as we discussed how much deficit reduction we needed, I was concerned about the short-term drag that Laura Tyson and Alan Blinder predicted—and Roger Altman and Gene Sperling feared—might occur. After nearly six hours, we were headed in the deficit-reduction direction. Clearly, economic policy making, at least in this environment, was not science, and if it was art, it had to be beautiful in the eyes of the beholders in the bond market.
A week later, we held a second meeting in which I abandoned the middle-class tax cuts; agreed to look at savings in Social Security, Medicare, and Medicaid; and supported Al Gore’s suggestion of a broadbased energy tax, called a BTU tax, on the heat content of energy at the wholesale level. Al said that while the BTU tax would be controversial in states that produced coal, oil, and natural gas, it would fall on all sectors of the economy, lessening the burden on ordinary consumers, and would promote energy conservation, something we badly needed more of.
For several hours more, we again debated how much deficit reduction we had to try for, beginning five years out and working back to the present. Gore took a hard line, saying if we went for the biggest possible reduction, we’d get credit for courage and create a new reality, making it possible to do previously unthinkable things, like requiring Social Security beneficiaries above a certain income level to pay income tax on their benefits. Rivlin agreed with him. Blinder said it might work if the Fed and the bond market believed us. Tyson and Altman were skeptical about avoiding short-term economic contractions. Sperling and Reich, who was present at this meeting, held out for more investments. So did Stan Greenberg, Mandy Grunwald, and Paul Begala, who weren’t part of the meetings and were afraid I was sacrificing everything I believed in under the influence of people who weren’t part of our campaign and didn’t care about the ordinary Americans who had elected me. In late November, Stan had sent me a memo saying my honeymoon with voters would be short-lived unless I moved quickly to address the problem of jobs and declining incomes. Sixty percent of those who said their finances had worsened in 1992, about a third of the electorate, had voted for me. He thought I could lose them with this plan. George Stephanopoulos, who sat in on the meetings, had to try to explain to Stan and his allies that the deficit was killing the economy, and that if we didn’t fix it, there would be no economic recovery and no tax revenues to spend on education, middle-class tax cuts, or anything else. Bentsen and Panetta wanted as much deficit reduction as we could pass in Congress, an amount less than Gore and Rivlin advocated, but still a lot. Rubin, as moderator, was again keeping his own counsel, but I sensed he was with Bentsen and Panetta. After hearing everyone out, so was I.
At some point, I asked Bentsen how much we’d have to reduce the deficit to rally the bond market. He said about $140 billion in the fifth year, with a five-year total of $500 billion. I decided to go with the $500 billion figure, but even with new spending cuts and revenue increases, we still might not be able to meet the target of cutting the deficit in half by the end of my first term. It all depended on the rate of growth.
Because of the possibility that our strategy would produce a short-term slowdown, we searched for ways to promote more growth. I met with executives of the Big Three automakers and Owen Bieber, president of the United Auto Workers, who said that while Japanese cars had almost 30 percent of the American market, Japan was still largely closed to American cars and auto-parts suppliers. I asked Mickey Kantor to find a way to open the Japanese market more. Representatives of the fast-growing biotechnology industry told me that our research-and- development tax credit should be extended and made refundable for young firms, which often didn’t make enough money to claim the full credit under current law. They also wanted stronger protection for their patents against unfair competition, and modifications in and acceleration of the product-approval process of the Food and Drug Administration. I told the team to analyze their proposals and make a recommendation. Finally, I authorized the development of the $20 billion one-shot stimulus proposal to increase economic activity in the short run. I hated to give up the middle-class tax cut, but with the deficit numbers worse, there was no choice. If our strategy worked, the middle class would see direct benefits worth far more than a tax cut—in the form of lower home mortgages and lower interest rates on things like car payments, credit card purchases, and student loans. We also wouldn’t be able to increase spending as much as I had proposed in the campaign, at least at first. But if deficit reduction brought interest rates down and growth up, tax revenues would increase, and I could still meet my investment objectives over four years. That was a big “if.”
There was also another big “if.” The strategy would work only if Congress adopted it. After Bush’s defeat, the Republicans were more anti-tax than ever, so few, if any, of them would vote for any plan I put up with new taxes in it. A lot of Democrats who came from conservative districts would also be wary of tax votes, and liberal Democrats from safe seats might not support the budget if the cuts were too steep in programs they believed in.
After a campaign during which the economic problems of America were center stage, in a time when growth was lagging all over the world, I would begin my presidency with an economic strategy for which there was no precedent. It could bring enormous benefits if I could convince Congress to pass the budget, and if it got the hoped-for response from the Federal Reserve and the bond market. There were compelling arguments for it, but the most important domestic decision of my presidency was still one big gamble.
While most of the transition was occupied by the cabinet and other appointments and the development of our economic program, a number of other things were going on. On January 5, I held a meeting leading to the announcement that I would temporarily continue President Bush’s policy of intercepting and returning Haitians who were trying to reach the United States by boat, a policy I had strongly criticized during the election. After Haiti’s elected president, Jean-Bertrand Aristide, was overthrown by Lieutenant General Raoul Cedras and his allies in 1991, Haitian sympathizers of Aristide had begun to flee the island. When the Bush administration, which appeared to be more sympathetic to Cedras than I was, began to return the refugees, there were loud protests from the human rights community. I wanted to make it easier for Haitians to seek and obtain political asylum in the United States, but was concerned that large numbers of them would perish in trying to get here in rickety boats on the high seas, as about four hundred had done just a week earlier. So, on the advice of our security team, I said that, instead of taking in all the Haitians who could survive the voyage to America, we would beef up our official presence in Haiti and speed up asylum claims there. In the meantime, for safety reasons, we would continue to stop the boats and return the passengers. Ironically, while human rights groups criticized the announcement, and the press characterized it as going back on my campaign pledge, President Aristide supported my position. He knew we would bring more Haitians to the United States than the Bush administration had, and he didn’t want his people to drown.
On January 8, I flew to Austin, Texas, where I had lived and worked for McGovern more than twenty years earlier. After a reunion lunch with old friends from those days at Scholtz’s Beer Garden, I held my first meeting since the election with a foreign leader, Mexico’s president, Carlos Salinas de Gortari. Salinas was deeply committed to the North American Free Trade Agreement (NAFTA), which he had negotiated with President Bush. We were hosted by my longtime friend Governor Ann Richards, who was also a big supporter of NAFTA. I wanted to meet with Salinas early to make it clear that I cared about Mexico’s prosperity and stability, and to make my case to him for the importance of labor and environmental side agreements to strengthen the treaty, and for greater cooperation against narcotrafficking. On the thirteenth, my nominee for attorney general, Zoe Baird, got into hot water when it came out that she had employed two illegal immigrants as household help and had paid the employer’s portion of Social Security taxes on them only recently, when she came into consideration for the Justice post. The employment of illegal immigrants was not that uncommon then, but it was a particular problem for Zoe, because the attorney general oversees the Immigration and Naturalization Service. With Zoe’s early confirmation unlikely, the incumbent assistant attorney general for the civil division, Stuart Gerson, would serve as acting attorney general. We also sent Webb Hubbell, the associate attorney general–designate, over to the Justice Department to look after things. Over the next two days, we announced several more White House staff appointments. Besides George Stephanopoulos as communications director, I named Dee Dee Myers the first female White House press secretary; put Eli Segal in charge of creating the new national service program; and made Rahm Emanuel the director of political affairs, and Alexis Herman director of public liaison. I was bringing several people up from Arkansas: Bruce Lindsey would handle personnel, including appointments to boards and commissions; Carol Rasco would be my assistant for domestic policy; Nancy Hernreich, my scheduler in the governor’s office, would oversee Oval Office operations, with an office just outside mine; David Watkins would oversee the administrative functions of the White House; Ann McCoy, the Governor’s Mansion administrator, came to work in the White House; and my lifelong friend Vince Foster agreed to come to the counsel’s office.
Among those who didn’t come out of the campaign were my choice for White House counsel, Bernie Nussbaum, Hillary’s colleague on the 1974 Nixon impeachment inquiry staff; Ira Magaziner, my Oxford classmate, who would work with us on health-care reform; Howard Paster, an experienced Washington lobbyist, who would
