Red Ink by David Wessel Read Free Book Online

spend and on what continued. “I think the most dangerous threat to our nationalsecurity right now is debt, very heavy debt, that we confront in this country,” Panetta, then House Budget Committee chairman, lectured then defense secretary Richard B. Cheney and General Colin L. Powell, the chairman of the Joint Chiefs of Staff, at a 1992 hearing. “I don’t question anything you’re saying in terms of the role that this country ought to perform. My problem is how the hell are we going to pay for it?”
    Shortly after Bill Clinton was elected, he invited Panetta to Little Rock, Arkansas, where the president-elect was organizing his administration. “We talked a long time about the deficit, and, frankly, the campaign in ’92. Ross Perot [the Texas businessman who ran as a third-party candidate] had made the deficit a major issue of that campaign, which helped a great deal, ultimately, in trying to confront it.” Clinton’s advisers were split between those who wanted to reduce the deficit first and those who wanted to deliver on the campaign’s promise of increasing federal investments. The cut-the-deficit-first crowd won. Among its members were Panetta, who became Clinton’s budget director, and Rivlin, who became Panetta’s deputy and later his successor, and Robert Rubin, who would become Clinton’s White House economic-policy coordinator and later Treasury secretary. They convinced Clinton to ditch his campaign promises to cut taxes for the middle class and sharply increase government investment spending and, instead, to focus on bringing down the deficit.
    After substantial haggling—and an energy tax that was abandoned by the White House—Clinton’s deficit-reductionbill, heavier on tax increases than spending cuts, got through Congress. In striking contrast to 1990, every Republican in the House and Senate opposed it. Vice President Al Gore broke a tie in the Senate, and last-minute pressure on reluctant Democrats produced a 218–216 vote in the House in 1993. One of the last Democrats to vote for the bill was Marjorie Margolies-Mezvinsky, a first-term congresswoman from Philadelphia’s suburbs who had previously said she would oppose the bill. Her vote was later blamed for her defeat in 1994. (Clinton’s daughter later married her son.)
    The deal extended the 1990 limits on annual appropriated spending through 1998, squeezed payments to health care providers, and raised taxes, primarily on upper-income taxpayers. This time the deficit-reduction effort worked as promised.The deficit came down even faster than the CBO projected as the economy picked up momentum and incomes of the rich—whose taxes had been raised by the law—rose sharply.In 1995, the IRS counted 87,000 returns with incomes of more than $1 million, up from 66,500 in 1993. These millionaires saw their incomes rise by $57 billion over those two years, and they paid $18 billion more income taxes.
    Republicans gave Clinton no credit for the shrinking deficit. At one unusually testy appearance before the House committee he had once chaired, Panetta, then White House budget director, exploded under questioning from Olympia Snowe, a moderate and mild-mannered Republican from Maine.“You know,” he said, “does it really hurt that much to admit thatwe are impacting on the deficit? Does it really hurt that much to say that we are going in the right direction? Does it really hurt that much to give us a little credit for what we are trying to do …?” Even for those familiar with Panetta’s behind-the-scenes outbursts, the harsh words were startling, a display of frustration and a reminder that partisanship over budgets is hardly a recent phenomenon. A few minutes later, Panetta apologized: “Sometimes the Italian part of me gets in control of my emotions.”
    In the 1994 elections, Republicans took the House for the first time in four decades, their campaign aided by their attacks on Democrats for raising taxes in 1993. Newt Gingrich