Working the Crowd

By NANCY GIBBS

IF A PRESENCE HAUNTED THE HALLS OF Congress last Wednesday night, it was not Kennedy or Roosevelt or any of the other 20th century Democrats who beckoned the citizenry to sacrifice. It was Ronald Reagan, the last leader to stand before the country and sketch a vision so dramatic. "Government is not the solution to our problems," Reagan said in 1981. "Government is the problem."

"I believe government must do more," the young apostate declared 12 years later.

"We have every right to dream heroic dreams," Reagan said.

"We have got to play the hand we were dealt," Clinton replied.

"For decades we have piled deficit upon deficit, mortgaging our future and our children's future for the temporary convenience of the present," Reagan said. "To continue this long trend is to guarantee tremendous social, cultural, political and economic upheavals." The trend did not continue -- it accelerated, doubling the $1 trillion debt that he deplored, then doubling it again. Reagan's 67-mile-high stack of $1,000 bills, Clinton said, now reached up 267 miles. By the end of his speech, Clinton had grabbed hold of all that Reagan professed, wrapped it in burlap and cast it aside.

Clinton's first sacrifice was poetry. Short words work hard and cost little, and he had too much to say to afford the extravagant dream weaving of his Inaugural. He did not talk about "a government for our tomorrows" or evoke posterity in a child's eyes wandering into sleep. Having spent a career pantomiming Kennedy, Clinton found his own voice, offering a modern translation of the call to sacrifice. "My fellow Americans," he said, "the test of this plan cannot be what is in it for me. It has got to be what is in it for us." It was rhetoric in a hard hat, and judging by the immediate reaction of the polls, it worked.

That 4 out of 5 people praised the speech may have said less about some new national appetite for pain than about a hunger for leadership. Three out of 4 people, according to a TIME/CNN poll, thought that Clinton's plan represented real change. Either they believed what Clinton said or they just wanted someone to stand up in a roomful of politicians and announce that there should be no more blame assigned, no more numbers cooked and no more responsibilities dodged.

Clinton warned that there were forces crouching to attack him for everything he was trying to do. So it will be ironic if he stumbles over anger at what he didn't try to do. In the days that followed, the most piercing charge against him was that he had given a great speech, seized the moment, told the truth, wrestled the demons and then settled for a draw. For the next few weeks, as he travels the country and stumps in Congress, he will have to persuade voters and their representatives that the $246 billion in tax hikes, while painful, is necessary and fair, that the $247 billion in spending cuts is more than symbolic, and that the combination of the two will invigorate the economy and cut the deficit $325 billion from 1994 through 1997. "We've got ourselves a President who's a hell of a salesman," says one of Clinton's advisers. "The question is whether we've given him a good enough product."

The drama is all the greater for its context: time and again, in 1981, 1982, 1984 and 1990, the President and Congress have looked at the deficit, winced . and struck a bargain. Each time, a change in the tax structure was paired with proposed spending cuts. Each time the tax structure was changed, but the spending cuts proved inadequate or illusory. Many of Clinton's proposals, even those as obvious as getting the Tennessee Valley Authority out of the fertilizer-research business, have been tried and rejected over the past decade. A battle is sure to come. "This is probably a much better plan than what he's likely to get through the Congress," said Clinton's erstwhile rival Paul Tsongas. "By any definition of what's likely in the real world, you have to give Bill Clinton credit."

By proposing so blunt a program, especially so huge a tax hike, Clinton was feeding raw meat to his Republican opponents. In the hours before the speech, G.O.P. lawmakers were already displaying a banner reading, IT'S THE SPENDING, STUPID! Radio blowtorch Rush Limbaugh bet the Democratic National Committee $1 million that by Jan. 1, 1995, inflation, unemployment, interest rates and the federal deficit will all be higher and that Clinton's approval rating in the polls will be 45% or less. David Wilhelm of the D.N.C. replied with a counteroffer: If the Clinton plan works, Limbaugh will have to give his microphone to the D.N.C. for a year.

The President's opponents charged that he had abandoned his campaign pledge not to raise taxes on the middle class, since new energy taxes will hit all families earning more than $30,000. They pointed out that for the next two years, virtually every penny of the deficit reduction will come from tax hikes rather than spending cuts. They warned that raising taxes would dampen the recovery, spook consumers and investors, and ultimately cost jobs by suppressing growth. "I felt good about the proposals," said Dick Johnson, a retired aeronautical engineer in Dallas, "until I heard the Republicans telling me nothing was going to change."

If Clinton left himself a single challenge, it is to prove that his revolution is for real, led by a "New Democrat" who has been chastened by the failures of his well-intentioned predecessors. He may speak of "investments" rather than spending and "contributions" rather than taxes, but more than his vocabulary must be new if he is to wean voters from their profound cynicism about what government can accomplish. The criticisms of his plan are predictable, but formidable too:

TOO MANY TAXES, TOO FEW CUTS During his confirmation hearings, Budget Director Leon Panetta promised $2 in spending cuts for every $1 in new taxes. Over the next few weeks, the Administration retreated to a "one for one" balance, but the plan falls far short of even that goal. If his new spending proposals are factored in, Clinton's plan includes $3 in net new taxes for every $2 in spending cuts.

The charge that the program is an old-time liberal tax-and-spend scheme formed the heart of the Republican counterattack. Senate Republican leader Robert Dole said, "Before President Clinton demands that the farmer, the nurse, the factory worker, the shopkeeper, the truck driver or our senior citizens send one more dime to Washington, they should demand of President Clinton -- and Congress -- that every outdated program, every bloated agency and every item in the federal budget take the hit it deserves."

That kind of grandstanding prompted the normally placid Panetta to draw the line. "The time has come to put up or shut up with regard to spending alternatives," he told the House Budget Committee. He locked in on Ohio Republican John Kasich. "You are now the perfect example," Panetta said, "of the kind of gridlock that people are tired of."

But it was not only Republicans who felt that, given the power of Clinton's speech and the mood of the nation, this may have been the moment to do even more. A truly revolutionary plan, deficit hawks argue, would do away completely with the $30 billion, 5,000-employee Education Department, since education is almost entirely a state and local responsibility. The Veterans Affairs Administration and Department of Housing and Urban Development could be folded into Health and Human Services, shedding thousands of bureaucrats in the process. The EPA and the Department of Energy could be merged with Interior in a single Department of Natural Resources.

Such plans for streamlining government have kicked around Washington for years -- one of the best by Budget Director Panetta. He and some other economic advisers, particularly Lloyd Bentsen and Alice Rivlin, wanted to pay for all the new spending and half the deficit reduction through cuts in government programs. "But that turned out not to be possible . . . for political reasons," says an adviser. "We decided early on that we weren't doing this as an academic exercise. We wanted a package that could get through Congress."

Clinton's political instincts told him to hold his fire. Programs that might have been scrapped altogether were merely trimmed. His plan, for example, calls for cutting the mohair subsidy to $50,000 per producer, even though the program was originally designed to ensure a supply of fabric for soldiers' uniforms -- during the Eisenhower Administration. Funding for other extravagances, like the $30 billion space station and the $8 billion superconducting supercollider, was spared partly to help the Democrats hold on to Bentsen's Senate seat. Many of the spending "cuts" are actually higher user fees for government services like inland waterways, national parks and meat inspection.

Having proposed deeper cuts than either of his more conservative predecessors, Clinton set out to outflank the opposition. He dispatched Bentsen to Texas, economic adviser Robert Rubin to the New York Stock Exchange and other Cabinet officers to their home states to sell his plan. "All those who say we should cut more, be as specific as I have been," Clinton said. By the day after his speech to Congress, during his road show to promote his budget plan, he was adopting the Republican message as his own, telling a crowd in St. Louis, Missouri, "We need you to hold our feet to the fire. No raising taxes unless we cut spending!" Clinton added, "I know there is more that we can eliminate. I am honestly looking. I've just been there four weeks and a day, and I'm nowhere near through."

TOO MUCH NEW SPENDING Poll after poll before and after the speech showed that Americans would accept higher taxes to cut the deficit. But the willingness comes with the condition that government sacrifice too, by giving up the high- calorie programs that help Congressmen get re-elected, the agencies that keep bureaucrats employed, the pet programs that have marinated in think tanks during the Democrats' years in the wilderness. "If he increases taxes simply to spend more money," says James Nowlan, president of the Taxpayers' Federation of Illinois, "then public cynicism will only increase."

Karen Meredith, 38, a Perot voter, founded the American Association of Boomers three years ago to pursue her generation's interests. She says she is hearing from many of her 26,000 members that Clinton didn't cut nearly enough. "It won't reduce the deficit at all. We will have paid all those taxes for nothing. There are a lot of tough choices out there, and I don't know if Bill Clinton has the guts to be unpopular."

Clinton must convince voters like Meredith that his new spending proposals represent a different kind of government activism. The bill for his new "investment" and stimulus would amount to a four-year cost of $169 billion for new highways, summer jobs, environmental cleanup and other measures. Overall government spending would grow from $1.48 trillion in 1993 to $1.68 trillion in 1997. That is roughly the rate of current inflation and less than the average 6.4% growth of the Reagan-Bush presidencies. But that does not factor in the cost -- anywhere from $30 billion to $90 billion a year -- for extending health-care coverage to 37 million uninsured Americans.

It may be hard to argue with the usefulness of hiring 160 new meat inspectors after a two-year-old boy died and 400 people fell ill from eating bad hamburgers at Jack in the Box restaurants; or of vaccinations that save not only lives but also health costs down the line. But Clinton's advisers acknowledge that his plans -- and the potential costs -- go much further. Clinton has been impressed by the arguments of counselors like Labor Secretary Robert Reich and Laura Tyson, chair of the President's Council of Economic Advisers, who contend that the government must help America's industries to become more competitive players in the global marketplace. That means subsidizing new technologies and industries, retraining workers and pressuring foreign competitors on their trading practices.

TOO MANY LOOPHOLES In his search for new revenue, Clinton made a calculated gamble in deciding to target the rich, as opposed to the more diffuse "special interests." As politics, it was unassailable: 98% of households, he repeated again and again, would not see their income taxes rise, and for a typical family, the energy tax would range from $10 to $17 a month. Class resentment had been simmering long enough to ensure that there would be few voices in Congress willing to come to the defense of millionaires, deductible golf-club memberships and three-martini lunches. Any particular spending cut, on the other hand, was guaranteed to add another obstacle in Congress. "As a political matter," said a Clinton aide, "it's easier to put the burden of deficit reduction on rich people generally, rather than taking on all the special interests at once."

As policy, however, the "soak the rich" notion raised some questions. "Clinton starts off by talking about honoring work, but there's no way to sort out the people making $250,000 and say, 'They don't deserve it, so let's tax them at a higher rate,' " says University of Houston economist Barton Smith. "They're not all fat cats. Some of them are people who have worked all their lives, developed a business and succeeded."

The day after the speech, Ronald Reagan presented a scorching critique on the op-ed page of the New York Times. Responding to Clinton's vow to "raise taxes on the people who did well in the 1980s," Reagan let fly: "Did I hear that right? Do they really believe that those who have worked hard and been successful should somehow be punished for it?"

Most important, lawmakers in both parties warned that raising the top rates on individuals and businesses threatens to undo one of the singular accomplishments of the '80s: the 1986 tax-reform act. Apart from simplicity and fairness, the theory behind keeping rates low and loopholes closed was to encourage people and corporations to focus on business opportunities rather than on how to avoid taxes. Economists warned that many investors will scramble for tax shelters and tax-free bonds or move their money abroad. Corporations will head back into debt to reduce their taxable profits. Offering tax credits to small businesses with sales of less than $5 million, predicts Charles Wolf Jr., director of international economic research at the Rand Corp., will mean that "a lot of $50 million companies will break up into ten $5 million companies."

Clinton's plan not only raises the top corporate tax rate to 36%, but also restores much of the fiscal macrame that enriches lawyers and tax accountants. The real estate industry, a staunch Clinton ally, makes out very nicely. A proposal to limit the mortgage-interest deduction for upper-income taxpayers "received serious consideration" until late last week, Bentsen said. But it eventually "fell out" of Clinton's package because a limit even on mortgages above $300,000 might depress expensive housing markets. "What about New York, where so many of the mortgages are more than $300,000?" Bentsen asked. "What about California?" Clinton's proposal also restores incentives for commercial real estate developers. When asked last week just what the real estate industry would be "sacrificing," a top official smiled thinly and replied, "Well, a lot of them are in our new top-income brackets."

All these objections and others were debated within the ranks of Clinton's advisers in the marathon strategy sessions leading up to Wednesday night. - Underlying the philosophical questions was the political reality: that if there were such a thing as a perfect plan, it would be a waste of time to propose it if it cannot pass the Congress. A Democratic majority in no way assures success: even Budget Director Panetta gave the plan only a fifty-fifty chance of passing in something like its original form. That meant the opening pitch on Wednesday night was easy compared with the sales job that lies ahead.

Bentsen assured his former colleagues in Congress that "when it comes to a tough vote, he's going to be with you and won't leave you out there hanging like some Presidents have done." Ground zero is the House Ways and Means Committee, where lobbyists hover over the 38 members as they yank and pull at each spending proposal. "At Ways and Means, we're looking at the most important six months of the committee's existence," says Texas Congressman Bill Archer, the ranking Republican. "If lobbyists can organize so much turmoil over a little tax loophole, just imagine what they'll do with Clinton's plan."

Clinton's wooing of Ways and Means is complicated by the troubles of its powerhouse chairman, Dan Rostenkowski, who sat through Wednesday night's speech looking as if he were in genuine pain. U.S. Attorney Jay Stephens is expected to indict Rostenkowski this spring or summer on charges of illegally converting House Post Office money to personal use. If that happens, his likely successor, Sam Gibbons of Florida, has neither the stature nor the knowledge of the tax code that will be needed to sell the Clinton plan to Congress. And since Clinton opened the door to new "incentives" and special tax breaks, without Rostenkowski's discipline the bill that eventually emerges from the committee is bound to be even more byzantine than the one Clinton proposed.

The President did everything he could to outflank the lobbyists -- except for those he meant to enlist in his cause, like the environmentalists, the children's activists, the consumer groups. White House officials were proud of their willingness to flush the enemy out into the open. "We've already changed the debate from 'Can we take them on?' to 'How much do we dare to do?' " said an official. But it was Ross Perot, in giving his tentative blessing to Clinton's plan, who acknowledged, "More lobbyists will get rich in the next 90 days than in the history of man, trying to manipulate what starts out to be a great idea and turn it into something that's just filled with special- interest exceptions."

The prime target will be the energy tax, a broad-based levy on the heat content of fuel designed to raise $49 billion through 1997. It was sure to pinch not only transportation but also steelmakers, tire manufacturers and other heavy industries. "We're going to get it taken care of," says Tom Donohue, president of the 7.8 million-member American Trucking Association. "No point in talking to members of Congress right now," he adds airily. Wait until they get the paperwork, he says, and then he and his associates will weigh in.

Even as his proposals were being raked over in Washington, Clinton could take some comfort from the reviews in the bars and coffee shops around the country. "I feel better about being bled," said Anne Bellamy, 40, as she sat at the bar of the Rusty Pelican in suburban Los Angeles. "I'm one of those girls who make $50,000 a year. I voted for the man fully understanding that my taxes would go up. It's a trade-off. The quality of life in America, not for myself but for everybody, is a real concern to me."

But along with the support came a common cry for accountability. Too many hopes had been raised and crushed for people to believe that politicians would really use the money as they promised. Dick Johnson in Dallas wants to see a periodic report card. "And I don't want to wait four years," he said. "I want the government to show me how many of these goals have been met." But by that time, if it's proof he's looking for, Johnson probably won't need a government report. He can take a time-honored political test and ask, with a Clintonesque twist, "Are we better off than we were four years ago?"

CHART: NOT AVAILABLE

CREDIT: From a telephone poll of 800 American adults taken for TIME/CNN on Feb. 18 by Yankelovich Partners Inc. Sampling error is plus or minus 3.5%.

CAPTION: Do you favor Clinton's economic plan?

Is Clinton doing a good job handling the economy?

With reporting by Dan Goodgame/Washington, with other bureaus