Clintonomics, Round Two

Trailing badly in the Presidential sweepstakes, Arkansas Governor Bill Clinton had to do something to jump-start his sputtering campaign. So the man with a thousand plans has put together the big enchilada: a comprehensive domestic-policy package that lays out in considerable detail how a President Clinton would govern America.

The package, detailed at a June 22 Houston meeting of mayors, finally gets Clinton back in the news--a critical first step for a candidate who is fast becoming the Third Man of Presidential politics. More important, it speaks volumes about Clinton's economic philosophy and his consensus-building style of governing.

The central theme of the package is investment, both in human capital and in equipment. Clinton says he would spend billions to improve the nation's infrastructure and would provide tax incentives for private investment. He'd cut the deficit modestly, mostly through defense reductions, management reforms, and tax hikes on the wealthy. And he would guarantee basic health coverage to all Americans (table). It is, Clinton told BUSINESS WEEK, "the biggest investment program anybody has ever offered while running for President."

NO MAKE-WORK. Maybe, maybe not. Part of Clinton's program is traditional Democratic writ. The candidate would spend billions on public works, education, and job training. Education alone would get $60 billion over four years. Says Clinton adviser Gene Sperling: "He deeply believes that you cannot create growth without public and private investment. This is not about make-work, but you've got to have government investment in people and infrastructure."

But Clinton also counts on private investment to boost productivity and growth. One of the package's major components is a $10 billion-a-year incremental investment tax credit, targeted to "productive" capital spending. "We're not going to create prosperity," says Robert Shapiro, a top Clinton economic adviser. "We're going to give people the opportunity to create it for themselves."

The Arkansas governor has backed away from some Democratic icons, including tax cuts for Middle America. In the primaries, he used the promise of a big middle-class tax cut to bash rival Paul Tsongas. But with the economy moving from recession to recovery, Clinton has shifted the focus to long-term growth, rather than on ways to slice a shrinking pie. He still has a tax cut for the middle class, but it's half the size of his original plan.

Clinton knows that to win the White House, he must present a bold contrast to both George Bush and independent Ross Perot. But how? Propose balancing the budget? That means tax hikes and spending reductions that are sure to alienate millions. Ignore the deficit to cut taxes or spend more? That invites ridicule in a year when 77% of voters say they favor a balanced-budget constitutional amendment.

What he has come up with is a split-the-difference policy that tells a lot about how Bill Clinton would run the White House. Clinton is a compromiser, a guy always looking for ways to satisfy warring constituencies. So, with his plan, Clinton has aimed at the middle ground. Deficit-fighting, for instance, has clearly lost out to investment as the key element of Clinton's domestic policy: His plan would reduce the deficit to $140 billion by 1996, only slightly less than the $180 billion or so that is projected under current law (chart).

To many, Clinton's compromises mean the electoral package comes up short. "He's pointed in the rightdirection, but he's not going anywhere," says William A. Niskanen Jr., former top economic adviser to President Reagan. The plan "is consistent with the perception that Clinton is a status-quo candidate."

Clinton hasn't exactly set the business world on fire, either. Some executives say they like Clinton's ideas about investment incentives and infrastructure spending. But others object to his plans for income tax hikes and his willingness to shift responsibility to business for health care and other social needs. Says Stanley C. Golder, general partner of the Chicago venture firm Golder, Thoma & Cressey: "It's spend more and give more and raise more taxes. We need something more imaginative."

`IT'S A SHIFT.' And Clinton does plan to spend: He wants to put an additional $200 billion over four years into boosting public and private investment. About $20 billion would finance new roads, communications networks, and other infrastructure projects. Washington's money would be leveraged with state and local contributions, as well as private investment. That sounds fine to Democratic liberals, many of whom were initially skeptical of Clinton. Jeff Faux, president of the labor-backed Economic Policy Institute, says: "He is putting investment in the key position of his economic program. It's a shift in the way he views economic problems."

Clinton also promises to cut capital-gains rates by 50% for long-term investment in small business. And he would make the research-and-development tax credit permanent. In addition, he would create a civilian R&D agency to encourage critical technologies. The plan, particularly the $10 billion investment credit, gets high marks from many economists. "It's not going to create miracles for you," says William C. Melton, chief economist at IDS Financial Services Inc. "But it's your best bet for improving productivity."

There's social policy in the package, too. The Arkansas governor would attempt to spur bank loans to inner cities to encourage business development. And he would try to wean families off welfare. Ronald Homer, CEO of the Boston Bank of Commerce, would be willing to pay higher taxes to fund such programs. He says: "If the social issues of our cities are addressed, I'll make more money than an extra 4% coming out of my paycheck."

One of the main reasons Clinton is having trouble selling his package to business is his image: To many, he's still "slick Willie," who will say anything to get elected. Robert C. Aul, who owns a medical-services firm in Oakmont, Pa., calls the plan "an act of desperation by a candidate who is doing what candidates do all too often--making promises he can't keep."

Clinton has won the backing of some executives. John H. Bryan, chairman of Sara Lee Corp., says it is "rather balanced. It seems a very supportable plan." And Ely R. Callaway Jr., chairman of Callaway Golf Co., says he's impressed with Clinton's infrastructure proposals. "Hell, the whole nation is falling apart," he says. "Of course we ought to spend the money there. And we've got to have jobs."

The more timely question is whether Clinton's blueprint will appeal to voters. It has attracted attention, making it a political success of sorts. And Clinton's timing may have given him a tactical edge over his challengers, who haven't issued programs. Now, Clinton can push a befuddled Bush and an evasive Perot for their own specifics. But there's no guarantee that this year's restive voters will be stirred by detailed policy prescriptions, especially when they offer only relatively modest change. "People seem to be searching for something fundamentally new," says Gail D. Fosler, chief economist at the Conference Board. "The contest will be over who can really evoke that sentiment."

Can Clinton do that with this plan? Probably not. But for a major party candidate who has barely 25% of the vote, it's at least a step in the right direction.

      Improve roads and bridges. Build high-speed rail lines and a nationwide 
      communications network. Funding would come from a Rebuild America Fund, 
      financed with $20 billion annually in federal money, as well as state and local 
      Institute a permanent R&D credit, a $10 billion-a-year incremental investment 
      tax credit, and a 50% cut in capital-gains taxes for small business investments 
      held long-term
      Support trade agreement with Mexico, if it protects worker rights and the 
      environment. Crack down on transfer-pricing abuses--when foreign companies 
      artificially boost costs of U.S. subsidiaries to lower their taxable profits
      Tax cuts for families earning less than $100,000, add a new 36% bracket for 
      those earning more than $175,000. Raise the alternative minimum tax. Surtax on 
      Provide universal health insurance. Drug companies that don't slow price 
      increases would lose federal tax breaks. Federal limits on total cost of health 
      Offer two years of aid to families with children, then require parents to work. 
      Require employers to provide training, family leave
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