New Republic: Capitulate In Debt Debate? Not Clinton

Aug 2, 2011

Kara Brandeisky is an intern at The New Republic.

"Nobody should assume we're going to have a debt-limit extension," John Boehner warned. "If the vote were held today, it would not pass." Sound familiar? This was Boehner in November of 1995, when he was the House Republican Conference chairman and his party was refusing to raise the debt ceiling unless President Bill Clinton agreed to a package of sweeping spending cuts. The big difference is that back then, Republicans backed down, whereas today they're on the verge of winning major policy concessions in exchange for a deal. How did President Bill Clinton head off this threat where Obama failed?

The story begins in October 1995, when, in exchange for raising the debt limit, Republicans demanded $245 billion in tax cuts, welfare overhaul, restraints on Medicare and Medicaid growth, and a balanced budget within seven years. The GOP's plan, argued Boehner, was "the only one [...] certified to eliminate the deficit and save our nation's future from bankruptcy." But from the very beginning, Clinton would have none of it. "If they send me a budget that says simply, 'You take our cuts or we'll let the country go into default,' I will veto it," Clinton said at the time, calling Republican tactics "economic blackmail." Treasury Secretary Robert Rubin held the same firm line.

Republicans appeared to dig in their heels in early November, when the House passed a bill increasing the debt limit — but only through the next month — as well as a continuing resolution that included higher Medicare premiums and other spending cuts. Instead of attempting to negotiate over the cuts, Clinton simply vetoed both bills. "America has never liked pressure tactics, and I would be wrong to permit these kind of pressure tactics to dramatically change the course of American life," Clinton said. "I cannot do it, and I will not do it." The government shut down.

Although the budget standoff was resolved in early January, the debt limit issue remained. House majority leader Dick Armey went on "Meet the Press" to again demand spending cuts in return for a debt limit increase. In response, Rubin sent a sharp letter to Speaker Newt Gingrich, in which he warned that Congress only had until March 1 until the Treasury defaulted on its obligations. Reacting to the news, Moody's rating agency announced that it was considering downgrading the rating on U.S. Treasury bonds. Republicans quickly folded, offering to raise the debt ceiling in return for some more modest provisions.

On March 28, 1996, Congress sent Clinton a bill raising the debt ceiling and enacting two popular Contract with America initiatives — easing the regulatory burden on small businesses and slightly altering the tax structure for Social Security recipients. Clinton signed the bill two days later, and with that, the debt limit fight was over.

THE MOST CRUCIAL difference between Clinton's debt limit battle and the current crisis is that, in 1996, the Republicans were bluffing. No Republican seriously considered defaulting on the debt to be a viable option. "It was essentially unthinkable," Alice Rivlin, director of the Office of Management and Budget under Clinton, told me. "There was nobody in the Congress who really contemplated forcing a default." Larry Haas, communications director for the OMB from 1994 to 1997, agreed. "Everybody in the White House and on Capitol Hill knew that the conflict had to end at some point," Hass told me.

This time around, default seems like a real possibility. Some Republicans, such as Michele Bachmann, have argued that default would be a form of "tough love," necessary for the country to get its finances in order. Other Republicans simply don't believe that the government will default if the debt ceiling is not raised. "Even a Clinton, I think, would have had a very difficult time during this current crop of Republicans," Brookings senior fellowIsabel Sawhill told me.

The second big difference is that in 1995, the economy was roaring. As a result, Republican warnings of coming economic doomsday did not seem credible, argues Robert Reich, Clinton's Secretary of Labor from 1993 to 1997. "There was no way the Republicans could link the debt ceiling to the budget because the budget deficit was shrinking very rapidly," Reich told me. In that context, government shutdowns made Republicans, not Clinton, appear irresponsible on budgetary issues.

Obama's economic situation, of course, couldn't be more different. Growth has slowed, and the gap between spending and revenues is much wider. This time, a ratings downgrade is not out of the question. "Nobody, to the best of my memory, took all of that terribly seriously," Reich said of the 1996 warning.

Still, even though Clinton enjoyed political and economic advantages that Obama does not, his no-compromises strategy had some clear advantages. Unlike Obama, he refused to let the threat of default set the national agenda. Because he would not enter into negotiations over the debt ceiling, the issue barely roused the public consciousness. On November 9, 1995, a senior administration official told the Washington Post, "Our position is it does not matter what they put on this legislation, we are not going to accept anything but clean bills because we will not be blackmailed over default. Get it? No extortion. No blackmail. What you hear are their screams of complaint as they realize we are not, not, not budging on this."

To be sure, Clinton did tack to the center during this period. (In the middle of the debt ceiling battle, he gave the State of the Union speech in which he announced, "The era of big government is over.") But "he made clear how far he would go and how far he would not go," says Haas. Obama, in contrast, never "laid down any believable bottom line. He has not enunciated any marker that everyone knows that he is going to stick to. What you might think is compromise, is frankly capitulation."

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