Man In The Middle Of The Budget Battle

Ask Leon Panetta about his reputation as a deficit hawk, and the genial Californian is likely to launch into the parable of the '50 Chevy and the credit card. When he was 18 and seeking mobility in Carmel, Panetta acquired the car and, with it, his first charge card for gasoline. The car was O. K. But Panetta recalls that his father, Carmelo, who was a penny-pinching Italian immigrant, responded "by raising hell" when he found out about the credit card. The Panetta family was strictly cash-and-carry.Thirty-six years later, Leon E. Panetta is director of the Office of Management & Budget, and his father's warnings about credit still ring in his memory. But this time, budget-watchers are wondering whether Panetta hasn't been treated to another earful--this time for trying to be too thrifty. That's because President Clinton didn't cotton to his budget chief's goal of trimming $2 of spending for every $1 in new taxes. The reason: The Administration fretted that deeper cuts would render its economic plan dead on arrival in Congress.

FLAMEOUTS. New budget directors like to come on like gangbusters, slashing agency budgets and striking terror into the hearts of the bureaucracy. Some of Panetta's recent predecessors at OMB, notably Richard G. Darman and David A. Stockman, began their tenures this way and became domestic policy powerhouses before flaming out.

Panetta, who counts his brainy deputy, Alice M. Rivlin, Treasury Secretary Lloyd M. Bentsen, and National Economic Council Chairman Robert E. Rubin as his main deficit-fighting allies, had hoped to do better. The former chairman of the House Budget Committee compiled a long hit list of such brain-dead government programs as the mainly nonfunctional Appalachian Regional Commission. And Clinton's concern over the budget mess seemed to point to an all-out assault on wasteful spending.

Wrong. In the end, Clinton balked at killing politically sensitive programs, opting instead for modest program trims and greater tax increases. What's more, he larded his plan with $160 billion in new spending--er, investment. That has critics questioning just how hard Panetta may have fought. "When Leon talks about deficits, it's a justification for raising taxes," says James C. Miller III, OMB chief under Ronald Reagan. "He's not the kind of guy to cut government. He wants to increase it."

Panetta defends his approach. "I always viewed deficit reduction as cutting spending and raising revenues," he says. His partisans, moreover, counter that it's too early to count their man out. Panetta realizes he has been given "a bitch of a job," demurs former congressional aide John Franzen. "But this is a man with a mission."

With Republicans assailing the Clinton program as a recipe for stagflation, and with centrist Democrats edgy over the mix of spending cuts and tax hikes, Panetta and Rivlin face the task of persuading Congress to go along with a disjointed program. But Panetta says he's undeterred.

In a sense, public reaction to the Clinton plan has vindicated Panetta's deficit mania. Polls show that nearly 60% of the public feels the President should have gone further in squeezing fat from the budget. Indeed, in the four-year Clinton plan, $122 billion in spending cuts and interest savings are overwhelmed by $202 billion in tax hikes and user fees.

HARD PART. Panetta may yet slay the deficit dragon. One positive sign: Clinton has agreed to push up the timetable for the first congressional vote on deficit reduction. The Administration has also expressed a willingness to consider the additional budget cuts put forth by conservative Democrats. Prime targets could include government subsidy programs and urban aid grants, which received a more-than-generous boost in the original Clinton blueprint.

But as Panetta acknowledges, the hardest part comes next: getting Clinton's grandiose plans for expanded health-care access to jibe with serious deficit reduction. "This is just the first step," he says of the Clinton economic plan. "Health care will be much tougher, because the special interests are even more entrenched."

Panetta is convinced that taming the deficit isn't impossible, however, and that public opinion will give the drive new momentum. "If there's one thing the election showed, it's that the American people are ahead of Congress," he says. True enough. But as Panetta realizes all too well, he and his Administration allies have precious little time to capitalize on the fickle public's mood. "We've got a very small opportunity to act," he says. "Otherwise, the plan will be subjected to a death of a thousand bites." The same might be said of its budgetmeister.

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