Monthly Archives: February 2009

The search by pundits for historical analogies to the Obama presidency has ranged far and wide, from Lincoln to FDR to Reagan.  But when it comes to Obama’s efforts to persuade Congress to pass an economic stimulus/recovery bill, we need look back no further than the two most recent presidents for historical precedents. Both Bill Clinton in 1993 and George Bush in 2001 took office with the nation facing an economic downturn, and each initially staked their presidency on the passage of an economic recovery package containing a mix of tax cuts and spending adjustments. In doing so, however, each confronted a highly polarized Congress. How they dealt with that polarization offers important lessons for the Obama presidency.  In this post, I want to focus on Clinton’s effort in 1993 to pass his economic recovery package.  The decisions he made in that initial period indelibly shaped his relations with Congress, and ultimately contributed to the loss of Democratic control of Congress for the next decade. Is Obama about to make the same mistake?

As Table I indicates below, Clinton took office possessing about the same amount of political capital with which to bargain with Congress as Obama has today.

*This is the two-party split; it ignores third-party candidates (including Ross Perot).

**Pending the resolution of the Minnesota Senate race

As with Obama, Clinton took office promising to end the bitter partisan strife that had characterized presidential-congressional relations under the previous 12 years of Republican presidential leadership. In putting together his initial budget, he hoped to capitalize on broad public support for his economic plan, as embodied in his campaign mantra, “It’s the economy, stupid”. On closer inspection, however, Clinton’s economic-related campaign promises contained a number of incompatible elements: he promised to halve the federal deficit in four years, increase spending on “human capital” investment programs, enact a middle-class tax cut, raise taxes on the rich, pass a BTU tax designed to stimulate energy conservation, and pass a jobs-stimulus bill.  Within Clinton’s administration, his key economic advisers were split between those who wanted to focus on deficit reduction, and those who wanted to increase governing spending on investment. Ultimately a combination of worsening deficit projections and opposition among moderate Democrats and Republicans forced Clinton to back away from many of campaign pledges. The first casualty was a short-term $16 billion jobs-stimulus bill. Although it passed the House, Senate Republicans opposed it as “wasteful pork” that would worsen the budget deficit.  Rather than compromise with Republicans, Senate Democrats, at Clinton’s urging, refused to negotiate a reduction in spending in the stimulus bill. In response, 43 Republicans filibustered the legislation and Clinton was forced to concede defeat. In the end, only a $4 billion unemployment assistance package passed. Clinton’s senior aide George Stephanopoulos later recalled, “The defeat of our economic stimulus was the price we paid for legislative arrogance. Thinking we could roll right over the Republicans in the Senate, we rejected a moderate compromise…and lost everything.”

The emasculation of the stimulus bill set the state for a showdown on Clinton’s budget plan which, after ongoing negotiations in the House and Senate, had morphed into a deficit reduction plan that actually raised taxes on the wealthy and no longer included a middle-class tax cut or the BTU tax. The conference bill containing the final legislation passed the House by only 2 votes: 218-216.  In the Senate, Vice President Al Gore cast the tie-breaking vote in favor of the President’s budget, 51-50.  In order to get the necessary votes from moderate Democrats, Clinton agreed to reduce government spending on job training and other human capital programs, and dropped the BTU tax in favor of a smaller gasoline tax to win support from representatives of gas and oil producing and farm states.  To appease liberal Democrats, it included the Earned Income Tax credit, a provision designed to help the working poor, and raised the marginal tax rates for high income earners. Significantly, not a single Senate or House Republican voted for the Clinton economic recovery plan as laid out in the budget.  They argued that the bill would not help the economy because it raised taxes and didn’t address spiraling costs on entitlement programs.

By passing his budget plan, Clinton had won an important legislative victory, but barely. In the long run, there is much that was positive about Clinton’s budget. Most significantly, the combination of tax increases and spending cuts more than halved the federal budget deficit over his first term, and sent positive signals to the bond market which was crucial to gaining market support and keeping interest rates down, thus spurring economic growth.  In the short run, it saved his presidency by giving him a much needed victory on his first legislative priority. However, Clinton’s failure to make good on his promise of a middle-class tax cut, and the lack of bipartisan support for the bill allowed Republicans to portray Clinton as a tax-and-spend liberal Democrat, and helped contribute to the Democratic loss of Congress in 1994.

What are the lessons for Obama? First, there are fundamental differences between Republicans and Democrats when it comes to government economic policy. Obama cannot hope to bridge these differences by arguing that he “won” the election, or that Americans want change in the form of bipartisanship. As I will show in a later post, partisan differences on the economy have always existed, but those differences have crystallized since the Reagan presidency and lie at the root of the partisan divide in Congress today.  No amount of rhetoric can bridge this divide: only policy concessions will.  If Obama truly wants to be a bipartisan presidency, he must pay for it by making significant policy concessions, in the form of reduced spending on state aid, fewer infrastructure investments and cutting other programs that Republicans do not believe will stimulate the economy and create jobs in the immediate future.

To be sure, Obama can probably ram through the Senate a version of the legislation that passed the House by relying on full Democratic support and picking off a few moderate Republican Senators by cutting side deals with them in the form of targeted spending programs.  But there is a real risk to passing a bill that lacks broader Republican support.  If the economy fails to recover against the backdrop of a spiraling budget deficit, Republicans will use that against Obama and the Democrats two years down the road in the midterm elections.

The problem, of course, is that at a certain point, too many concessions in the form of reduced spending and deeper tax cuts will cost  Obama Democratic support, particularly in the House. What does this mean?  Obama faces a choice between two roads to legislative victory. He can emulate Clinton’s strategy in 1993 and try to cobble together a predominantly Democratic coalition, cutting Republicans out of the legislative game except for what is needed to get legislation through the Senate. Or he can move to the center, reaching out more broadly to Republicans in the name of bipartisanship, but at the risk of alienating his own party.   However, Obama has one advantage that Clinton lacked: because of the severity of the economic crisis today, there is less concern than in 1993 with passing legislation that does not increase the federal deficit. This means Obama has more flexibility to offer both tax cuts and increased spending in order to cobble together a centrist coalition of Democrats and Republicans.

The key point here is that it is the composition of Congress that will largely dictate the substance of the final stimulus legislation, no matter what Obama initially prefers. The final bill will undoubtedly contain a mishmash of contradictory elements that will likely exhibit little in the way of homage to any overarching economic theory and which will be roundly criticized.   Rather than fidelity to an economic principle, however, the overriding objective for Obama must be to win a legislative victory.  Clinton’s example, I would argue, suggests that Obama would do well to move to the center to draw moderate Republicans into the fold.

A final thought. For all the talk about a new political era, what is remarkable here is how similar the current debate over the Obama stimulus bill is to the 1993 congressional debate regarding the Clinton budget. Indeed, as I will endeavor to show in the next several posts, the underlying dynamics of Obama’s election did almost nothing to alter the root cause of the polarization in Congress that dates back more than 15 years to the 103^rd Congress, and which shows no signs of abating.  Rhetoric to the contrary notwithstanding, when it comes to the Obama and the 111^th Congress, it’s déjà vu all over again. But Obama should take comfort in this. By avoiding Clinton’s mistakes in legislative strategy, he may yet usher in an era of Democratic dominance.