter in Bosnia--also took a toll.
HOLDING OFF. The trouble is far from over, because the Administration's plan to overhaul the health-care system remains the biggest diversion of all. With release of the proposal expected in late May--nearly a month behind schedule--top officials still are arguing over key issues of financing and coverage. The President's more liberal political aides want a generous plan that quickly brings top-notch benefits to uninsured Americans, while more conservative economic advisers worry about the price tag and tax burden.
Business also fears adding burdens to recession-battered balance sheets. "Pretty soon, all we'll have left are government employees, health-care workers, and lawyers," says Aztech's King. "I think we're going into a recessionary environment from heavy taxation."
Conservatives, meanwhile, bridle at the suggestion that a generous benefits package can be paid for by government-imposed price caps. "I don't want to see wage and price controls," Treasury Secretary Lloyd M. Bentsen told BUSINESS WEEK in an early April interview. "I don't think you could have price controls across the board effectively."
The enormous difficulty of enacting health-care legislation greatly complicates the Administration's political strategy. With the budget debate likely to continue into summer and with the controversial North American Free Trade Agreement next in line, the circuits on Capitol Hill are dangerously close to being overloaded. That's why Budget Director Leon E. Panetta suggests deferring both health reform and NAFTA until tax and spending legislation is complete. And while U. S. Trade Representative Mickey Kantor is pushing for early action on NAFTA, Bentsen is urging Clinton to hold off until fall.
NERVOUS DEMOCRATS. For the moment, Republicans are reveling in the Democratic disarray. And they think they can score by attacking both tax increases and new spending in the budget. "Democrats are getting nervous that people are beginning to understand what's in the plan," says Senator Phil Gramm (R-Tex.), "and the plan is not defensible." When the legislation hits the Senate floor, Gramm plans to make Democrats squirm by offering an amendment requiring that "no tax shall go into effect until spending has been cut by at least an equal amount."
But the GOP's scorched-earth strategy carries risks. "The Republicans look like the guardians of gridlock," says Melissa Line, a political scientist at Goucher College in Baltimore, Md. "The more they whine and carp, the more the American people will be turned off." Indeed, a poll by Republican Ed Goeas and Democrat Celinda Lake shows Clinton with a wide lead over congressional Republicans when voters assess his ability to create jobs, reduce the deficit, and cut government waste.
After just 100 days, it's way too early to count Clinton out. The President "has proven to be a fast learner over the years, and he learns from his mistakes," says Republican consultant John McLaughlin. "Instead of using the big stick, you'll now see him trying to divide and conquer among the Republicans and appease a lot of the conservative Democrats." Should Clinton follow his wiser instincts, his first defeat could prove to be nothing more than a painful, but useful, learning experience.
CHALLENGES TO CLINTONOMICS Congress is beginning serious work on President Clinton's tax and spending proposals. While special congressional rules will help him, he still faces rough going. A preview: TAX THE WEALTHY Slated to raise $125 billion over six years, it is the biggest single tax increase in the plan--and probably the safest revenue proposal. Clinton would raise the top rate to 36%. Republicans will scream, but they lack the votes to stop it. IMPOSE NEW ENERGY LEVIES A tax on the heat content of most fuels would generate $73 billion through 1998. Powerful lobbies have already forced modification, and revenue estimates will drop more, as loopholes open up. Republicans plan to remind Clinton that the levy violates his pledge not to raise taxes on the middle class. RAISE CORPORATE TAX RATES Hiking the corporate rate to 36% is unpopular with business. It may be modified to a 35% rate, especially if the investment tax credit is dropped. Other provisions--denials for deductions for lobbying expenses and club dues, and a limit on entertainment write-offs--will generate fierce opposition. TAX SOME SOCIAL SECURITY BENEFITS The proportion of Social Security benefits eligible for income taxes will go to 85% from 50% for retirees making more than $25,000. Republicans and some Democrats up for reelection will try to paint themselves as friends of the elderly by opposing this provision. DATA: BUSINESS WEEK