Deficit Could Force Clinton to Scale Back Plans

Senior advisers to President-elect Bill Clinton, acknowledging that their original economic agenda was based on federal deficit projections that were far too low, say they may be forced to scale back their spending plans--sharply limiting Clinton’s ability to carry out some campaign promises.

Clinton said in an interview published Friday that the deficit now looks much worse than it did when his plan was drawn up in June, and is forcing him to adjust to the new budget realities.

His advisers conceded Friday that they were aware that the deficit was getting worse before the election, but chose not to update the plan until after Americans went to the polls on Nov. 3.

Clinton’s campaign program, titled “Putting People First,” relied heavily on economic and budget assumptions issued by the Congressional Budget Office at the beginning of the year. The CBO released updated--and much worse--deficit figures in August, calling into question the budget assumptions Clinton used in his economic program.

But by then, one senior Clinton adviser said, “the economic program was formatted” and the campaign did not want to try to change it on the fly. “We couldn’t change our plan every time a new number came out,” added another Clinton adviser.

Instead, Clinton continued voicing his pledge to cut the budget deficit in half within four years--even though some outside economic advisers warned campaign staff that the new deficit figures made that promise unrealistic. Clinton strongly defended his economic program whenever the Bush campaign charged that his numbers did not add up.

Clinton transition advisers explain that the numbers were fluctuating so much during the campaign that it was difficult to know the severity of the deficit problem. They argue that the figures have grown even worse since August, which explains the deepening concern since the election.

“The numbers are significantly worse” than projected in August, said a source on Clinton’s budget transition team.

According to the latest calculations, by 1996 the deficit may be as much as $100 billion larger than had been estimated by the Congressional Budget Office in March. The estimate at that time was for a 1996 deficit of $189 billion, largely because of weak economic growth and the continued costs of the savings and loan bailout, according to John P. White, former economic adviser to Ross Perot and now a consultant to the Clinton transition team.

White said that over the 1990s, total budget deficits may be $300 billion higher than previously forecast. But White’s dire projections, which he presented publicly at Clinton’s economic summit in Little Rock, Ark., this week, are patterned largely on the CBO’s forecast issued in August.

Clinton and his advisers continued to stress Friday that serious deficit reduction remains a top priority. If Clinton has to change his program to deal with a worsening budget outlook, he will cut new spending initiatives before scaling back his deficit-reduction plans, he said in an interview published Friday in the Wall Street Journal.

Clinton told the newspaper that he is increasingly concerned by the budget outlook and that his economic plan will be “somewhat different” from that outlined during the campaign because of the long-term deficit problem.

His advisers also said that a wide range of options--including new taxes and spending cuts--are being considered by the transition team to try to deal with the worsening deficit outlook.

Clinton told the Journal that among the tax and spending proposals under consideration are a cap on the amount of tax-free health benefits companies can provide workers, taxing capital gains at death and raising the retirement age for Social Security benefits. Those proposals have been pushed by advisers who have urged him to focus on long-term deficit reduction rather than short-term efforts to stimulate the economy.

Clinton has also made it clear recently that he now sees his promised middle-class tax cut, which would add significantly to the budget deficit, as a long-term goal rather than an immediate priority. While he is coming under increased pressure to consider raising the gasoline tax, he told the Journal that a 15-cent-per-gallon increase in the tax would be “excessive” and would hurt the poor and those in rural areas who drive long distances.

A senior Clinton adviser stressed that, while Clinton has not yet decided exactly how to restructure his economic program to address the deficit, he wants to make it known that “a lot of things are going to have to be on the table.”

“He is saying that we are not going to be able to take a lot of things off the table if we are going to be serious about deficit reduction,” the adviser said.

One reason Clinton has left the impression that the deficit numbers have caught him off guard is that during the campaign, apparently, little time was spent researching the new August budget data after it came out.

Now, faced with the prospect of governing, the transition team is confronting the harsh new numbers in depth for the first time. So for Clinton, the new forecasts have been like a cold shower.

“The deficit numbers haven’t been a surprise, but they have been bracing,” said one senior Clinton adviser.

“Clinton has asked us to take another look at the numbers,” added another. “The numbers have forced a rethinking.”

But Clinton advisers also stress that the data has continued to get worse since August, leading to a new sense within the Clinton camp that they are confronting a bigger problem than anticipated. For instance, the August CBO projection was based on the assumption that Congress would approve funding for the S&L; bailout in the fall of 1992, which it failed to do, and that the economic recovery would be stronger than it now seems.

So now Clinton and his advisers, at least in part to lower expectations, want to make it clear that they face a growing monster. Of all the presentations at the two-day conference, some advisers say, White’s speech on the deficit offered the best insight into Clinton’s current thinking.

“The deficit numbers were fluctuating throughout the year, and we weren’t exactly sure whether they were going to keep getting worse,” said one Clinton adviser. “But now it is December, and we actually have to do a budget, and the numbers have been getting worse.”

The new focus on the deficit by the Clinton camp has apparently complicated the efforts of the transition team to develop an economic agenda that the new President can unveil soon after he takes office. The briefing books on economic policy being prepared by his senior advisers are nearing completion, but still have not been presented to Clinton.

Asked Friday when the economic policy recommendations would be complete, an adviser sighed and repeated: “soon, soon.”

Transition sources say that the delay in completing the economic policy option papers does not yet present a problem because Clinton has been focusing on personnel decisions for the highest posts in his Administration.

But they concede that the President-elect will soon begin to run out of time if he hopes to meet his own deadline of presenting a program to Congress in January.