Head to Head

By S.C. GWYNNE and STEPHEN KOEPP WASHINGTON Roger Altman and Richard Darman )

Q. Would each of you tell us what you feel are the most important points the voters should know? Mr. Altman, why don't you begin?

ROGER ALTMAN: Well, I think the most important thing for the voters to know concerns the Bush economic record. It's the worst in 50 years, in terms of real growth, job creation and decline in real income. It's a tragic record of failure.

RICHARD DARMAN: First of all, the Governor of Arkansas has managed to make his state somewhere between 48th and 50th in every key indicator. Second, it is a crucial moment in the history of global economic development. The world is moving toward the U.S., toward market-oriented systems. It would be a highly regrettable irony for America to head toward a highly interventionist, European-style system of the type Governor Clinton would produce. Those have failed.

Let me mention a few ways to look at the Bush record positively. Inflation is way down. Interest rates are way down. Housing affordability has increased. U.S. productivity still leads the world.

ALTMAN: Production workers in the private sector have experienced real pay declining to the levels of 1965. Does the Administration accept responsibility for this record of declining living standards? Do you think Americans are better off than they were four years ago?

DARMAN: In some respects yes, in some respects not. Why don't we talk now about how things are going to get better, because we certainly are not claiming that everything is rosy.

Q. Why don't you each give us the highlights of your economic plans.

DARMAN: The key for long-term growth is to get productivity up. And to do so, you need to reform the educational system so that we're sending into the labor force people who are more highly skilled and more adaptive in a world that requires greater math literacy, science literacy and computer literacy.

Second, one of the areas of slowest productivity growth in our economy is the health sector. So reforming it in the way that we propose -- reforming malpractice, increasing competition, providing greater power in the marketplace for individuals and small business -- will slow the rate of growth of these costs so that the economy is not suffering a deadweight loss to the $ health sector's excessive inflation.

Also, reforming the legal system, where we favor substantial limits on liability to cut down on all the things that discourage innovation because of the fear of excessive litigation.

Keeping tax rates low, as opposed to raising them. We believe that's a greater incentive for work and for investment.

Increasing research and development, which we have done; shifting the emphasis toward applied civilian R. and D.

ALTMAN: The main difference between Bush and Clinton in economics is that one man has failed and the other man should be given a chance.

As to how we think the economy will improve based on our plan, the key to this is getting the investment share of the economy to rise. Over the past 12 years, it has fallen approximately by half.

We're going to fix that through a series of incentives for private investment, including a 10% investment tax credit, a permanent R. and D. tax credit and other incentives. We're going to do that through the Governor's Rebuild America plan, on which we will spend an additional $20 billion a year on infrastructure of the future.

Secondly, we're going to upgrade the skills and training of our work force, which is the most important national economic resource we have. We think we have a far more comprehensive program than President Bush does in that regard.

Also, technology. Clinton will reinvest every dollar of savings from military R. and D. into civilian R. and D.

Lastly, I would hope that there would be an improvement in consumer psychology in the early days of the new Administration because of the advent of new leadership. There's precedent for that. It happened when President Kennedy replaced President Eisenhower.

Q. Why don't either one of your programs move faster to balance the budget, as Ross Perot and others have urged?

ALTMAN: I give Perot credit for advancing the debate. It's a real contribution.

Our view is that the Perot plan really would be too much, too soon -- that it would hurt the economy rather than help it.

DARMAN: The Perot plan and other serious plans have something in common with the Bush plan, which is that they recognize the importance of dealing with mandatory spending, which the Clinton plan does not. There are some differences. We do not favor tax increases. Do you favor any of those?

ALTMAN: None of those is in our plan.

DARMAN: Do you like any of them?

ALTMAN: Clinton has talked publicly about subjecting Social Security income for affluent Americans to a higher rate of tax.

DARMAN: Would he accept the Perot proposal to do it for everybody with income over $25,000?

ALTMAN: I don't know. I think if anything, it would not be that low. But the concept of that proposal is something Clinton's already said he thinks makes sense.

The notion that no tax increases of any kind are acceptable is the biggest hole in Bush's approach. I know that you have said the budget can be balanced without any tax increases. I don't know anyone who agrees with that. You would, for example, try to cut mandatory spending by $294 billion over five years rather than raise one dime on Americans earning $200,000 a year or more.

DARMAN: I think the truth of the matter is to say you don't care about the deficit, because that's basically what the Clinton plan says.

ALTMAN: Given the Administration's record, it's absolutely a joke for you to sit here and say we don't care about deficits. That's like Jeffrey Dahmer accusing the police force of brutality.

DARMAN: That's a line you should have saved for the debates, the real debates. Could we press further on this?

ALTMAN: Let me add one thought. There's no way that Clinton will do as badly as you have done on the deficits. Among other things, the financial markets don't give Democratic Presidents the leeway that Republican Presidents have to run these massive deficits. In fact, a Democratic President with this deficit would probably be impeached.

DARMAN: The deficit, as a percentage of the economy, is close to 5%. It was 6.3% in the 1982-83 period. I'm not saying that we should be happy with it, but I think that you're way out-of-bounds in suggesting that it's an impeachable offense.

This is one area where the people who are attracted to Ross Perot should note that they are in much closer agreement with the Bush Administration than with Governor Clinton's proposals, and that is on spending control. Perot recognizes that you have to do something about the mandatory program structure. It is two-thirds of the entire budget.

We would put a cap on the rate of growth to allow it to grow for inflation and population. That would save money because spending would otherwise grow even more rapidly. It would save $294 billion every five years.

ALTMAN: Our view is that the central part of an effort to reduce the growth in entitlements is to reduce the explosive rate of health-care cost inflation.

DARMAN: I'm sorry, Roger. All the money you save, by your own plan's assertion, you turn around and spend.

ALTMAN: We think we're going to ultimately save a heck of a lot more than that.

Can I ask you a question? You've got a 1% across-the-board tax-cut proposal that costs $125 billion. How do you propose to pay for that? You're double- counting.

DARMAN: The President has not made a formal 1% rate-cut proposal. He has said that insofar as we can achieve budgetary savings that would allow additional tax relief, some of that should go to an across-the-board tax cut.

What would worry me enormously about the Clinton plan is that the middle class will be hit with a substantial tax increase. By our calculation, if he wants to hold his tax increase to a 36% top rate, he would have to bring that rate all the way down below $36,600 in individual taxable income in order to fulfill his promises.

ALTMAN: I just don't agree with your numbers. The Clinton plan essentially says that if your family has $200,000 or more of adjusted gross income, you'll pay more tax. If you don't, you won't pay more tax. The average family of four at median income will experience a $600 tax cut.

DARMAN: Your biggest savings proposal is called "prevent tax avoidance by foreign corporations." You estimate $45 billion from that. Now, I'd like to know how it is possible. Clinton's numbers would be laughed out of court. They're a sham. They don't add up.

ALTMAN: There have been reliable estimates that the Japanese auto companies have reported losses in the U.S. market, since they began to operate in this country, of $7 billion to $11 billion. Anybody who has had any involvement with auto companies knows that that cannot be. I think there's a huge problem here in terms of underpayment.

Q. What are your plans for reforming the health-care system?

DARMAN: The President's plan includes a number of important features. For every poor person, they would be given the equivalent of a voucher. We set it at about $1,850, which is sufficient to buy a satisfactory basic health- insurance plan in a market, something we favor. If for some reason they did not do so on their own, as soon as they come in contact with a hospital emergency room, they would be informed that they are eligible for the coverage.

For people above the poverty level, working but unable to afford health insurance, we would provide them an additional tax benefit to help defray the costs of health insurance. The other important thing to do is to increase what's called pooling, so that there's much more risk sharing. The costs for people in very small firms are averaged out over a very much larger pool, which brings the price of insurance down for them.

ALTMAN: That's part of the Clinton plan too.

DARMAN: On the how-do-you-pay-for-it side, we favor administrative savings, but we estimate we would only get about $10 billion. We also propose tough malpractice reform. Governor Clinton has been consistently opposed to any sorts of caps on liability. But if you have them, then the principal driving force for excess utilization is weakened, because right now doctors are overprescribing as a measure to protect against liability.

ALTMAN: What would your proposal do on the cost side?

DARMAN: Competition. We say the combination of competition, coordinated care and emphasis on prevention would produce about $45 billion, so that's up to about $80 billion saved there. Now, our tax credits and other tax benefits would cost almost $100 billion over 5 years, so we're short except for this. Under our system, we would insure virtually everybody in the system, and as they come into emergency rooms they would come in automatically insured.

The government currently reimburses hospitals for people who are uncovered by insurance, so you save that. Well, the savings we estimate would be at least $45 billion. So that the combination of those would be $135 billion or more, more than enough to finance our plan.

ALTMAN: What he's outlined is not likely to reduce the explosive inflation of health-care costs, and that's the ultimate long-term problem.

What we're proposing is a system, the main features of which involve a standard, mandated benefits package and a cap on what providers can charge for it, to induce competition among, particularly, the medical insurers. Today's incentives create excessive procedures, but incentives under our approach would be for efficient provision of care. Some insurance companies won't make it, but the efficient ones will.

DARMAN: Is Clinton for the payroll-tax increase to pay for this? It was estimated to be a 7% to 9% tax. If he is for it, how is that going to be good for small business? If he's not, how does he finance his universal health-care coverage? Is it magic?

ALTMAN: Clinton is not proposing a payroll tax. The real payroll tax that has gone on is what's happened to health-care costs on the Bush watch. Health-care costs have risen to 13% of gross domestic product, and to 8% of payroll.

What Clinton wants to do is treat this system as broken. The way we have to fix that is essentially through managed competition. By lowering the rate of inflation in health care from 9 1/2% today to 5 1/2%, we can save enough to pay for the extension of coverage to the 36 million Americans who today don't have health insurance.

DARMAN: The numbers are absolutely absurd. I know no one anywhere who says you can get savings like that without draconian rationing.

ALTMAN: We have rationing today, de facto rationing.

Q. What kind of job retraining would your programs offer for, say, an autoworker in Michigan who lost his job?

ALTMAN: Governor Clinton has proposed a quite comprehensive plan with six or eight elements to increase or improve the nation's educational training system. I don't know how we would precisely retrain your figurative worker from Michigan. But obviously, it is a function of various retraining alternatives. We have proposed a national apprenticeship system. We have proposed a 1.5% training requirement, in terms of business spending, on training.

DARMAN: We favor apprenticeship programs, but I don't see how that addresses the problem of a 45-year-old person who's unemployed. He or she is not, at that stage of life, going to be an apprentice.

One problem with the way things are today is that the programs the government has available don't cut in until the individual is already unemployed. Another problem with the current system is that there are literally more than 50 different government programs.

The way we propose to fix that is to create one-stop shopping, to consolidate all of these programs and make sure people understand that there is one place they can go where they can get either the training they need or they can get a voucher for it. It is a concrete, comprehensive, market- oriented approach.

ALTMAN: I think there is merit in the voucher approach. But if this is such a great idea, what took you so long to propose legislation?

DARMAN: Well, I'm glad to know you're endorsing it.

Let me say what is wrong with the Clinton plan. The main financial component is one that requires private firms to spend 1.5% of their payroll on training.

ALTMAN: Excuse me. Most small businesses have fewer than 50 employees, and they will not be mandated under this proposal.

DARMAN: O.K. Well, what happens to all those people? Where do they get their training?

ALTMAN: The genesis of this proposal is that most of our trading competitors spend a lot more than 1.5% of payroll on training. A lot of our corporations do that, but a lot of them don't. A lot of them spend just at the upper level of employees.

DARMAN: Can I get to a more basic element? We need to have a work force in America that is more quantitatively literate than it has been. What creates the bottom-up pressure for a more innovative, creative and efficient education system? We say parental and student choice. The power to create something that approximates a marketplace so that people can say, If I'm not getting a good enough service from this school, I'm going to take the equivalent of a voucher and I'm going to plunk my education money down on the school that I know can perform and give my kid what he or she needs.

ALTMAN: That's a very good speech, but the problem with those ideas is that you haven't implemented them.

DARMAN: We've proposed it. It hasn't been enacted because Democrats have opposed it in Congress because it would change the system.

ALTMAN: We favor choice. The difference is, obviously, public school choice vs. private school choice. In our view, the Bush plan would have bad consequences for the public school system. In addition, we don't think it's a good use of taxpayer money to help finance private education.

DARMAN: Then there's no pressure on a public school system to fear competition. The incentive for reform is less. Look at our higher education system, which has tremendous public-private choice. It demonstrates that public schools can do brilliantly in a system where there are incentives for them to try to improve themselves.