Washington: Deficit Chickens

How President Clinton beat back the threat of real budget cuts.


Just before Thanksgiving, Bill Clinton established once and for all that he is, in fact, a traditional, tax-and-spend Democrat and that his oft-stated concerns about the budget deficit are simply a cover for raising taxes. In a frantic, pre-holiday lobbying campaign, he led a crusade to defeat a modest deficit-reduction plan offered by Reps. Tim Penny (D-Minn.) and John Kasich (R-Ohio). The Penny-Kasich plan, which would have cut spending by a mere 1 percent over the next five years, made the big spenders apoplectic. Penny-Kasich didn't pass, but the frenzy to defeat it clearly demonstrates that the Washington establishment has no intention of loosening its grip on Americans' wallets.

Clinton has the same view of deficits as Ronald Reagan: Big deficits can preclude spending on new programs. While Reagan used deficits to keep big spenders at bay, Clinton finds deficits an impediment to his ambitious agenda. At a speech in Santa Monica, California, last February, Clinton warned that, unless the deficit is reduced, entitlement spending and interest on the national debt would leave him only "three or four cents on the dollar" for health-care reform, national service, "investment," and so on. The spending limits in Penny-Kasich would have thwarted Clinton's plans.

Back in August, when he was trying to get his budget passed, Clinton made a deal with moderate and conservative Democrats who argued the plan relied too much on higher taxes or didn't cut spending early and often enough: Vote for the budget, and the moderates—including Penny—could propose a new set of spending cuts in the fall. (Clinton made a similar agreement with Sen. Bob Kerrey of Nebraska.) They relented. Clinton's budget passed by one vote in the House and by Vice President Al Gore's tiebreaker in the Senate.

Democratic leaders thought they were off the hook. They obviously didn't understand how painful the vote was to moderate Democrats. Citing his frustration with the recalcitrance of the pro-spending groups in Washington, the 42-year-old Penny announced that he would resign from the House at the end of his term.

And the following weekend's talk shows prominently featured freshman Rep. Marjorie Margolies-Mezvinsky (D-Pa.), who cast the decisive vote. The Almanac of American Politics 1994 calls Margolies-Mezvinsky's district a "quintessentially Republican seat." Margolies-Mezvinsky had run for the open seat in 1992 as both a liberal and a deficit hawk, winning by only 1,300 votes. She had announced her opposition to the Clinton budget a couple of hours before the vote.

Margolies-Mezvinsky had to be bullied into changing her position. The televised images of a harried, almost-tearful member of Congress explaining her switch made Margolies-Mezvinsky an instant, if unintentional, celebrity.

These bullying tactics also provided an opportunity for the moderates to demand that Clinton deliver on his promise. Penny got Clinton and House Speaker Tom Foley to agree to a vote on spending cuts before the House adjourned in November. When Clinton offered his "rescission" package, House members could propose amendments that would be voted on individually, without any revisions, at that time.

The White House and Democratic leaders obviously underestimated how serious reform-minded Democrats were about extra cuts. Instead of squabbling among themselves about little cuts, Penny and the moderates decided to put together a single package of substantial cuts. Penny then met with Kasich, who had unsuccessfully offered his own detailed alternative to Clinton's plan, which would have achieved similar deficit cuts with less spending and fewer taxes. (See "The Energizer," August/September.)

Penny and Kasich formed a 30-member task force composed of 19 Democrats and 11 Republicans to draft a detailed package of additional cuts. Along with such congressional veterans as Alex McMillan (R-N.C), Robert Walker (R-Pa.), Charles Stenholm (D-Tex.), and Dave McCurdy (D-Okla.), the task force included 14 freshmen-among them, Marjorie Margolies-Mezvinsky.

On October 27, the task force proposed specific cuts that would reduce spending by $103 billion over five years. The plan had a big hook: Every dollar cut from spending would also reduce the spending caps enacted in Clinton's budget. In other words, Congress couldn't take money cut from these programs and spend it somewhere else without busting Clinton's budget deal.

The initial package included more than 90 specific program cuts. Twenty-eight percent of the savings resulted from eliminating or privatizing programs, the rest from program reforms. Thirty-four billion dollars came from means-testing Medicare. The plan increased the physicians' fees and premiums paid by people who earn more than $75,000 a year; it instituted 20-percent co-payments for home health care and clinical lab services from people with incomes more than 150 percent above the poverty line.

The plan cut retirement benefits for government employees, raising the age of civilian retirement from 55 to 65 and deferring cost-of-living adjustments for military retirees younger than 62. It cut $5 billion in payments to NATO and other collective-security organizations; defunded weapons programs for a grenade launcher, a cargo plane, and a helicopter; and cut foreign aid by $5 billion. It eliminated the Interstate Commerce Commission and combined the Departments of Commerce, Energy, and Environment, NASA, and the National Science Foundation into a single cabinet-level agency, the Department of Science.

The plan also locked in proposals made by Clinton's National Performance Review: Cut 252,000 federal jobs; eliminate Department of Agriculture and Army Corps of Engineers field offices; and raise the threshold for the Davis-Bacon Act from $2,000 to $100,000, so that its prevailing-wage provisions apply to fewer federal contracts. Kerrey and Sen. Hank Brown (R-Colo.) offered a similar package of cuts totaling $109 billion that they will propose this spring.

With few exceptions, the Penny-Kasich plan barely registered on Beltway radar screens until the November 19 vote approached. The Concord Coalition, the deficit-fighting group started by former Sens. Paul Tsongas and Warren Rudman, immediately endorsed Penny-Kasich. Spokesman Fred Bucher says the coalition urged its 100,000 members to telephone and write members of Congress and to call radio talk shows to drum up support for the plan.

Clinton was so busy getting the North American Free Trade Agreement passed that he ignored the spending proposals. A week before the scheduled vote, the White House and House Democratic leaders started paying attention. They panicked. Budget Director Leon Panetta said Penny-Kasich would jeopardize the Clinton presidency; the defense cuts "would be a very, very severe blow" to military force structure and morale. Deputy Budget Director Alice Rivlin warned that the $8 billion in cuts scheduled to take effect in 1994 could throw the economy into a recession. (Of course, the $1.9 billion in extra cuts Clinton proposed wouldn't.) Clinton himself said Penny-Kasich "would remove the possibility of healthcare reform."

Penny expressed surprise that the administration would put on such an intensive lobbying campaign to defeat a bill that might be picked apart in the Senate or that Clinton could veto. But the last thing Clinton wanted to do was veto a true spending-cut package, no matter how modest. It would be easier to derail the bill in the House than to publicly oppose deficit reduction.

Special-interest pleaders—the American Legion, the American Association of Retired Persons—sent letters and orchestrated phone calls to congressional offices. When the amendment was debated on the floor of the House, several members held up stacks of letters they had received from pro-spending groups. Rep. Rob Portman (R-Ohio) said he received 62 letters from special-interest groups in the four days preceding the vote. Even The New York Times editorial page, which had praised Kasich's earlier budget alternative, said, "Congress would do grave damage if it passed the Penny-Kasich bill."

Inside the House, Budget Committee Chairman Martin Sabo (D-Minn.) circulated a nine-page attack, headed by a "Dear Colleague" letter titled, "Penny-Kasich kills health care reform." He claimed the increased Medicare charges for upper-income Americans was "a tax on the sick."

A handful of moderate Republicans on the Appropriations Committee also did their best to sabotage the plan. Under the co-signatures of the ranking Democrats, three ranking Republican members on appropriations subcommittees, Iowa's Jim Lightfoot, Indiana's John Myers, and New Mexico's Joe Skeen, sent letters to Republicans, threatening to cut funding to projects in Republican districts if the members voted for Penny-Kasich. The Washington Times reproduced one of the letters. Penny said the lobbying campaign was "almost enough to make me vomit."

White House criticism of the spending cuts rang hollow: The same day Panetta and Rivlin hyperventilated to the press corps, Medicare administrator Bruce C. Vladeck testified before a congressional subcommittee on the $124 billion in Medicare cuts Clinton has proposed. Vladeck said cuts of that magnitude—more than three times the cuts in Penny-Kasich—"will only reduce the growth in Medicare spending from triple the inflation rate to double," without "putting Medicare beneficiaries at risk."

Meanwhile, Penny and Kasich tried to make the proposal more palatable to hawkish Democrats. They exempted current military and civilian federal employees from the retirement cuts; only persons who enlisted or were hired after January 1, 1994, would face their restrictions. (This reduced Penny-Kasich's deficit reductions from $103 billion to $90 billion.)

To allow full debate and a vote on a campaign-finance bill, Foley initially delayed the Penny-Kasich vote until Friday, November 20. Democratic leaders made a head count on the 18th. The amendment looked as if it might pass. Foley then postponed the vote until Monday the 22nd, hoping somebody could derail the plan.

The panic that ensued is reminiscent of the scene in Blazing Saddles in which a frenzied Gov. William J. Le Petomane (Mel Brooks) tells a room full of his cronies, "We've got to protect our phoney-baloney jobs."

The White House increased the cuts in its rescission package from $12 billion over five years to $37 billion by incorporating the proposals in the National Performance Review. And the House Rules Committee proposed an inventive way to dampen the spending-cut fever. In a secret meeting, the committee voted to allow only three amendments to get to the floor: Clinton's enhanced plan (which was sponsored by Sabo), Penny-Kasich, and a $51-billion amendment sponsored by Barney Frank (D-Mass.) and Christopher Shays (R-Conn.) that reduced overseas military spending and eliminated several big-science projects. Neither the Clinton plan nor Frank-Shays earmarked their budget cuts for deficit reduction.

This rule also gave Clinton and Foley a chance to renege on their agreement with the moderates: Because these amendments weren't vetted by the Ways and Means and Appropriations committees (where they would have been picked apart), the Rules Committee's plan had to be approved by the entire House. Otherwise no spending-cut amendment would have been presented.

Given the chance, other members would have offered amendments. For instance, Rep. Dick Zimmer (R-N.J) proposed repealing $60 billion in taxes from the Clinton budget-retroactive taxes, Social Security increases, and the 4.3-cent gas tax. Another amendment by Rep. Steve Horn (R-Calif.) would have instituted a "flexible freeze" until fiscal year 2000. These proposals were shut out.

The rule passed the entire House, though not without grumbling from Republicans. On the floor, Kasich said, "I think the rule stinks, but [I support it] because it's the only way we'll get to vote for Penny-Kasich."

When the debate on the Sabo and Penny-Kasich amendments began, apocalyptic language flew. Opponents of Penny-Kasich paraded representatives of every spending interest imaginable: the elderly, the poor, environmentalists, veterans, teachers. They acted as if the end of Western Civilization were nigh. Foes called Penny-Kasich "draconian," "dangerous," "sick," "mean-sprited," "a sham," "a burning bush that threatens to consume us all."

Some old war horses trotted out to trash the plan. Ways and Means Chairman Dan Rostenkowski (D-Ill.): "When we disregard regular order, we do so at our peril." Subcommittee on Crime and Criminal Justice Chairman Charles Schumer (D-N.Y.): Penny-Kasich "eviscerates our national crime strategy."

Then there was the rambling harangue by Energy and Commerce Committee Chairman John Dingell (D-Mich.). Dingell railed against the Penny-Kasich task force as a group who suffered from a "complete unawareness of what they're doing" and had created a "fiscally irresponsible monster."

What obviously stuck in Dingell's craw was the proposed Department of Science, which he ranted about as he pointed to a chart of its likely organization. Had Penny-Kasich passed, Dingell would have lost his power to micromanage three cabinet-level agencies. Or at least, he would have had to carve away territory from Science, Space, and Technology Chairman George Brown (D-Calif.).

Supporters of the plan attacked the hyperactive rhetoric. Minority Whip Newt Gingrich said opponents of the bill were arguing, "If you vote for a penny in cuts that are real…the Corps of Engineers [will be] smaller than it was when Robert E. Lee was a colonel in St. Louis." Martin Hoke (R-Ohio) noted that Clinton's budget will "increase spending by 20 percent over the the next five years. Instead, [Penny-Kasich will] increase spending by 19 percent."

Much of the passion for Penny-Kasich came from Democrats. Stenholm: "The same people who opposed the balanced-budget amendment because it didn't make hard choices oppose [Penny-Kasich] because it makes hard choices." Gary Condit (D-Calif.): "One of the things I worry least about is that Congress will pass enough deficit reduction to hamper the economy." Margolies-Mezvinsky: "This isn't about President Clinton's future. It's about Chelsea's."

Stenholm and McCurdy tried to reassure their hawkish colleagues that the defense cuts in the plan weren't too severe. They did not prevail. The amendment lost, 213-219, with only 57 Democratic votes. (Eighteen Republicans voted against Penny-Kasich. And while 43 of 48 Republican freshmen voted for the amendment, they were joined by only 21 of the 66 Democratic freshmen.)

The Penny-Kasich plan was extraordinary for two reasons: It reached the floor of the House for a vote, and it almost passed. In a telephone interview the day after the vote, Penny tells me "defense Democrats" and Republican appropriators cost them the vote. "If the Republicans had voted as a bloc, we could have won with 45 Democrats."

What happens next? "The first person to call me when I returned to my office [after the vote] was Sen. Bob Kerrey," Penny says. If the Kerrey-Brown package gets through the Senate, the House will get another shot at deficit reduction. "There's also next year's budget resolution," he says.

"If we had lost by a large margin," says Penny, "I would have been bitter. But we were only four votes short." And he says the fight for spending cuts "wasn't a waste of time. It challenged the status quo and threatened the Washington power brokers."

Meeting with reporters right after the vote, Penny was asked if he regretted voting for the president's budget. "I'm beginning to," he said.

Rick Henderson is Washington editor of REASON.