Hilary Clinton and a number of experts privately worked together to draft a plan which they hoped to present to Congress. This ultimately proved to be a mistake. Members of Congress, particularly the Republicans, felt sidelined by this tactic. Scandals, such as Whitewater, were also used by the opposition to paint the First Lady and this reform effort in a bad light. This, along with heavy opposition from the pharmaceutical and health companies, served to sink the effort altogether.

In his first year as president, Clinton supported a new economic package aimed at curtailing the runaway federal deficit. Shortly after entering office, Clinton introduced a new budget that called for a general tax increase. While it included conditions for tax increases on fuel consumption and social security benefits for people with moderate and high incomes, it mostly raised taxes on high-income Americans. This budget passed the House of Representatives by a single vote.

Another ambitious domestic policy goal of Clinton was welfare reform. Overhauling the welfare system had been a centerpiece of his 1992 campaign. Once in office, he quickly went about creating and introducing his new plan. It took four years to actually get it passed, but The Personal Responsibility and Work Opportunity Act of 1996 completely changed the system by transferring federal control of welfare to the states by funding it through federal block grants. It also placed caps on how much a single recipient could receive.

During his 1992 campaign for President, Clinton's staffers were frequently reminded that "it's the economy, stupid," a mantra that urged them to focus on this issue as a talking point in the campaign. He campaigned as a fiscal moderate, offering balanced solutions to the problems caused by an economic downturn in the early 1990s. One of his first domestic policies was a series of tax reforms that helped to balance the nation's budget—actually leading to surpluses—by the late 1990s.

In keeping with his moderate stance, Clinton also took aim at the welfare state, promising to "transform a broken system that traps too many people in a cycle of dependence" by placing restrictions on welfare eligibility. This policy had much in common with conservative proposals. He also enjoyed several other legislative victories in his first term, including raising the minimum wage. But on his signal domestic policy initiative, healthcare reform, he suffered a humiliating setback.

He appointed a panel led by the First Lady, Hillary Clinton, to assemble a healthcare plan that would provide health insurance for all while preserving free market principles. The plan presented to Congress was derided as excessively complex, overly expensive, and ultimately a threat to people who already had healthcare insurance plans.

Conservatives mocked what became known as "Hillarycare," capitalizing on the unpopularity of the First Lady among many voters. Not only was this fiasco a major domestic policy setback, it also helped propel the "Republican revolution" that saw the GOP gain majorities in both houses of Congress in the midterm elections of 1994.