Why the Clinton ‘95 strategy might not work this time

Why the Clinton ‘95 strategy might not work this time

In 1995 a new Republican House and Senate majority passed two bills. The first slowed the growth of government spending and balanced the budget. The second cut taxes. Because Medicare and Medicaid spending accounted for much of projected future spending growth, most of the savings in the Balanced Budget Act of 1995 came from Medicare and Medicaid.

President Clinton vetoed both bills. In 1995 and 1996 he had two fiscal messages:

  1. 1995: “Republicans are cutting Medicare and Medicaid to pay for tax cuts for the rich.”
  2. 1996: “Medicare, Medicaid, Education, and the Environment.”

The second was colloquially known as “M2E2.” Both strategies were effective.

It is not yet clear that there is a revival of or a successor to M2E2, in part because the President has been emphasizing so many different government spending priorities. He may, however, be preparing to return to the 1995 Clinton message.

On Fox News Sunday today, Presidential senior advisor David Plouffe said the President would offer a new budget proposal this week. He said the President would propose additional savings from Medicare and Medicaid. He signaled that the President was open to changes in Social Security, but said nothing about a new Presidential proposal in that area.

The President is obviously moving right (his team would probably say “to the center”) in reaction to last year’s election, recent Republican success in the appropriations negotiations, and the new Ryan budget. The President is setting himself up for the possibility of a negotiated fiscal deal with Congressional Republicans, and is also trying to position himself rhetorically for the 2012 election if there is no deal.

Mr. Plouffe also floated a reprise of the 1995 Clinton strategy:

… the congressional Republican plan for people over $250,000 in this country, their plan is [a] $1 trillion tax cut. So, again, the reason you ask more of seniors, of middle class, of the poor, cut things like education, is because you’re giving these huge tax cuts.

This argument was effective for President Clinton in 1995-6, but at least seven things are different today.

  1. The numbers are worse now. The budget deficit and government spending are both much larger today than in 1995. Medicare and Medicaid are a larger share of the budget now. And unless the President proposes huge new tax increases like a VAT (unlikely) or Medicare and Medicaid savings that match or exceed Chairman Ryan’s (no way), the President’s resultant deficit path will still look worse than Ryan’s. As I showed last week, the difference between the two on taxes is small relative to the difference on spending. If the President’s new proposal results in more deficit reduction than the Ryan budget, he might have a leg up, but I can’t see how he’ll make those numbers work.
  2. Today there is greater public and Congressional awareness that entitlement spending is driving our fiscal problems.
  3. Substantively, the 1995 tax proposal would have reduced income tax rates. The Ryan proposal is not to increase income tax rates. The President can argue that’s a tax cut relative to current law, but it’s an important difference. It will be harder (and, I think, misleading) to portray the Ryan budget as “cutting taxes,” especially since the Ryan budget has long-term revenues at 19% of GDP, higher than the historic average of the low 18s.
  4. Politically, the 1995 Republicans message trumpeted both deficit reduction and tax cuts. The Republican 2011 message pushes spending cuts and deficit reduction, but not tax cuts. Yes, there’s an important pro-growth tax reform component to the Ryan plan, but he says it should be revenue neutral. So while those on the left will argue that Republicans are cutting taxes, this time the Republicans won’t be agreeing with that presentation.
  5. If the President insists on calling this policy “cutting taxes,” he will be forced to acknowledge that he, too, proposes tax cuts beyond 2012. Given his framing, he will be arguing, “My deficit-increasing tax cuts are OK, but your additional deficit-increasing tax cuts for the rich threaten these important spending programs.” That’s a tougher argument to win, especially given their relative sizes. Last year, the deficit effects of the Republicans’ so-called “tax cuts for the rich” were less than one-fourth the size of the agreed-upon “tax cuts for the middle class.”
  6. In 1995, President Clinton proposed no tax cuts and vetoed the 1995 tax cut bill. Last December President Obama signed into law an extension of the same tax policies that he now opposes for beyond 2012. Nothing prevents him from proposing to do something different next time, but it weakens his argument that preventing these tax rates from increasing is horrible policy. We also know that he was willing to swallow those higher rates once as a part of a negotiated compromise.
  7. In 1995, Republicans were not publicly linking the top income tax rates to those paid by small business owners. While this argument does not convince those on the left, it shifted the balance of power in the tax rate debate beginning in 2003, and is a principal reason why the 2001 Bush tax rates will be in place for at least 12 years.

The old Clinton strategies might still work, but a lot has changed since the mid-90s.

(photo credit: Roger H. Goun)

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