Clinton Address Looms as Make or Break Event : Economy: It goes to heart of President’s campaign, party chief says. But many may see it as quite different.

Seldom does a President truly have a chance to make or break a presidency with a single event, but for Bill Clinton, the speech he will give this week outlining his economic program before a joint session of Congress rises to that level.

Clinton based virtually his entire presidential campaign on a single issue framed by the now-famous phrase on a sign in his campaign war room: “The economy, stupid.” He promised Americans he could produce where George Bush had failed, and on Wednesday night, he will be expected to deliver.

“If we deliver on the economic promise of the campaign, Bill Clinton will be a success,” said David Wilhelm, Clinton’s former campaign manager and now Democratic Party chairman. “The opposite is also true. That’s why this is such a critical period. It goes to the heart of what Bill Clinton’s campaign was all about.”

“This is not an opportunity for rhetoric, it can’t be another campaign speech,” added Commerce Secretary Ronald H. Brown. “This will lay down the markers” for Clinton’s agenda.

But in the eyes of many Americans, the program Clinton presents to Congress may seem quite different from the one he outlined in his campaign. Before the election, Clinton talked about cutting taxes for the middle class. Instead, his final economic program is expected to include at least some broad-based tax increases that would affect most middle-income families. And it will try to link the campaign goals of faster job growth and future spending increases with the potentially conflicting aim of substantial deficit reduction.

Clinton’s challenge parallels that of Ronald Reagan in 1981. Reagan gained election promising Americans he could do better than Jimmy Carter, and in one bold stroke 12 years ago reoriented the direction of American government.

But Reagan was lucky. Circumstances allowed him to offer an economic plan that contained mostly pleasure--lower taxes coupled with higher spending for defense, which spurred key industries in places like Southern California. He left it to Federal Reserve Chairman Paul A. Volcker to dollop out the pain in the form of higher interest rates that checked inflation at the cost of a sharp recession. Those who felt pain under Reagan’s plan, as his budget director David A. Stockman later admitted, were mostly politically weak--the poor, the young, the unemployed.

Clinton, by contrast, has inherited both an anemic economy and a huge federal deficit. His plan does propose some pleasure--a deficit-widening short-term stimulus program, and a long-term boost in federal “investment” spending on education, training, health care and public works.

But he will also call for pain on the part of many Americans. Corporations and wealthy individuals will be asked to pay higher taxes, a fulfillment of Clinton’s campaign promise to try to restore equity to the tax code.

Middle America is expected to feel the squeeze, too, in the form of a broad-based tax on energy use and higher taxes on Social Security benefits. Critics already are characterizing such measures as an abandonment of Clinton’s pledge to lighten the middle-class tax load.

Enacting such a program is not impossible, even though past presidents have shied away from proposing such politically difficult measures. Even if voters dislike individual parts of Clinton’s plan, many will support the package if they believe the President has set a clear course, predicted UCLA professor John Petrocik, a past consultant to GOP campaigns.

But Clinton has made that prospect vastly more difficult by failing to set such a clear course over the first few weeks of his presidency, Petrocik said, an assessment shared by White House aides.

“He’s got something very intrinsically difficult to do, and he’s added to that difficulty,” said Princeton professor Fred Greenstein.

“You’d have thought when those buses rolled up from Monticello to Washington, they would have contained a fully formed presidency,” Greenstein said. Instead, Clinton only in the last few days has made key decisions about his plan, and he has allowed others to focus the public agenda on divisive issues such as gays in the military rather than the economic issues.

Clinton’s appearance of stumbling so far has reduced his political maneuvering room--already limited by the fact that he won election without a majority of votes--and has sidetracked his plan to begin building support for his proposals. Only in recent days has he begun actively to campaign for his program, an effort he continued in a radio speech Saturday.

In the speech, Clinton vowed to “take the battle to the special interests” and “restore fairness to the tax code” by raising taxes on the wealthy. The goal of the plan, he said, will not be “to soak the rich, but we want to stop soaking the middle class.”

As the stakes for Wednesday’s speech have increased, so have the risks Clinton faces.

“It’s awfully hard to have so much riding on one speech when he faces such difficult choices and has limited options,” said William Leuchtenberg, a historian of the presidency.

One crucial reason Clinton has arrived in this position is that the task of putting together a budget has proven far more difficult than he had maintained it would be during his campaign. Most important, during the campaign, Clinton repeatedly waved away any suggestion that his program would require sacrifice by the middle class, rather than just those with incomes over $200,000 a year. In the third presidential debate last fall, Clinton looked straight into the camera and said he would not raise taxes on the middle class to pay for his programs.

Clinton also promised he could cut the federal deficit in half by 1997. And his budget director, Leon A. Panetta, said in his confirmation hearings that he foresaw a deficit reduction plan that would contain two dollars of spending cuts for every dollar of new taxes.

But the plan to be released this week will meet none of those goals. Administration officials have made clear that middle-class taxpayers will be asked to pay at least somewhat more via taxes other than income taxes. The plan will not cut the deficit in half, and is likely to fall short of the fallback goal Clinton set last month of reducing the shortfall by $145 billion. And instead of a 2-to-1 ratio between spending cuts and taxes, Clinton’s labor secretary and close adviser Robert B. Reich said in a television interview Thursday night that “the spending cuts are going to be about as much as the tax increases.”

Clinton has argued that those changes have been forced because the budget deficit is much worse than he anticipated during the campaign. “The deficit is $50 billion bigger than I ever expected,” Clinton says repeatedly.

But that answer doesn’t quite hold up. Deficit projections have worsened since last summer, but estimates for the fiscal year 1997 deficit--the target year for Clinton’s program to have its full impact--continue to vary widely.

The problems besetting Clinton’s deliberations are not just deficit projections but also the facts that many of the spending cuts he proposed during the campaign were illusory or overstated, and that not enough rich people exist to make up the difference by taxing only the wealthy.

Those stumbling blocks mean that Clinton has had to confront the same reality that faced his two predecessors: Cutting the deficit is politically painful. Or, as Bush’s budget director, Richard G. Darman, said before leaving office, “If there were an easy way to do this, it would have been done already.”

Republicans, not surprisingly, predict that Clinton will fail because his plan will not square with his campaign appeals.

“What you do early is important,” said Michael J. Boskin, chairman of the Council of Economic Advisers in the Bush Administration. “The voters have a right to expect you to try to deliver on your campaign promises. It was a major mistake when President Bush did not quickly pursue the flexible spending freeze he ran and won on in 1988. But since Clinton’s campaign promises were always underfunded, he either was going to have to renege on some promises, delay attacking the deficit or propose massive tax increases that he did not acknowledge during the campaign. He seems headed toward some combination of these three.”

“This will set the tone for his presidency. The (speech) is where we are going to meet the real guy,” said Jim Pinkerton, a former Bush Administration policy-maker. “The rap on Clinton is that he’s not anchored to a set of principles. If Clinton doesn’t set down here what he wants to do and stick to it, then I think he might be cooked.”

Clinton aides insist that the President will offer a clear and credible plan to the public.

Administration officials also have tried to appeal to middle-class taxpayers. “We’re not going to do anything that is unfair in its impact on the American people,” Vice President Al Gore said in an interview on the CNN “Newsmaker Saturday” program.

Aides argue that the controversial elements will be able to win congressional support if Clinton can succeed in selling the plan to the public as a package.

Others outside the White House share that assessment. “It is easier to do this in the context of lots and lots of things going through at once,” said Gary Burtless, an analyst at the University of Maryland.

To sell Clinton’s plan, the Administration now seems certain to try to take the same kind of populist tack that Clinton used in his campaign and featured in both his radio talk Saturday and a speech Friday denouncing large drug companies for inflating the price of vaccines for children.

Even though Clinton’s party now controls both houses of Congress, going to the country is an astute political move; Republicans pleaded, unsuccessfully, with George Bush to do the same when his initiatives were stymied on Capitol Hill.

The reason, said Petrocik, is that the President and the Congress inherently represent two different aspects of democracy. Congress, a representative body, is acutely sensitive to the importunings of each separate interest group. Members of Congress tend to focus on the details of a legislative package, trying to shape them in subtle ways that often can redistribute billions of dollars.

The presidency, by contrast, reflects “plebiscitory democracy”--the up or down popular vote on an entire package. The challenge for a President is to “be something broader” than merely one more player in the legislative game.

With Reagan in 1981, for example, “the public rallied around somebody who had given them the sense that he knew where he wanted to go, had set a course and that all the guys on the side were whiners and nay-sayers,” Petrocik said.

By contrast, when Carter presented his massive energy program, he failed to seize the public’s interest or rally its support. Congress remained free to respond to each special-interest group and debated much of Carter’s program to death with no fear of retribution at the polls.

The question for Clinton, as he puts the final touches on his speech, will be “whether he has put together something members of Congress would have to worry about at the next election” if they fail to vote for it.

20 Ways to Deflate a Deficit

As President Clinton and his advisers wrestle with the economic agenda he will present to Congress on Wednesday, perhaps the biggest single problem they face is the deficit. It will hit $319 billion by 1997, according to congressional analysts. Clinton has promised to reduce that figure by $145 billion. In a report to be issued this week, the Congressional Budget Office analyzes scores of deficit-cutting suggestions. Here is a random sampling of those options, which do not necessarily reflect the proposals Clinton is considering, and the estimated savings they would produce in fiscal 1997:

HEALTH BENEFITS: Tax employer-paid health insurance above $400 a month for families and $165 a month for individuals: $16.7 billion.

SOCIAL SECURITY: Freeze cost-of-living adjustments for one year: $8.7 billion. Increase benefits subject to taxation to 85% from 50% for middle-class and affluent beneficiaries: $7.5 billion.

ENERGY TAX: Impose broad-based 5% tax on all forms of energy consumption: $20.3 billion.

TAXING THE WEALTHY: Raise top income tax rate to 33% from 31%, and add a 38% bracket: $16.2 billion.

MORTGAGE DEDUCTION: Limit interest deduction to $12,000 for single filers and $20,000 on joint returns: $5.0 billion.

SAFETY NET: Reduce federal share of Medicaid and Aid to Families with Dependent Children to 45% from 50% now: $8.0 billion.

CORPORATE TAX: Increase top corporate tax rate to 35% from 34%: $3.2 billion.

MILITARY CUTBACKS: Eliminate four Army light divisions: $2.3 billino. Reduce aircraft carrier battle groups to 10 from 13: $3.9 billion.

FARM SUBSIDIES: Reduce target prices used to calculate farm subsidies by 3% annually: $3.2 billion.

ESTATE TAX: Tax increase in value on real estate and investment assets held until death: $8.1 billion.

ARTS AND HUMANITIES: Eliminate aid for the arts and humanities: $1.2 billion.

DRUG WAR: Reduce funding for drug control law enforcement: $2.5 billion.

MEDICARE: Increase supplementary medical insurance copayment to 25% from 20%: $5.2 billion. Freeze payments for hospital services for one year: $3.5 billion.

BUSINESS LUNCHES: Disallow half of business-related meal and entertainment costs: $3.7 billion.

PAY CUTS: Cut salaries of all federal employees by 2%: $1.9 billion.

VALUE-ADDED TAX: Impose 5% value-added tax on all goods except food, housing and medical care: $60.4 billion.

TRANSPORTATION: Reduce federal aid for mass transit: $1.6 billion. Eliminate airport grants: $1.8 billion.

SIN TAXES: Double cigarette tax to 48 cents per pack: $3.7 billion. Increase alcoholic beverage tax to $16 per proof gallon: $4.7 billion.

URBAN AID: Eliminate Community Development Block Grant program: $4.4 billion.

WEAPONS SYSTEMS: Limit Strategic Defense Initiative to 100 ground-based missiles: $3.0 billion. Scale back nuclear arsenal to 4,000 warheads: $1.5 billion.

Source: Congressional Budget Office