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THE CONSERVATIVE AGENDA

When Bill Clinton and the Democrats stormed to power in 1992, their anthem was the 1970s rock ditty Don't Stop Thinking About Tomorrow. In the aftermath of their crushing defeat on Nov. 8, Democrats are humming a different tune, the 1960s surf classic Wipeout. And you have to go back even further than that--to 1952, to be exact--to truly understand the magnitude of the catastrophe that befell the Democrats. That was the last time Republicans, sporting big grins and "I like Ike" buttons, won the House and Senate.

When the 104th Congress convenes next year, Republicans will again be kings of the Hill, thanks to angry voters who turned the election into a search-and-destroy mission aimed at zapping hapless Democrats. The GOP easily won the Senate and seized control of the House by grabbing a mind-boggling 52 seats. Sputters a despondent White House adviser: "It's...a disaster."

ECCE CUOMO. Many of the President's key allies went down to defeat. Among the fallen: Senators Harris Wofford (Pa.) and Jim Sasser (Tenn.), House Speaker Tom Foley (Wash.), House Judiciary Committee Chairman Jack Brooks (Tex.), and Representative Dan Rostenkowski (Ill.). Giants toppled in state capitals, as well. New York Governor Mario M. Cuomo and Texas Governor Ann Richards were ousted. Republicans captured at least 11 gubernatorial races, eiving them a majority of statehouses for the first time in a quarter century.

The losses were a stinging rebuke to Clinton. After two years of watching him struggle, voters bellowed "Time's up," opting en masse for divided government. The next day, Clinton acknowledged the rebuke: "I accept my share of the responsibility in the result of the elections," a visibly shaken President said during press conference in the afternoon. Trying to sound an upbeat note, Clinton promised to search out compromise. But the president's ability to be a catalyst for change is gone, trapped in the permafrost of partisan gridlock and irreconcilable ideological differences.

The ascendant Republicans and their Sunbelt Democratic allies can now supplant Clinton-style activism with their conservative agenda--a hard-edged vision of limited government. "We will not only be able to kill bad legislation, we'll be able to dictate the flow of legislation," crows Representative L. William Paxon (R-N.Y.), chairman of the National Republican Congressional Committee.

The prospect has the Right elated--and edgy. "We're like the little dog that chases the school bus and finally catches it," says Representative Charles Stenholm (D-Tex.), chairman of the Conservative Democratic Forum. "What do we do now?"

While conservatives huddle, Clinton is contemplating sharing power with some of his least favorite people: Senate Majority Leader Bob Dole (R-Kan.), a dour critic, and Speaker Newt Gingrich (R-Ga.), who wants to torch the last vestiges of the Welfare State. Arrayed behind them: a Republican Party that has veered sharply to the right.

The bottom line for business? Dicey, if it ends up caught in the crossfire of partisan bickering. Nonetheless, many top executives--an overwhelming 85% of whom rated Clinton's performance only fair or poor in a BUSINESS WEEK/ Harris Poll in late September--were mainly pleased. "This [election] offers hope. It may slow the avalanche of regulation that continues to be placed on businesses," says John V. Roach, CEO of Tandy Corp. Adds Joseph B. Costello, CEO of Cadence Design Systems Inc., a San Jose (Calif.) software company: "The genetic code of the Republican party is to create an environment that is more conducive to business."

Clintonites gamely maintain that the President can turn the big blowout to his advantage. Clinton "is disappointed, but he's also liberated," says White House pollster Stanley B. Greenberg. "Now he can run against Congress--and some of us think that more will happen, not less." But privately, Clinton loyalists are glum. "It just got very difficult for Bill Clinton to get anything done," says one adviser. Adds a top White House aide: "Either Clinton is a consistent New Democrat next year, or he's going to have a very hard row to hoe in '96."

QUICK RESULTS. For Republicans, the immediate goal now is magnifying their breakthrough into a massive mandate. "This is a national tide," insists William Kristol, chairman of the Project for a Republican Future. "The public is sending a conservative message to cut taxes, restrain spending, and be more innovative in delivering services."

Republicans plan to strike on the first day of the new Congress. They'll uncork dramatic initiatives, among them a call for a balanced budget amendment to the Constitution, a new attack on discretionary spending, and tax relief for the middle class. They'll try to slash welfare rolls, stiffen criminal penalties, and limit lawmakers' terms and perks. And they'll promote new regulatory relief for business. "The core of the new agenda," says former Minnesota GOP Representative Vin Weber, "is a radical devolution of power away from Washington. If conservatives take that approach--instead of just hacking away at government--they'll do fine."

But chopping away with machetes may be just what the Armies of the Right will have to do. With Clinton occupying the White House, vetoes and Democratic filibusters could thwart many GOP thrusts. "Remember that veto pen Clinton held up during the State of the Union message?" says Fred I. Greenstein, a Princeton University political scientist. "Next year, it may not be so imaginary."

To complicate matters, conservatives disagree on elements of a new doctrine. During the campaign, some moderate big-city mayors broke GOP ranks to back Democrats they felt had a better approach to urban woes. Other party poobahs have problems, as well. Former Housing & Urban Development Secretary Jack F. Kemp gripes that the House Republicans' Contract With America "has no urban policy. We need to reach out to the underclass." Kemp and ex-Education Secretary William J. Bennett also have blasted California Republicans for pushing a ballot initiative that cuts aid to illegal immigrants. "We can't just stand for small government and big prisons," says Kemp. "We have to be an inclusive party."

The Christian Right, led by evangelist Pat Robertson, played a big role in the election. His followers want more attention paid to issues such as federal aid to religious academies and restrictions on abortion. Some Republicans, reflecting the views of "America First" crusader Patrick J. Buchanan and independent Ross Perot, are skeptical of multilateral trade pacts.

GOP moderates--there are still a few left--worry that the party may abandon its emphasis on deficit-fighting. And conservative Sunbelt Democrats are uneasy about providing the margin of victory for Gingrich & Co.'s crusades. Neither faction trusts the other.

If it hangs together, the new conservative axis can exert an ideological hammerlock on Clinton by ensuring that any legislation that moves reflects rightist views. Political strategist Kevin P. Phillips dubs the ensuing scenario "dynamic gridlock." On a few issues, such as welfare and trade, Democrats and Republicans might forge a consensus. Everything in between--including bills to rewrite the Superfund cleanup law, reform product liability, and speed telecommunications deregulation--could become casualties of increasing acrimony as the two parties position for '96. "The GOP game is to make Clinton look ineffectual," Phillips says. "His game is to veto one bill after another, making his opponents out to be crazies."

While Capitol Hill could turn into a legislative Sarajevo, there is a faint hope that Clinton and the Right can come to terms. Says White House policy deputy George R. Stephanopoulos: "There is going to be pressure on Republicans to share responsibility for governing." But the White House must make concessions as well. "The President really has no option," says Democratic theorist Ted Van Dyk. "He's got to govern up the middle and seek Republican support."

Administration aides pledge that, with the fiasco of health reform behind him, Clinton will reposition himself as a centrist next year. He'll stress implementation of the new crime bill, executive orders to shake up the bureaucracy, and foreign policy. On the legislative front, Clinton will concentrate on New Democratic themes. Welfare reform will be his top priority. He'll intensify the campaign to "reinvent" government. He will shrink his grand health plan into a modest exercise in cost control. And Clinton hasn't slammed the door on GOP calls for a middle-class tax cut, though he's worried about the cost--$50 billion to $100 billion over five years.

After the election, "The Administration will approach the Republicans and try to develop a bipartisan policy," vows Treasury Secretary Lloyd M. Bentsen. Notes the GOP's Bennett: "It's put-up time for Republicans. If you want to be a big, grown-up party, you've got to show the public you can govern."

Things could start off on a positive note. In a lame-duck session that begins Nov. 30, lawmakers will try to pass a new General Agreement on Tariffs & Trade. Administration officials hope that a bipartisan vote on GATT will promote future compromises on welfare and health care. Beyond GATT, which is expected to eventually squeak to passage, the road looks rocky for Clinton:

-- THE BUDGET. Conservatives plan an early vote on a balanced budget amendment. Since it mandates no specific spending cuts or new taxes--and would not take effect for years--the measure wouldn't lower the deficit in the short run. But it is a powerful symbol for anti-Washington lawmakers. Administration sources consider 1995 passage of Stenholm's version of the amendment "a done deal," says one economic official.

Even rightwingers admit that the amendment ducks tough choices. "I don't know if Republicans have the fortitude to follow through with specific spending cuts," says Daniel Mitchell, an analyst with the conservative Heritage Foundation. "There'll be an exemption for everything from national emergencies to dandelion infestations."

To deflect charges that the GOP has no immediate plan to downsize government, Representative John R. Kasich (R-Ohio) is readying legislation that would slash billions from domestic programs. Another line of attack: legislation reducing ceilings on overall domestic spending.

White House Chief of Staff Leon E. Panetta has convened a series of high-level strategy sessions to weigh the Administration's options. That's triggered a debate over fiscal 1996 budget strategy. A small band of hawks, led by Budget Director Alice M. Rivlin, argues that the President can co-opt the conservatives by proposing a dramatic deficit-reduction plan of up to $200 billion over five years. That would spare Clinton the embarrassment of submitting a spending blueprint that shows red ink spreading as he seeks reelection. "If we come up with a budget that shows a rising deficit, we get written out of the game," frets an Administration hard-liner.

But where are the budget hawks of yesteryear? Many have become this year's pragmatists: Bentsen, Panetta, and National Economic Council Chief Robert E. Rubin lean toward trimming no more than $10 billion to $20 billion from next year's expected deficit of around $180 billion. "The key," says a top economic official, "is to keep the deficit as a percentage of GDP near the current level--then show it stabilizing in the future."

Why no appetite for another deficit assault? Clinton aides don't feel that he has received any credit for the $433 billion deficit-reduction he won in 1993. With Congress brimming with Republicans, even Rivlin, who believes you can't attack the deficit without raising revenues, is leery of tax hikes.

In the end, breast-beating about runaway spending will lead Congress to make some modest spending cuts--while sending the symbolic blimp of a balanced budget amendment floating toward the states. "Taxes and defense cuts are off the table, and it'll be hard to have a serious discussion of entitlement reform because of demagoguery on both sides," says Representative Timothy J. Penny (D-Minn.). "That leaves nickel-and-dime cuts." Adds John F. Spisak, CEO of Lakewood (Colo.) environmental consultants Industrial Compliance Co.: "We see no evidence there will be much of a change from business as usual."

-- TAXES. Another Republican goal is forcing Clinton to deliver on his promise of a middle-class tax cut. The GOP's proposal for a $500-per-child tax credit looks a political winner. But the politics are tricky because Republicans will package it with breaks on capital gains and business investment. The more the plan looks like a giveaway to the rich, the easier it will be for Clinton to peel off Democratic moderates.

Ultimately, lobbyists predict the White House will accept a modest tax cut for families. That measure might be coupled with indexation of capital gains, which would permit investors to pay tax only on inflation-adjusted gains.

-- POLITICAL REFORM. Thanks to their new majority, Republicans will make headway pushing a raft of institutional reforms. Democrats will have a hard time sidetracking an early vote on term limits. In addition, House Republicans will press a bill to cut congressional staff and perks--steps most Democrats are now loath to oppose.

To hop aboard the reform wave, the White House may repackage plans for tighter controls on lobbyists with campaign-finance reforms and a requirement that Congress abide by the same laws it passes. Coupled with a renewed drive for line-item veto authority, Clinton hopes to show he's in tune with the populist clamor for reining in Washington. "`I feel your anger' just became Clinton's catch-phrase for '95," says GOP pollster Frank I. Luntz.

-- DOWNSIZING GOVERNMENT. Vice-President Al Gore's "Reinventing Government" drive will be expanded. The Veep's "ReGo" guerrillas want to amend Civil Service rules to make it easier to shed an additional 40,000 federal employees, on top of the 71,000 who have left the payroll so far. The Administration will also back legislation to give states more freedom to experiment with delivering services.

But conservatives argue that ReGo is a no-go that misses the point. "The Clintonites are still tinkering with the bureaucracy," says Kristol. "We want a major transfer of power to the states on everything from crime to welfare."

-- SOCIAL ISSUES. Look for intense jockeying between Clinton and conservatives over social policy. Republicans should have no difficulty cutting $3 billion in crime-prevention funds and toughening penalties for violent offenders. Immigration sanctions are dicier, due to intraparty feuds.

Welfare reform may be a defining issue for both parties. Clinton backs a $10 billion plan that ends payments after two years but shifts recipients who haven't found a job into training programs. The GOP wants a true "two years and out" feature and reduced benefits for welfare mothers who continue to have children. "This is a case of the cushion vs. the fire," says business lobbyist Wayne Valis. "Liberals see reform as giving people a prop; Republicans want to burn them into getting a job."

-- HEALTH CARE. Don't look now, but it's back. Clinton and Health & Human Services Secretary Donna Shalala will push an incremental plan that limits insurers' right to deny coverage for preexisting conditions and assures that job-switchers don't lose benefits. "If something like this gets to the floor," frets Heritage's Mitchell, "Republicans could just be dumb enough to pass it."

-- REGULATION. Next year, business interests plan to enlist conservatives in a major drive to slap limits on Administration regulators. According to National Association of Manufacturers President Jerry J. Jasinowski, Republicans will back legislation that requires more risk-assessment and cost-benefit analysis before new rules are issued. "We will get a significant number of moderate Democrats to come aboard this campaign," he predicts.

There is a sliver of room for Clintonites and Newtoids to cut deals on these issues. But the Administration fears that the GOP will replay this year's health-care strategy, which was a variant of the old "wallet on a string" stunt: every time Clinton reached down to compromise, Republicans jerked the prize a little more to the right. "All these smart guys are advising the President to move to the center," says Barry Rogstad, president of the American Business Conference. "The center may not be there." But, replies a top Republican strategist: "Gingrich and Dole cannot merely be guardians ef gridlock. If the two sides pass GATT, welfare, and health reform by fall, pundits may be reassessing Clinton."

Can the Comeback Kid recover from his latest catastrophe? Not if your sole gauge of effectiveness is a legislative scoresheet. When it comes to passing bills, the sun has set on Bill Clinton's excellent Presidential adventure. But Presidents operate on a larger stage than Congress, as Clinton has proven with his recent sureness in foreign policy. "He may have more resiliency than people think," says David A. Jones, chairman and CEO of Humana Inc. in Louisville. "Reports of his unelectability are premature."

Indeed, even the most ebullient conservative would pause from postelection revels to confide a private fear: If Clinton hijacks parts of the Nouveau Right's agenda, he could still thwart dreams of a GOP majority come 1996. Today, that sounds wildly improbable. But then, so did predictions of a Republican revival after the GOP's 1992 descent into chaos. WHAT CLINTON IS UP AGAINST

HOUSE SEATS

MAJORITY: 218 OLD NEW CHANGE

DEMOCRATS 256 204 -52

REPUBLICANS 178 230 +52

INDEPENDENTS 1 1 0

SENATE SEATS

MAJORITY: 51

DEMOCRATS 56 47 -9

REPUBLICANS 44 53 +9

STATEHOUSES

DEMOCRATS 29 18 -11

REPUBLICANS 20 31 +11

INDEPENDENTS 1 1 0

NOTE: AS OF 11/9

CONGRESS

WHO'S IN CHARGE

SENATE COMMITTEES

BANKING

ALFONSE D'AMATO (R-N.Y.)

Primed for nasty Whitewater hearings

BUDGET

PETE DOMENICI (R-N.M.)

Consensus-building deficit hawk

FINANCE

BOB PACKWOOD (R-Ore.)

Moderate business supporter

FOREIGN RELATIONS

JESSE HELMS (R-N.C.)

Sayonara, Clinton policy

JUDICIARY

ORRIN HATCH (R-Utah)

Liberal judges need not apply

LABOR

NANCY KASSEBAUM (R-Kan.)

Centrist to succeed Kennedy

HOUSE COMMITTEES

BANKING

JAMES LEACH (R-Iowa)

Social moderate but Whitewater critic

BUDGET

JOHN KASICH (R-Ohio)

Vows to slash spending

ENERGY & COMMERCE

CARLOS MOORHEAD (R-Calif.)

Heir apparent faces GOP challenge

WAYS & MEANS

BILL ARCHER (R-Tex.)

Ex-exec favors business tax cuts

Lee Walczak, with Richard S. Dunham and Howard Gleckman in Washington, Susan B. Garland in Flint, Mich., and bureau reports


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