Clinton's Agenda

The GOP is telling voters he would swing left if reelected. But Clinton's second-term aims are pointedly modest

Bill Clinton, golfer, is legendary for his charity. When a chum hits a particularly errant ball, Clinton frequently allows a mulligan--a make-good shot that is the golfer's equivalent of a Presidential pardon. Now, Bill Clinton, President, could be in line for a similar break.

Although his once-lofty lead over Republican rival Bob Dole has narrowed, Clinton's strong approval ratings and a solid economy still make him the handicappers' favorite for reelection. Given the problems that dogged Clinton's first two years in office--ethics woes, the demise of his health-reform plan, and above all, his role in the Democrats' humiliating loss of Congress in 1994--a second chance would amount to one of the biggest mulligans in political history.

As the President heads for his party's Aug. 26-29 convention in Chicago, he carries a scaled-back agenda. In a second term, he would keep striving for the twin goals of creating opportunity for the middle class and alleviating the insecurity of workers caught in a global economic transition. But the grandiose solutions of his early years in office have been replaced by the realities of fiscal restraint. "It would be a historic achievement to balance the budget in a way that preserved our obligations to our children, our parents, our environment, our future," Clinton told BUSINESS WEEK in an Aug. 21 interview.

The election's outcome may hinge on whether voters think Clinton will stick to the New Democrat script, the idea that "the era of Big Government is over," or whether they expect a reprise of his early forays to the left. Even for some Democrats, it's an open question. If Clinton wins a second term, says Presidential scholar Michael Beschloss, "there will be an enormous competition for his mind and soul."

Republicans plan to spend the next 10 weeks trying to convince voters that Clinton would return to his liberal roots. They'll argue that his second term would hit businesses and middle-class voters with a hailstorm of new taxes, liberal judges who set convicts loose on unsuspecting communities, and regulators run amok. "I'm terrified of Al Gore," frets a top auto executive. "In his book, he said we've got to get rid of the internal combustion engine by 2025, and he means it."

"LIBERALISM UNRESTRAINED." For now, at least, Dole has eschewed attacking Clinton on the moral shortcomings that are suggested by the Whitewater scandal. Instead, Dole is hammering away at the idea that Clinton can't be trusted to exercise moderation and good sense. "Just imagine what he'll do if he were somehow to win a second term--his liberalism unrestrained by the need to face the American people in another election," Dole said recently.

Even some Democratic moderates admit to a few doubts about the President's future course--particularly when they size up some of his liberal advisers. But White House aide George R. Stephanopoulos insists that such sniping is "absurd." He adds that "to suggest that everything Clinton is doing now is just a big con demonstrates the poverty of the Republicans' campaign."

But can Clinton stick to the middle? To a large degree, his shift away from intervention is one of expediency. The budget deficit and a looming explosion in entitlement spending for aging baby boomers will greatly constrain his policy options. Moreover, if Dole runs a competitive campaign, chances are that Republicans will retain control of Congress. In an era of divided government, Clinton would be limited to putting a more humane face on GOP initiatives, as was the case with this year's welfare reform bill. Says White House domestic policy aide Bruce N. Reed: "The only way to get things done will be from the middle. Democrats won't have the luxury to debate whether we should have a single-payer health system."

Clintonites insist that in this new era of downsized expectations for government, individual initiative and personal responsibility would be the watchwords of a second term. During the campaign, the President, they say, will use a combination of small-dollar incentives and his considerable rhetorical skills to drive home the message that the federal government alone can't solve problems. Clinton, says Housing & Urban Development Secretary Henry G. Cisneros, "will offer a domestic policy that harnesses communities, churches, and neighborhood institutions." The aim is to "make government a partner rather than a funding leader."

TAXPAYER CARROTS. One of the main challenges for Clinton: how to engage the GOP on its call for radical tax reform. Republicans want to replace the current system with a "flatter, fairer, and simpler scheme" that dramatically reduces tax preferences in favor of lower rates. The key options are some form of two-bracket tax or a new levy on consumption. But Clinton remains a loophole-lover who believes that microtargeted tax breaks can induce desired behavior. That's why he favors a child-care credit, a $1,500 tax break to help parents pay college costs, and a 10% tax credit to small business for training employees. "If you think carefully about what you are doing, targeted tax cuts can be a useful part of an economic program," says Treasury Secretary Robert E. Rubin.

Will that message be powerful enough to counter Dole's growth-through-tax-slashing mantra? Such arguments tend to be won on messages of optimism, and Dole's is designed to project Reagan-style confidence. The danger for Clinton: While Republicans talk of seducing voters with tax cuts, he'll be arguing for fiscal restraint, which has little immediate payoff for most voters.

But Clinton, his advisers insist, thinks voters are serious about wanting a smaller, less intrusive government. And in an acknowledgement of the transformation of his Presidency from the heroic to the minimalist, he will make the centerpiece of his domestic agenda a bit of unfinished bookkeeping: renewing his call to balance the budget by 2002. Thanks to the economic expansion and his 1993 budget, Clinton has helped cut the deficit by 60% under his watch, from $290 billion to $116 billion. "We're going to take the progress we have made, build on it, and get an agreement," says economic adviser Laura D'Andrea Tyson.

If a spending deal can be forged on Clinton's terms, he will assert that then, and only then, can Americans get the tax goodies that Dole is championing. In contrast to the GOP's call for a $548 billion tax cut, which includes a 15% across-the-board rate reduction, Clinton favors a $100 billion package that includes a narrowly focused $500-per-child tax credit. A small concession for investors: The President will support a modest cut in the capital-gains tax, either targeted to the middle class or limited to small-business owners. "Anything I do will be targeted and paid for," Clinton says.

PORTABLE PENSIONS. What else would a Clinton Act II consist of? There would be a new education push built around tax breaks for college students, the promise of small-bore reforms in regulations, and a renewed drive by Gore to trim the federal workforce. To ease worker anxiety, the Administration plans new steps to permit job-hopping workers to bring pensions with them, and it will push health-care initiatives to expand coverage for children and the temporarily unemployed.

Where Clinton once envisioned a child-care network on a scale of the public-school system, he now would push for a modest law allowing workers to swap paid overtime for extra hours with their kids. And rather than investing big in new technologies, he would propose seed money to prod communities and businesses to put computers in classrooms. Indeed, many second-term ideas would use small public sums to leverage private spending. "We need to look at imaginative ways to deal with a shrinking [spending] pot so we can protect our investments," says White House Chief of Staff Leon E. Panetta.

But Clinton could make his biggest mark if he tackles entitlements. That means dealing with two separate Medicare problems. In the short run, he would have to find $150 billion in Medicare savings to help balance the budget and shore up the trust fund. Both parties agree that those changes are needed, so Clinton would have to broker an agreement among wary liberals and Republicans still smarting from his campaign depiction of them as Medicare muggers.

Longer-term, the President could opt to address the structural problem caused by the graying of the boomers by raising the Medicare eligibility age, hiking beneficiary out-of-pocket costs, or forcing more retirees into managed-care plans. White House aides are exploring the idea of a bipartisan commission to fix the system. "There is no way to get through the next four years without doing something on Medicare," contends Robert Greenstein, director of the Center on Budget & Policy Priorities, a liberal research group.

The Administration also has modest plans for post-'96 trade policy. A second term would largely be confined to fine-tuning NAFTA and GATT trade pacts. Gone is any notion that a U.S. fair-trade policy can quickly transform Japanese behavior. As long as Japan's $45 billion trade deficit continues to shrink, Clinton will push for implementing existing agreements with Tokyo. And the Administration will try to cut a deal to allow China to enter the new World Trade Organization under stiff commercial terms. Meanwhile, the White House would make a major push to keep China's trade deficit with the U.S. from continuing to balloon past Japan's by bargaining for greater access to Chinese markets and enforcement of intellectual-property rights.

Freer trade and deficit reduction can help keep the economy growing. But the agonizing paradox is that even in a strong economy, anxiety caused by stagnant wages and corporate downsizing remains. And many unskilled poor are jobless despite overall low unemployment. So aides are already trying to devise ways to ease the angst. One priority is creating jobs for out-of-work mothers who will be knocked off the rolls under the new welfare-reform law. Although Clinton signed the measure, he makes no secret of his distaste for aspects of it, and in a second term, he would try to expand job-training and offer new tax credits to encourage job creation for the poor.

VOUCHERS. But the main target of the economic-security pitch is stagnant wages. "What we've seen since '78 is that male median wages have declined while female wages have leveled off," says Labor Secretary Robert B. Reich. "A lot of that has to do with education and job skills."

Clinton wouldn't reprise a Reichian idea to require companies to spend 1.5% of payrolls on job training. Instead, he would use incentives, promising to give small businesses tax credits to cover some costs of training their workers. And he would resurrect a first-term proposal that would consolidate dozens of training programs and give $2,600 vouchers to workers to purchase training in the private market.

Although boosting education is an agenda-topper, Clinton wouldn't shower billions on new programs. White House aides say some of his education initiatives may be small in dollar terms but will symbolize big ideas. One is the notion that the best way to boost long-term earning potential is via a college education. So the White House would push a $1,500 tuition tax credit, enough to pay for two years of community college. "It would make the first two years of college the norm," says White House economic aide Gene Sperling. For younger students, Clinton would put up $2 billion in seed money to spur communities and businesses to connect all classrooms to the Internet by 2000.

Gone from the Clinton playbook, however, is a first-term proposal to set mandatory federal requirements for school performance. Instead, Clinton plans to hit the hustings to drum up support in every state to enact tough standards for student graduation. He also wants to spend more money to encourage "charter schools," which are independently run public schools.

As for health-care reform, Clinton's first-term Waterloo, the new buzz phrase is incremental change. If he wins, the President plans to propose a $2 billion-a-year program that would subsidize insurance premiums for up to six months for workers who are between jobs. He also is looking for a way to cover children who do not have private insurance or Medicaid. And if consumer resistance to health-maintenance organizations grows, Clinton aides want to propose new rules to ensure quality of care.

Nor is he shying away from bolder steps, such as taking on Big Tobacco. The White House was expected to announce on Aug. 23 that it would let the Food & Drug Administration go ahead with its comprehensive plan to cut youth smoking in half in seven years. The basic idea: gain legal authority by declaring nicotine an addictive drug, then impose some tough restrictions on marketing and advertising tobacco to kids. To underscore his resolve, Clinton will issue an executive order declaring nicotine to be addictive.

Clinton's Reinventing Government drive, which Republicans charge is a pale imitation of their revolution, would expand significantly in a second term, partly to give Gore a high-profile government-reform effort to boost his Presidential ambitions. According to Gore's policy aide, Elaine C. Kamarck, the program would shift in a second term "from experimentation to wholesale reengineering." Functions of government would be run more like businesses, with departments creating "performance-based organizations," run by chief executives. The agency heads would sign performance-based contracts linking their compensation to set goals.

LAPSES? Conservatives, naturally, don't believe that Clinton is serious about rationalizing regulations. "The principal action of the Administration so far has been to oppose all Republican efforts at deregulation, particularly in the environmental area," says David Mason, an analyst at the Heritage Foundation.

Indeed, Republican partisans insist that Clinton would be little more than a big-spending retroliberal in his second-term. And judging by past performance, they could be partly right. A reelected Clinton would not be a linear New Democrat but would be tempted to take the occasional crab-wise skip toward his liberal base on a few symbolic issues, such as providing a safety net for poor mothers affected by his "five years and out" welfare-reform bill.

But despite the odd lapse, chances are that the New Clinton would strive to stay in the middle of the road. Fiscally, he has no choice. And politically, it is a path that has brought a pol once left for roadkill to the verge of that rarest of Democratic Presidential achievements: a second chance.

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