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FOIA Number: 2012-0769-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group:
Clinton Presidential Records
Subgroup/Office of Origin:
Council on Environmental Quality
Series/Staff Member:
Kathleen (Katie) McGinty
Subseries:
OA/ID Number:
2610
FolderID:
Folder Title:
Bob Rubin
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S
61
5
5
2
ENVIRONMENTALLY
PHOTOCOPY
PRESERVATION
pls.
a
Bob Rubin
To: Al
Fr: Katie
Re: Meeting with Bob Rubin
12-29-92
I'm attaching 2 memos that Reed, Jonathan and I put together for
this meeting. The following is an overlay to those that goes into
further detail on some issues and/or adds cautionary notes and follow-
up information on others. Also -- the binder that I gave you this
afternoon contains summaries of each of the policy documents that were
forwarded to Reich for possible inclusion in the economic plan as
well as a synthesis memo from Sperling. You should read at least
Sperling's memo (and our accompanying memo that is attached) in
advance of this meeting.
General points:
O The primary concern at this point is that you come to an
understanding of the process that will unfold very rapidly in the next
2 weeks to put together the economic policy package. You need to make
sure that Rubin understands that you want to be kept informed of
all developments and copied on all paper flows.
It is essential that Rubin understand that you expect to see
options derived from the environment/energy options papers that we put
together integrated in the final decision memo that he will prepare
for Clinton and you.
O Having said that, it is equally essential that Rubin
understand that your interest extends beyond just the environmental
dimensions of the economic plans to the very core economic issues --
e.g. should we have a stimulous package at all; should we undertake
deficit reduction efforts, etc. Let him know that you will weigh in
heavily on the final decisions on these issues and therefore expect to
be kept fully apprised of all developments leading to his final
decision memo.
o You need to make a point of identifying me to Rubin as your
eyes and ears on enviro dimensions -- and a person that you know he
will want to rely on as he eagerly works to incorporate environmental
dimensions to the econ policy options
You need to make a point of identifying Reed and Jonathan to
Rubin as your eyes and ears on general econ policy -- folks that Rubin
certainly will want to be in contact with in order to ensure that he
is staying in touch with you as his thinking progresses
o On the foregoing two points, Jonathan suggests that you call
us in at the beginning of your meeting briefly to introduce us to
Rubin.
o If you succeed in impressing upon Rubin the importance of
incorporating environmental considerations into economic plan and if,
in fact he undertakes that effort, one school of thought is that he
will see the fit between these issues and you will not have to hammer
home to him a second point -- namely, that EPA, DOE, DOI, USDA will
have a seat at the NEC. A second school, however (to which I
subscribe) is nervous about timing on these decisions -- if McLarty
has it in mind to begin to cement White House structure issues, we may
not have the luxury of giving Rubin time now to become more
comfortable with the idea of having the environment agencies in his
shop. You got him in your office -- better to take advantage of the
opportunity to make him understand your views on this (and your
understanding with Clinton on this??). NOTE HERE HOWEVER -- I do not
think it is appropriate for you to appear to be lobbying Rubin on any
of this. You need to be above that. The White House structure is for
you and Clinton to decide. You need to make these points clear to
Rubin simply by assuming them to be so in your conversation with him -
- not asking his opinion or in any way soliciting his agreement.
O After getting this stuff out of the way, then take advantage
of this meeting time to explore with Rubin his own views of what the
economic plan should include.
1. Organizational memo on the National Economic Council
Reed has determined the background on this document. It was
prepared by Lewis Kadin, an attorney at the law firm of Davis, Polk
and Jim Johnson, chairman of FannieMae at Bob Rubin's request.
Apparantly it has been circulated to Bentsen, Altman, Penetta, Rivlin,
Reich, McLarty under Rubin's signature with a request for comments.
We have not seen a copy of the memo. However, it is possible
that it contains at least two items that are troubling:
First, it may recommend a membership structure for the NEC that
would include only Treasury, OMB, and CEA. Among other obviously
important agencies such as Labor and Commerce, this would exclude
USDA, DOE, EPA and Interior. This will work against the necessary
integration of economic and environment and natural resource issues,
and could be dangerous given the signifigant economic import of
"environmental" issues such as our participation in and contribution
to the funds established under the Rio agreements; the GEF;
restructuring of Superfund; rural devlopment issues that will arise in
the context of the Forest Summit, etc.
participate in the deliberations of all three councils, he/she should
have a direct link to Clinton (through McLarty) as will each of the
AP's, rather than report to Clinton through any of the particular APs.
O The SA would have to have a small staff (3-5) in order to
cover the deliberations of the three councils. In addition, the SA
would be able to draw on the staff of CEQ. A question arises here as
to whether this SA should also be the chair of CEQ. This is the
subject of a separate memo on the role of CEQ. However, my initial
impression here is that -- while there is potential for some conflict
where the role of the SA and the chair of CEQ overlap (namely in
tapping CEQs resources to staff the SA on council business), the role
of CEQ -- and therefore the duties and mandate of the chair of CEQ --
can and should be broader than this -- i.e. -- broader than addressing
simply the issues of the moment and be able to advance issues and
ideas that are not immediately on the front burner.
Some "second best" considerations:
O If it is objected that the SA have a direct link to Clinton,
it could be agreed that he/she would report to Clinton through the
particular AP that chairs the council that is most relevant to the
issue at hand.
O I had suggested to you that you ask Rubin for the opportunity
to place a staff person on the NEC. (Rubin apparantly is looking for a
staff of 10-15). Others have suggested that this may not be a good
idea unless Rubin seems very receptive to it. If he is disinclined,
it could be self-defeating -- that staff person could find him or
herself isolated on the council. My advice here is to play this one
by ear and get a better sense of Rubin's receptivity. If he seems
agreeable, this staff slot could prove very useful.
3. Economic Policy:
First, you will want to remind Rubin of the options presented in
the Environment/Energy/Natural Resource papers.
Second, you will want to discuss with him your views on the
synthesis memo that was prepared by Gene Sperling and explore his view
on that memo and more generally on the key components of the economic
policy package. See attached memo on Sperling's memo.
You need to make clear to Rubin that the enviro agencies will
be incorporated in this group. (You indicated to me some time ago
that Clinton agreed with you on this. How solid is your understanding
with him on it?)
Second, the memo apparantly recommends that, in Clinton's
absence, Rubin would chair the meetings of the NEC. This obviously
creates difficulties in terms of your ability to ensure that meetings
coincide with your schedule and your ability to be fully apprised of
and influence the agenda for those meetings.
You need to make clear to Rubin that you intend to chair the
meetings in Clinton's absence.
CAVEAT:
O You should make the above points without referencing the memo
or the conversations mentioned above. This is rumor-mill kind of
stuff and you need to float above it in your dealings with him.
Again -- these are decisions that you and Clinton will make; you need
not lobby him on any of this.
2. Organization of environment issues in the White House
As noted above, you need to impress upon Rubin that the four
environment-related agencies will have a permanent seat at the NEC
table. (Note that both Rubin and Altman have expressed disagreement
with this idea and have suggested instead that these agencies be
housed in the DPC. In addition to the foregoing reasons demonstrating
why it makes sense for these agencies to be in the NEC (need for
integration of economic/envtl issues and significant economic import
of many environmental issues), it is clear that these agencies should
not be included in the DPC -- there is not a natural link between
these agencies and the healthcare, childrens', welfare reform, drug,
etc. policies that will be the focus of discussion in the DPC).
Addressing this issue may lead to a more general discussion of the
treatment of environmental issues in the White House. We recommend
the following as the optimal scenario:
EPA, DOE, DOI, USDA would have a permanent seat at the NEC
When appropriate, EPA, DOE, DOI and/or USDA would also have a
seat at the NSC and DPC depending on the issue under discussion
There would be created a Special Assistant to the President
for Environment and Energy Affairs. This SA (actually I guess
it would be -- SAP!) would have a permanent seat on each of the three
councils. This SA would be of lesser stature than the Assistant to
the President for Economic Affairs (Rubin), for National Security
(Lake), or for Domestic Policy (?), because he/she would not chair any
particular council. However, because this Special Assistant will
DEC 29 '92 05:40PM
P.8
MEMORANDUM
To: Al
From: Katie, Jonathan, Reed
Re: Bob Rubin.
Date: December 29, 1992
The following summarizes some issues that might be
discussed directly or indirectly with Bob Rubin.
1. The "Big Picture" Economic Policy Questions
a.
What should be the deficit reduction goal for FY 97?
What is your baseline assumption?
b.
What is your bias concerning the best way to accomplish
the deficit reduction target? Cuts VS. revenue
raisers? How do we define ourselves as New Democrats
through our deficit reduction program?
C.
What should be the size of the fiscal stimulus?
Sperling says $20-25 billion. But why not $30-40
billion? Or zero, if no stimulus is really needed?
(Note that Sperling says Rubin favors $20-25 billion.)
d.
If stimulus includes outlays on infrastructure,
shouldn't some outlays be directed to wastewater
treatment, drinking water systems, and high-speed rail,
instead of only roads?
e.
What are your views about the linkage between stimulus
and deficit reduction?
2. Procedural Issues
a.
Memos about deficit reduction/ options/ etc. should go
to Al Gore's economic advisers (Hundt and Sallet?) or
Roy Neel, his chief of staff?
b.
Meetings of the NEC over the next few weeks on this
topic should be attended by someone concerned about (1)
someone concerned with economic issues (Hundt, Sallet)
and (ii) someone concerned about the environmental
agenda (McGinty/Browner).
C.
Shouldn't the different Assistants to the President
(Rubin, Neel, etc.) be copied on all important NEC
agenda setting and policy memos over the next few
weeks, regardless of what procedures are set up post
January 20? (Note that Roy Neel, VP chief of staff,
should also be simultaneously an AP to the President,
DEC 29 '92 05:40PM
P.9
as has been the case with the VP's chief of staff since
Dick Moe served Carter and Mondale in this way.)
d.
What are Mac McLarty's plans on the subject of
processing the policy debate over the next few weeks?
Rubin's plans?
3. NEC Structure and Function
a.
The VP should have a seat at the table for the NEC
weekly meetings? When he cannot attend, his
representative sit in the seat (just as Altman will
presumably sit in for Bentsen when the Secretary is
unavailable).
b.
There should be a Special Assistant to the President
for Environmental Affairs who has a seat at the NEC
table (and for that matter the Domestic Policy and NSC
meetings as well), so that the environmental dimension
to economic issues can be dealt with successfully, and
the environmental issues with economic effects can be
placed appropriately on the NEC agenda.
C.
Who will chair the NEC meetings when the President is
absent? Note that Altman told Hundt that Bentsen says
that Clinton has assured Bentsen and Rubin that Rubin
will chair the meetings.
d.
Should the different APs meet/circulate memos of their
activities regularly so as to assure coordination among
councils and APs?
e.
What agencies should be represented on the NEC? Should
the "environmental" departments (Agriculture, Interior,
Energy, and EPA) be treated as a cluster? If they don't
belong with NEC, why not and where do they better fit?
(Note that both Rubin and Altman told Hundt that these
agencies don't belong with the NEC, but should be
lumped in with Justice, HHS, HUD, Veterans, Education,
Council.) and Transportation as part of the Domestic Policy
f.
How big will be Rubin's staff? What kinds of people is
he looking for? Environmental economists? Regulatory
policy experts? (Note that an important issue for the
next Administration is where in government will
regulatory oversight take place, especially if the
Council on Competitiveness is abolished? The options
seem to include OIRA, NEC, whatever White House council
is appropriate for a given regulation, or some other
freestanding White House unit. This issue's importance
is enhanced by the regulatory moratorium. Predictions
are that 2500-2600 regulations will be issued this year
2
DEC 29 '92 05 : 41PM
P.10
as opposed to the normal 2000. Clean Air Act
regulations alone will be very significant for
environment and industry groups.
3
DEC 29 '92 05:45PM
P.2
MEMORANDUM
To: Al
From: Reed and Jonathan
Date: December 29, 1992
Enclosed herewith is one volume including Gene Sperling's
cover memo outlining a so-called "core budget" and the summaries
of each of the policy task forces that worked under Bob Reich's
umbrella. Three additional volumes (that we have) contain the
back-up memos by the different task forces.
The summaries appear to be unchanged from what was submitted
by the different task forces. Insofar as they contain
redundancies, discrepancies, and contradictions, they are
unreconciled. As an example, the "environment, energy, natural
resources" group's summary done by the McGinty/Sussman/
Chupka/Adcock/Harwocd/Burton/WRI/Hundt group (erroneously
attributed only to the latter person) covers some of the same
infrastructure proposals found in the "infrastructure" summary
done by Rob Shapiro, although there are important differences in
emphasis and design between the two discussions.
Sperling's memo addresses, first, stimulus and, second, the
deficit. Although placed behind in importance, the deficit
reduction proposal in Sperling's "core budget" for FY 94 is in
many respects the most interesting topic in the memo. Sperling's
"core budget" in effect puts in place some, but not all, of the
PPF commitments by spending $50 billion in FY 97 in "investment,"
and aims for a deficit of $204 billion in FY 97.
Deficit Reduction
Sperling's deficit target of $204 billion in Fy 97 is not
consistent with the PPF promise to reduce the deficit by half in
four years, but is justified, according to Sperling, Summers, and
Altman, because if achieved and maintained after FY 97 it would
stabilize the ratio of total national debt to GNP at
approximately 2/3. 1/ Furthermore, if no additional spending
took place, continuing growth in GNP would cause the ratio to go
down over time.
1.
The always-cited contrast is Italy, where the ratio exceeds
1.0 and assertedly the country is therefore in constant
turmoil. Economists say that if the United States' debt/GNP
ratio continues to climb, the financial markets fear that
"we will become Italy" and therefore, among other things,
long-term interest rates stay high and even go up, crippling
investment activity and hurting growth -- in short, a
negative feedback loop.
DEC 29 '92 05:36PM
F.2
By comparison, Magaziner's chapter on deficit reduction in
the summary volume proposes to achieve a different stable ratio,
namely the ratio between the annual deficit and GDP that is half
of the current ratio.² For 1992, the ratio was 5%; reducing it
to 2.5% means achieving a deficit of $190 billion by 1997.
Whether the target is $190 billion or Sperling's slightly higher
number, the purpose is the same: restore fiscal stability to
federal government budgets, bring down private long-term rates,
and enhance private investment, thereby assuring greater
productivity and growth.
If any serious budget deficit reduction is a goal of the new
Administration, then the revised budget projections said to be
released soon will mean that the Sperling proposal falls way
short of achieving its own stated goals. In effect, the new
numbers describe a budget crisis that not only exists now but
also intensifies over the first term of the Administration.
However, two questions begged by the proposed "core budget"
are, one, whether the core budget will lead to positive economic
results if implemented, and, two, whether the Sperling core
budget reflects the sweeping and persuasive vision that
presumably is a prerequisite to both passage and political
success for the Administration.
Both questions are plainly very hard to answer. However,
the current information suggests at least that the answer to the
first question is likely to be negative, for a reason outside
Sperling's control. The difficulty is that, as we have been
recently told, the OMB revised numbers for budget outyears show a
deficit will be considerably worse in outyears than set forth in
the Sperling memo. PPF projected an uncapped3/ baseline deficit
of $210 billion in FY 97 absent any new legislation; Sperling
assumed a $299 billion baseline; the new OMB baseline is
supposedly $375 billion. The new, soon-to=be-released CBO
figures are said to show $340 billion for FY 97.4/
What happened? The so-called technical adjustments (re-
estimates of revenues from taxing, etc.) are down because of
2.
GDP measures production within US borders; GNP includes
extraterritorial production. Kuwait generates substantial
revenues from its investments outside Kuwait, and therefore
its GNP is much larger than its GDP. For the United States
the two numbers are not meaningfully different in the
context of the ratios discussed in this memorandum.
3.
Uncapped means that you assume the expiring legislative
budget caps are not renewed and so expenditures on current
programs grow with population and economic growth.
4.
CBO has a different economic growth projection.
2
DEC 29 '92 05:37PM
P.3
predictions of worse economic growth over the long-term and
health expenses are going up faster than thought and S&L bailout
is $10 billion/year higher than expected.
If they are relied on, the effects of these revised numbers
on the forthcoming budget debate are staggering. What are we to
do? Eliminate public investment as a centerpiece of the
Clinton/Gore Administration? Downplay deficit reduction as a
goal? Implement a broad-based energy tax to close the deficit
group?
or can we hope that the estimates will be wrong in a
positive instead of negative direction? Only if the economy
unexpectedly grows by, say, 4-5% per annum, or some major
activity of government can be surprisingly curtailed beyond
current imagination (e.g., we don't need to bail out the S&L's
after all or the defense budget can be radically cut). In short,
in making decisions now, we are well advised to assume the
likelihood of future bad news with respect to budget projections.
After all, it's always easy to deal with good news by
implementing tax cuts or new investment spending.
Without answering these questions, it is worth noting that
the CBO and OMB deficit projections for FY 97 have oscillated
between the low $200s and high $300s over the last 8 months. (Is
this why the SEC bans projections in prospectuses for new stock
issues?) How is one supposed to make serious government
decisions affecting nothing further away than the next
Presidential election year when the relevant projections SO
wildly vary from quarter to quarter?
One response is that a variation of $100 billion in a budget
projection results from only minor variations in estimates of
total government spending or revenue received. If spending
estimates are, say, raised by 3% and revenue estimates are
lowered by 5%, the total swing produces a deficit about $100
billion greater than predicted. How can anyone say that
estimates for FY 97 won't be off by that much or more when 1997
is over? or that the FY 97 estimates won't change by that much
from time to time over the next several years.
In any event, the topics in the Sperling memo are allegedly
being re-addressed now by Bo Cutter and Laura Tyson for Bob
Rubin, and also by Panetta and Rivlin. (Both camps reportedly
reject the memo as deeply flawed.) Ira Magaziner is also said to
be writing memos for Rubin on the deficit and health care issues.
Rubin is said to be planning a meeting of job designees and
presumptive designees for next week to tee up these issues in a
way different from Sperling's memo.
Whatever demerits may be charged against the memo and
however quickly it may be disregarded, nevertheless its baseline
assumptions are worth examining. They are:
3
DEC 29 '92 05:38PM
P.4
For FY 97 (SUS billion) :
Assumed projected baseline: deficit $299
New investments:
60.41
Savings:
144.66
Contributions to deficit reduction
84.25
Interest savings
7.
Resulting projected deficit
203.75.
"Investment"
"New investments" is the sum of outlays to implement the PPF
public investment and investment-in-people agenda. It includes
investment in some environmentally beneficial infrastructure and
some environmental technology, but achieves overall only about
half the public investment spending that PPF promised. There
will be a major debate over the next two months concerning how
any "investment" money should be spent.
"Savings"
The "savings" category includes:
--
reductions in outlays totalling $46.5 billion, the two
biggest being additional defense cuts of $18 billion
and management savings of $10 billion.
:
reductions in entitlements totalling $31 billion,
relating in significant part to eliminating health care
expenditures.
--
closing tax loopholes totalling $12.7 billion,
including increasing taxation on pension plan
contributions, and decreasing deductions for meals and
entertainment expenses and home mortgage interest.
-- charging or increasing fees on 18 separate programs,
totalling $9.34 billion, the biggest of which is
auctioning radio spectrum
:
raising new revenues totalling $33.7 billion, the two
biggest being increasing the marginal rate to 36% on
those with taxable income of $115k (single filer)/$140k
(married). These levels are below the $200k cutoff for
higher income taxes promised in the campaign.
5.
All numbers are for FY 97, and presumably are achieved by
phasing in cuts, taxes, and outlays over the years between
now and then.
4
DEC 29 '92 05:38PM
P.5
Each of these separate categories of "saving" contains
numerous politically charged and economically significant policy
suggestions.
One salient point is that Sperling relegates so-called
"green taxes" to secondary or tertiary level consideration
apparently because he deems them to be politically difficult to
implement and because they run afoul of the campaign commitment
not to increase taxes on the middle class.
However, the various user fees, cuts and tax loophole
closings proposed by Sperling will impact on many members of the
middle class directly and indirectly. Furthermore, the total
package of revenue raisers may take for the government monies
from the private sector that otherwise would go to investment,
whereas, a broad-based energy or pollution tax deters consumption
(and is, therefore, favored by economists over taxes on income,
all other things being equalled.)
Moreover, many current subsidies of natural resources
exploitation (such as oil depletion allowance) are not set for
elimination in Sperling's memo.
In addition, there are some major mistakes on the face of
the Sperling memo. For example, the "entitlements" section on
page 27-28 double counts $4.5 billion in medicare cuts. The "tax
expenditures" section on page 26 includes a $5.0 billion saving
also counted in "costs" below. These two mistakes alone total
nearly $10 billion (about the revenue raised by a $5/ton carbon
tax). Magaziner holds that there are $26 billion in total
mistakes in the memo.
Finally, a very important but inexplicitly described point
in Sperling's memo is that it does not provide for universal
health care. Judy Feder's companion memo on health care (which
we have not seen) reportedly says this goal will require $70
billion in new governmental spending by FY 97.
Sperling suggests that "second level" "savings" -- which are
really revenue raisers -- should be considered only if there are
major changes in the investment and deficit reduction goals
stated in his memo. Such "second level" items might include,
e.g., taxing employer payments of health insurance premiums ($26
billion a year) and an oil import fee of $12.3 billion a year set
off by an energy credit of $4.0 billion for a net addition $8.3
billion.
Sperling suggests further that still more painful, so-called
"third level" actions could include the carbon tax at $30/ton
grossing $39.2 billion or eliminating Social Security COLAS to
recoup $22 billion. He does not discuss the reasons for dividing
between the second and third levels.
5
DEC 29 '92 05:39PM
P.6
Stimulus
As stated above, Sperling's memo addresses initially the
stimulus package. He proposes a stimulus of about $20 billion by
October 1992, and an additional $5 billion soon thereafter,ᵃ
consisting principally of an ITC and some outlays that in large
part constitute down payments on the PPF-type investments. Some
of the outlays might be for environmentally beneficial
infrastructure projects. We should expect vigorous debate in the
next two weeks concerning the ends and means of such outlays.
Sperling describes a modest stimulus with admittedly modest
goals. The stimulus is in size equal to Bush's stimulus in the
Spring of 1992. It purports to reduce unemployment by only .2%:
less than the decrease in unemployment in the last six months and
only about 1/8th of the way to full employment. It is plausible
that Sperling's recommended stimulus is based on the judgment
that some stimulus is politically wise, but hardly any is
economically necessary. In short, Sperling seems to be saying
between the lines that the economy will do reasonably well in the
short-term without meaningful stimulus and that a little
stimulus, already expected by the markets, will give the
Administration a chance to take credit for the long overdue
upswing in the business cycle.
Very important questions Sperling does not clearly answer
include:
1.
Why not propose a $30-40 billion stimulus, with more
exciting outlays, more ambitious job creation goals,
and less risk that, at the end of the first year,
unemployment will be up?
2.
Why do any stimulus, if the results of $20 billion in
stimulus are so modest?
3.
If there is any stimulus package, should it be not
exclusively road and bridge construction and
maintenance, but rather also include increased funding
for wastewater treatment, drinking water systems, high-
speed rail, and acceleration of Northeast rail corridor
improvements?
4.
Why should the ITC be permanent?
Sperling disagrees with what is said to be the Panetta view
on "linkage" between deficit reduction (FY 94) and stimulus
(FY 93). Panetta believes that the linkage should be tight --
6.
The goal of spending $20 billion by October 1993 and only $5
billion as follow-up is going to be very hard to achieve.
Skeptics believe that such front-end loading, while
desirable, is unlikely to occur in implementation.
6
DEC 29 '92 05:39PM
F.7
fiscal stimulus and long-term budget deficit reduction should be
included in the same legislative proposal. If so, either the
stimulus may be delayed, or the deficit reduction package may
have to be accelerated.
Sperling adopts the school of thought holding that the
proposed stimulus is too small to worry the markets, and
therefore it does not require legislative linkage with a FY 94
budget deficit reduction proposal. Moreover, he believes that
the stimulus needs to be expedited through Congress to accomplish
its economic purpose, and that linking it to the FY 94 means it
might be delayed or not be accomplished at all.
7