VIEW FROM WASHINGTON / JAMES RISEN : Clinton’s Middle-Class Tax-Cut Plan: Policy-Making Gone Awry

To understand why Bill Clinton has had so much trouble developing a coherent strategy and clear direction for his presidency, look no further than the way he crafted his most important initiative for 1995: the so-called middle-class bill of rights.

As he mapped out his budget priorities in the weeks following the November elections, the basic policy choice that confronted Clinton was clear: A) stick to his guns or B) reverse direction and offer a response to the Republican landslide.

Clinton’s choice of “B” over the objections of his economic advisers may soon have dire consequences for the Administration. His proposed package of middle-class tax cuts has opened up a budget-busting tax-cut bidding war in Washington, while condemning Clinton to a “me-too” brand of economic policy-making.

What’s more curious is the way Clinton decided upon the elements that would go into his tax-cut package. After his economic advisers reluctantly signed on to the idea of a tax cut, they began to lobby the President for their own favorite provisions. Rather than upset any of them, Clinton simply threw all of the ideas into his plan and expanded the pot of money earmarked to pay for it.

The result was a mishmash of proposals that had no central focus. It gained Clinton very little political mileage and was quickly overtaken by the far more sweeping tax and budget plans offered by the newly dominant congressional Republicans.

At the same time, Clinton threw away his best argument against the Republican onslaught: his commitment to deficit reduction.

In simple terms, the tax-cut debate within the White House came down to an argument between Clinton’s economic advisers, who believed that the President should keep his focus on deficit reduction, and his political aides, who argued that Clinton must re-establish his credentials as spokesman for the “forgotten middle class.”

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Most members of Clinton’s economic team were supportive of a proposal to provide a tax deduction for the costs of post-secondary education and training, crafted by Labor Secretary Robert B. Reich. That idea, they believed, was consistent with Clinton’s earlier initiatives to increase federal support for public investment in such things as job training and education.

The Reich proposal had been in the works at the Labor Department for more than a year, and Reich had hopes it would stand alone as a major new Administration initiative. He argued that the plan represented a “New Democrat” kind of tax cut, one designed to enhance the nation’s “human capital” and global competitiveness.

Reich had spent months developing a consensus within the Administration in support of his proposal, personally lobbying Treasury Secretary Lloyd Bentsen and Clinton himself. He contracted for private polls and focus groups to prove how popular it would be with middle-class voters.

“I marketed it to the White House,” Reich says now.

Yet last fall, Reich and other Administration economic advisers grew wary as they detected growing pressure within the White House for a broader middle-class tax cut to compete with the GOP. The House Republican campaign platform, the “Contract With America,” had as its centerpiece a massive package of tax cuts; the notion of failing to respond made the White House nervous.

Ultimately, Reich, budget director Alice Rivlin, chief White House economic adviser Laura D’Andrea Tyson and incoming Treasury Secretary Robert Rubin all opposed the White House’s plan to counter the GOP’s $500-per-child tax credit for families with a similar proposal of its own.

Bentsen was perhaps the only senior economic adviser who expressed enthusiasm for the $500 tax credit--and that was over opposition from most members of his senior staff at Treasury.

To most of the economic team, the $500 credit seemed too costly. They said it would not help an economy already near full capacity and would take the Administration’s focus off deficit reduction. What’s more, some argued, the President would not reap any political benefit: He would be accused, they said, of offering little more than a pale imitation of the Republican prescription.

Yet White House advisers--including George Stephanopoulos, an influential veteran of the 1992 campaign--held that Clinton would not be accused of copying the Republicans, but rather would be seen as living up to his campaign pledge to offer tax relief to the middle class.

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In fact, Vice President Al Gore had made a similar proposal in 1991 as a senator from Tennessee. Gore’s legislation called for an $800-a-child tax credit for families with incomes under $75,000. A similar proposal was included in the Clinton-Gore campaign manifesto, “Putting People First,” but was dropped in the Administration’s early months.

Eventually, the economic team--steamrollered by Stephanopoulos, Gore and Hillary Rodham Clinton--began to join in the tax-cutting fun.

Still, Clinton gave something to everybody. Bentsen, a longtime champion of expanding individual retirement accounts, was pleased when an IRA provision was thrown in “almost as an afterthought,” said one adviser. Reich’s tax break for education and training was melded into the package as well.

But by then it was a sideshow--lost in a package that is widely perceived as a pale imitation of the Republican contract--and one that seems DOA on Capitol Hill.