On the eve of a climactic vote on his economic plan, President Clinton took time out to meet with BUSINESS WEEK reporters for a freewheeling discussion on the economy. Nervous White House aides were still scurrying to round up votes for the plan on Aug. 4 when Clinton, hoarse and obviously weary from months of Capitol Hill brinkmanship, talked with Washington Senior Editor Lee Walczak and White House Correspondent Susan B. Garland.
On the possibility the budget could trigger another dip in interest rates:
"I think we'll get some further decline, until we get enough economic growth to make people worry again about inflation...if we got up to 4% growth or so."
On talk the entitlement budget will be cut more:
"It not only could, but it should....We must deal with entitlements, especially Medicare and Medicaid. If we don't, in a few years, being in Congress will be a matter of just writing checks for more of the same health care and of paying interest on the debt. We have cut defense all we can, and we've put a freeze on aggregate domestic spending. Entitlements, especially health care--that's the next step."
On the notion that hiking taxes on the rich won't slow job creation:
"Keeping interest rates low would bring more money to many wealthy people than they would lose in higher taxes. We tried the low-tax, high-deficit strategy, and it only worked for a couple of years in the early '80s. But for the last several years, because of this debt overhang, our ability to generate new jobs has been severely limited. If we're looking at the long haul, we have to take some structural actions to take this deficit down."
On chances the budget's modest investment incentives could work:
"They're pretty sharply targeted toward the people who are most likely to create jobs....Do I wish there were more tax incentives in there? Of course I do, and we may be able to do more in time, depending on how well we do with economic growth. [But] I felt that in cutting all these other programs, I had to be willing to scale back my own investment plans if we were going to have a deficit program that had credibility."
On openly bartering for Hill votes:
"Bismarck said that the two things people should never have to see is sausage and laws being made. This [horse-trading] happened in some measure because the Republicans essentially went on strike. That led to a lot of changes. To be fair, I think a lot of them were good changes. We wound up with more spending cuts, fewer taxes, and a more progressive tax code. In the conference, there are some things I didn't like so much. But on balance, it'sstill the bill that I started with."
On the risk that deficit reduction could depress an already weakened economy:
"There are really two reasons we decided in this period of slow growth that we could risk a serious deficit-reduction package. One is, I'm not sure there ever was going to be a good time. All the wealthy countries have had difficulty creating jobs, and the deficit itself has been a big drag on global growth. Second, since long-term interest rates have been quite high, there was a real chance that you would get enough refinancing of home mortgages and business loans--and the subsequent reinvestment--to offset the [plan's] contractionary effect."
On wooing Ross Perot's backers:
"A lot of them really care about the deficit, and when they see that this is a serious plan that brings the deficit down, they'll be for it. [Many] don't like the Republicans but believe the rhetoric that this had no spending cuts, all middle-class taxes. When the plan passes, rhetoric will give way to reality. And we've been working hard for the kind of political reforms that [Perot voters] passionately want. These folks are genuinely alienated. They're going to take some selling."
On prospects for the North American Free Trade Agreement:
"We've got a shot at NAFTA. We're going to have to win the battle of the facts on the job issue. The argument against [NAFTA] in a nation where most Americans are working harder for less is so much more powerful than the argument for it."