More on the Clintons' Economic Connections to Kerry

The New York Times ^ | 28 March 2004 | Louis Uchitelle

[MegaSilver]

THEY are a motley team, the four members of John Kerry's war room for economic policy.

Remember Roger C. Altman, the high-ranking Treasury official in the early Clinton years, forced out for being too loyal to his boss in the Whitewater investigation? He is one of them. Gene Sperling, a White House insider in all eight Clinton years, is another. Then there are two less-known 30-somethings: Jason Furman, a Harvard-trained economist, hired so recently that he is still working out of his Greenwich Village apartment, and Sarah Bianchi, who was Al Gore's policy adviser in 2000 and is now Mr. Kerry's. Both got their start in the Clinton White House, as young aides barely out of college.

The four are rapidly developing specific proposals to flesh out Mr. Kerry's still-general thrusts into economics. They are also constructing a galaxy of advisers - one that stretches from Wall Street to the A.F.L.-C.I.O. - who vet the proposals and often contribute to them.

The war room's handiwork is evident in Mr. Kerry's first big economic plank: his pledge in a speech on Friday to no longer allow American companies to defer income tax payments on profits earned abroad. The goal is to eliminate an incentive to send jobs overseas.

What is striking about the candidate's economics team is that all of its members - not to mention nearly every adviser they are reaching out to - served the Clinton administration in one way or another. Does that mean Kerry economics will be Clinton redux?

Ask the four team members that question and they hesitate. The challenges are different, they say. Job creation is a much more crucial issue than it was in Clinton's day, particularly the big decline in manufacturing jobs during the Bush years and the growing tendency to send sophisticated work abroad.

"Differing economic circumstances rightly bring out different priorities," Mr. Sperling said.

Even so, the fixes that Mr. Kerry and his core economic advisers are beginning to offer are clearly rooted in Clinton economics, which is resolutely centrist. Fiscal responsibility and deficit reduction, hallmarks of the Clinton years, are bedrock orthodoxy in the Kerry camp, too.

So is faith in the private sector's powers to generate prosperity. Job creation will come from corporate America, not government, once the right incentives and subsidies are in place, the war room says. In fact, the Clinton-era god of deficit reduction and private-sector supremacy is also worshiped in the Kerry camp. "This group is consulting literally daily with Bob Rubin," Mr. Altman said. "He was the best secretary of the Treasury since Alexander Hamilton and he is the single most influential figure in business and finance."

In a Kerry administration, Mr. Altman, 58, would be a candidate for Robert Rubin's old role, going to Washington from Wall Street, as Mr. Rubin did in 1993. As chairman of the National Economic Council and then as secretary of the Treasury, Mr. Rubin presided over an economy that seemed - and, in fact, was - too good to be true. Through a combination of luck and design, the economy boomed as interest rates fell and the budget went from deficit to surplus.

By the end of Mr. Clinton's first term, nearly 10 million jobs had been added to the nation's work force. That is Mr. Kerry's job creation goal, too. But in debt-ridden, post-bubble America, the miracle that made Mr. Rubin such an icon might not happen again, even with the incentives and subsidies that the Kerry war room is concocting.

MORE than in Mr. Clinton's day, employers are fixated on cutting labor costs. Sending work abroad has become a popular way to do that, so Mr. Kerry's proposals aim to make offshore outsourcing less attractive. His proposal to end the deferral of taxes owed on profits earned abroad would throw up an obstacle to this exodus. At the very least, the government would neutralize the tax code, said Mr. Furman, who at 33 is two years older than Ms. Bianchi, to whom he reports.

Mr. Furman, who worked in the Clinton White House under Mr. Sperling, is the only Ph.D. economist on the Kerry campaign's core economics team, so he did the technical work of determining what might happen if Congress canceled tax deferral. Mr. Sperling, a veteran tactician who has spent most of the years since Mr. Clinton left office counseling Democrats, argued to his war-room colleagues that the Friday speech would be a good way to put some eye-catching flesh on Mr. Kerry's campaign job rhetoric. The message would be that "the right tax code will spark job creation at home," Mr. Sperling said.

Federal income taxes on profits earned within the United States must be paid when they are earned, while taxes earned abroad by American-owned subsidiaries can be deferred indefinitely, until the money is finally brought home. While the money is abroad, it can be invested, adding to a company's overall earnings, and then repatriated during a money-losing year, so that no tax at all is paid, or very little. The bottom line, Mr. Furman says, is that companies pay a higher tax rate from their American operations than they do on earnings from abroad. The cost to the federal government is about $12 billion a year.

Would ending deferral keep jobs at home? Or would other cost savings from going abroad - in particular, lower wages - override the loss of the tax advantage? Mr. Furman argues that absent the tax advantage, many more jobs would stay in America, but he does not brim over with conviction on that score.

"There is a conceit among people in the business community that you don't make decisions for tax reasons," he said. "You make them because of the underlying fundamentals and then you ask the accountant to figure out, given the choice you've made, how to lower the tax. I don't think that is a rational explanation of the thinking of executives who are trying to maximize profits."

THE Clinton administration never challenged the tax code in such a fundamental way, but true to Clintonomics, the cancellation of tax deferral would be made "revenue neutral." The additional revenue raised by taxing overseas profits in the year they are earned would be offset by lowering the tax rate on profits earned at home - a gift to the companies that never went abroad, and a means of winning support from corporate America for the cancellation of tax deferral.

"We are not raising or lowering tax revenue, only changing the incentive," Mr. Furman said.

Spending, too, would be revenue neutral, a principle initially adopted by the first President Bush and then embraced by Mr. Clinton, his successor. New spending must be offset by cuts in existing spending, or by increases in tax revenue. A Kerry administration would return to this standard while also restoring tax rates to their Clinton-era levels for households earning $200,000 a year or more.

By the war room's reckoning, that would produce enough new revenue to finance other incentives to keep jobs at home: federal subsidies for some aspects of corporate health insurance, for example, and payroll tax rebates to manufacturers that add jobs in the United States. Above all, the restored tax rates would finance Mr. Kerry's pledge to cut the budget deficit to $250 billion by the end of his first term from roughly $500 billion now, most of it a result of the Bush tax cuts.

"It is a credible, enforceable pledge that will position Kerry to the right of Bush on fiscal policy," Mr. Altman declared.

THAT sort of thinking does not appear to sit so well with Senator Edward M. Kennedy, Democrat of Massachusetts, who played a central role in Mr. Kerry's primary victories. The two senators are political allies and speak often to each other, although Mr. Kennedy is not officially on the Kerry economic team. Still, he is arguing in his speeches for what amounts to a bigger role for the government in job creation, a position clearly to the left of the Kerry team.

Mr. Kerry may or may not respond to Mr. Kennedy's pressure, says Robert Kuttner, co-editor of The American Prospect magazine, which often represents the liberal wing of the Democratic Party. "He'll listen to all the economists and then he'll listen to the strategists and pollsters and he'll realize that he has to run on something more imaginative than deficit cutting and revenue neutrality. Franklin Roosevelt realized this. He listened to everyone and then made up his own mind, and we can only hope that Kerry is in that mode."

For now, Kerry is in the Clinton, not the Roosevelt, mode. And the person who has his ear on economic policy is Roger Altman. The road back to politics has been long for him. He was deputy Treasury secretary in the early Clinton years, a candidate to succeed the secretary, Lloyd Bentsen. Mr. Altman had also agreed to run the Resolution Trust Corporation temporarily, and that led to his undoing. Resolution Trust administered insolvent savings and loan associations, among them the failed Madison Guaranty Savings and Loan, which had played a role in Mr. Clinton's investment in the Whitewater real estate development.

The Resolution Trust Corporation planned an inquiry. Mr. Altman made some mention of this to the White House, and that indiscretion resulted in his resignation from the Treasury Department in 1994.

He returned to Wall Street, which had already made him wealthy, and over the next 10 years he became even wealthier, most recently as chairman of Evercore Partners, an investment and merchant banking firm. He reached out to Senator Kerry early last year, when the odds of a Kerry victory seemed long.

The two had worked together when Mr. Altman was at the Treasury Department and Mr. Kerry was on the Senate Banking Committee. They shared a common background, having grown up in Boston at roughly the same time. And Mr. Altman concluded that Mr. Kerry's Vietnam War record would give him a leg up in a race against George Bush.

The galaxy forming around Mr. Altman is particularly important. Mr. Rubin is there, of course. Lawrence H. Summers, Mr. Rubin's successor as Treasury secretary, is consulted - although now, as president of Harvard, Mr. Summers takes no active role in the campaign. Also important are the luminaries in the galaxy who act as fund-raisers in addition to advising on economic policy.

That list includes Felix G. Rohatyn, the former investment banker and ambassador to France in the Clinton era; Blair Effron, an investment banker at UBS Warburg; Thomas F. Steyer, a California investment banker; and Steven V. Rattner, a founder and managing principal of the Quadrangle Group, a private investment firm.

SARAH BIANCHI'S name does not stand out in this company, but she has Mr. Kerry's confidence as she had Al Gore's four years ago. She went to the White House as an intern in 1995, the year she graduated from Harvard with a bachelor's degree. Her focus was health care, an interest passed along from her mother, a developmental psychologist at an inner-city hospital in Atlanta, where Ms. Bianchi grew up.

As vice president, Mr. Gore added her to his staff in 1998 as his health care specialist and, in the 2000 campaign she became his policy adviser on many issues. From Clinton to Gore to Kerry. Ms. Bianchi likes that synopsis of her political career. "The Clinton-Gore administration had a fantastic record on the economy, and John Kerry supported their plan," she said. ''It is a logical place for him to be philosophically.''

[okie01]

"The Clinton-Gore administration had a fantastic record on the economy, and John Kerry supported their plan," she said. ''It is a logical place for him to be philosophically.''

The Clinton-Gore administration can thank Ronald Reagan, the capitalist system and all working Americans for their "fantastic record".

But, somehow, I don't think they're going to do that.

[OldFriend]

Was shocked at how feeble brained Altman has become. He could not answer simple economic questions and went off repeating how confidence is down, job losses continue, blah blah blah.....worst economy in 75 yrs. blah blah.....