Deciding on the tax increases was no easier than choosing the budget cuts. The toughest issue for me was the BTU tax. It was bad enough that I was going back on my commitment to cut middle-class taxes; now I was told we had to raise them, both to reach the $140 billion deficit reduction target in the fifth year and to turn the psychology of the bond market. The middle class had been shafted in the eighties, and Bush had been crippled by signing a gas-tax increase. In one fell swoop, if I proposed the BTU tax I would make the Republicans the anti-tax party again, largely to satisfy the hunger of the prosperous interest-rate setters for a little middle-class pain, in this case about $9 a month in direct costs, rising to $17 when indirect costs, in the form of higher prices for consumer products, were included. Lloyd Bentsen said that he had never had any fallout from voting for energy taxes, and that Bush was hurt by signing the 1990 gas-tax increase because of his “read my lips” pledge and the fact that the most militant anti-taxers were hard-core Republicans. Gore again pushed for the BTU tax, saying it would promote energy conservation and independence.
Finally, I gave in, but made some other changes in Treasury’s tax proposals that I hoped would reduce the tax burden on average Americans. I insisted that we include in the budget the full $26.8 billion cost of my campaign proposal to more than double the tax cut for millions of working families with incomes of $30,000 or less, called the Earned Income Tax Credit (EITC), and for the first time offer a more modest EITC to more than 4 million working poor Americans without dependents. This proposal would ensure that, even with the energy tax, working families with incomes of $30,000 or less would still receive a meaningful tax cut. On the campaign trail, I had said at virtually every stop, “No one with children who works full-time should live in poverty.” In 1993, there were a lot of people in that situation. After we doubled the EITC, more than four million of them moved out of poverty into the middle class during my presidency.
As we were trying to close the deal, Laura Tyson said she felt she had to point out that there was no significant economic difference between a fifth-year reduction of $140 billion and one of $120 or $125 billion. Congress would probably pare back whatever I proposed anyway. She argued that, if it eased our political problems or was simply better policy, we would save ourselves some headaches by reducing the figure to $135 billion or even a little less. Reich, Sperling, Blinder, Begala, and Stephanopoulos all agreed with her. The others held out for the high number. Bentsen said we could save $3 billion by dropping the estimated cost of welfare reform from the budget. I agreed. After all, we hadn’t developed our proposal yet, and the number was just a guess. We knew we’d have to spend more on training, child care, and transportation to help poor people move from welfare to work, but if we moved enough people off the rolls, the net cost might go down, not up. Moreover, I believed we could pass welfare reform separately with bipartisan support.
Later, Lloyd Bentsen added a final piece to the plan, removing the $135,000 earnings cap on the 1.45 percent payroll tax that funded Medicare. This was necessary to make sure that our numbers on extending Medicare’s solvency added up, but it did ask for more from the wealthiest Americans, whose top rate we were already proposing to raise to 39.6 percent, and who would almost certainly never cost the Medicare program as much as they would now pay into it. When I asked Bentsen about it, he just smiled and said he knew what he was doing. He was confident that he and other high-income Americans who would pay the extra tax would more than make it back in the stock market boom that our economic program would spark.
On Monday, February 15, I gave my first televised address from the Oval Office, a ten-minute outline of the economic program I would unveil two days later to a joint session of Congress. Even though the economy was in a statistical recovery, it was a jobless one, burdened by the quadrupling of the debt in the last twelve years. Since all the deficits were the result of the tax cuts for the wealthy, soaring health costs, and increases in defense spending, we were investing less in “the things that make us stronger and smarter, richer and safer,” like education, children, transportation, and local law enforcement. At the rate we were going, our living standards, which usually doubled every twenty-five years, wouldn’t do so again for another one hundred years. Reversing the trend would require a dramatic change in our national priorities, with a combination of tax increases and spending cuts to reduce the deficit and invest more in our future. I said that I had hoped to pursue this course without asking more of middle-class Americans, because they had borne hardships and had been treated unfairly in the previous twelve years, but the deficit had grown far beyond the earlier estimates on which I had built my budget proposals in the campaign. Now “more Americans must contribute today so that all Americans can do better tomorrow.” However, unlike what had happened in the 1980s, most of the new taxes would be paid by wealthier Americans; “for the first time in more than a decade, we’re all in this together.” In addition to deficit reduction, my economic plan would provide incentives to businesses to create new jobs; a shortterm stimulus to add 500,000 jobs right away; investments in education and training, with special programs to help displaced defense workers; welfare reform and the big increase in the EITC; Head Start opportunities and vaccinations for all children who need them; and the national service initiative to allow young people to earn money for college in return for serving in their communities. I acknowledged that these proposals would not be easily or quickly implemented, but when they were, we could “restore the vitality of the American dream.”