Clinton Advisers Split on Stern Efforts to Cut Deficit

The Clinton Administration missed a self-imposed deadline for key budget decisions on Thursday as a group of senior advisers began to rebel against strong deficit reduction measures being pushed by others in the White House.

Budget decisions have been delayed, sources say, as the Administration, confronted with painful choices on all sides, has divided into two rival camps on economic policy. At issue is the extent to which Clinton will raise taxes, cut popular programs and scale back his campaign agenda in an effort to shrink the deficit.

In recent weeks, a group of senior officials considered relatively hawkish on deficit reduction has dominated the public debate over economic policy--led by White House Budget Director Leon E. Panetta, Treasury Secretary Lloyd Bentsen and important staff members at Clinton’s new National Economic Council.

But now, sources in the Administration say, a counterattack is being waged by deficit reduction doves, including Labor Secretary Robert B. Reich and Health and Human Services Secretary Donna Shalala.

Several of President Clinton’s political advisers, including White House Communications Director George Stephanopoulos, outside political consultants Paul Begala and James Carville and pollster Stanley B. Greenberg, have in effect backed this side, arguing that Clinton should focus on reviving the economy rather than on meeting a fixed deficit reduction target.

They believe that Clinton should not lose sight of the issues that got him elected: job creation, health care and new investments to boost the economy.

“He wasn’t elected on a platform of deficit reduction,” one senior adviser said.

The deficit reduction hawks are trying to hold Clinton to a target of cutting the deficit until it is reduced by $145 billion in 1997, while the doves apparently believe that about $80 billion would be sufficient.

Even the more modest goal would probably require substantial tax increases, such as higher taxes on the rich and a broad-based energy tax, which would hit the middle class. That goal also would almost certainly force Clinton to give up on a middle-class tax cut. But it might allow Clinton to avoid cutting too deeply into popular entitlement programs, such as Social Security.

With less than two weeks to go before Clinton is to unveil his economic agenda, the internal battle has contributed to a series of delays. Clinton has not yet decided, for instance, how much money to devote to his short-term jobs program or to his long-term investments in such areas as job training, education, child health and public works, or what his overall deficit reduction target should be.

The Administration had planned to decide on agency budgets for next year by Thursday but has been forced to defer those judgments until the President decides what his spending priorities are.

Shortly before his inauguration, Clinton said he still hoped to live up to his campaign goal of cutting the annual deficit $145 billion in 1997. The Clinton Administration has been using a wide range of deficit forecasts, but the latest prediction from the Congressional Budget Office said the deficit would reach $319 billion by 1997 under current policies. To live up to his pledge under the budget office projections, Clinton would have to cut the deficit to $174 billion by 1997.

The deficit reduction hawks within the Administration are trying to hold Clinton to that target. Senior White House officials, who support stringent deficit reduction efforts, stressed Thursday that Clinton remains committed to the objective.

“The range of deficit targets that we are looking at is still the same,” one White House official said. But he acknowledged that an internal debate is raging over whether focusing on the deficit makes political sense.

One senior official suggested Thursday that Clinton should try to cut the deficit to about $240 billion by 1997--or about $80 billion below the budget office target. That more modest effort would keep the deficit at about the same percentage of the nation’s output of goods and services as it is today, breaking its recent upward trend.

“That would essentially stabilize the ratio, and that is a respectable goal,” the official said. “In my view, that would send a clear signal that we are getting the deficit under control.”

Lower deficit targets would allow Clinton to devote more resources to his long-term agenda for job training, education, health care and public works. “We not only have a budget deficit but an investment deficit, and the only way we can have a healthy economy over the long term is to make sure that both deficits are attacked,” the official said.

Last week, Panetta told all agency heads that they would receive word on final presidential decisions by Thursday of this week and would have until Monday to appeal Clinton’s decisions. But Thursday, Stephanopoulos conceded that Clinton would not meet that deadline.

Clinton was continuing to review domestic spending plans, Stephanopoulos said, looking for possible cuts. Some of the President’s own new spending plans might fall victim to the budget pressure, he said.

For most of the past week, Stephanopoulos has advanced the argument that the goal for the Administration is to revive the economy, not to meet any specific deficit-cutting target.

“For the last dozen years we’ve seen the deficit go up every year,” he said Thursday. “It would be a significant achievement if you got it going in the other direction,” even if it did not reach the earlier goal for reduction. Shalala made similar arguments publicly Thursday in an appearance before the legislative council of the American Assn. of Retired Persons. She strongly discounted the possibility that the Administration would restrict or delay annual Social Security cost-of-living benefit increases.

In recent days, that idea had been suggested by senior Clinton advisers who are anti-deficit advocates as a way to save billions of dollars and demonstrate the President’s commitment to deficit reduction.

But, Shalala said, “Bill Clinton did not get elected to do a set of things that he does not consider fundamentally fair to the people who voted for him. The entitlement programs are pillars of the American system, and without them 44% of our seniors would be living below the poverty line.

“I also want to reassure you,” she said, “that there are people at the table that, led by the President . . . have a sense of fairness and a sense of the commitments that we made on things like Social Security. And if I don’t remember it, my mother calls me every night to remind me.”

The split between the two camps reflects not only a difference in economic philosophies, but also, in part, a division between those aides who worked with Clinton during the presidential campaign and those who did not.

Many leading figures in the anti-deficit hawk camp are Washington veterans who came into the Administration with policy preferences honed by years of past battles over budget policy. In those battles, a willingness to take on Social Security or other popular middle-class programs has become a touchstone of a person’s seriousness about the deficit.

By contrast, even though many Clinton campaign advisers live and work in Washington, they prided themselves on having a keen sense of the political realities outside the capital--a sense they felt that many Washington officials had lost.