Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.news From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Many say proposals will worsen the deficit Date: Tue, 10 Nov 92 15:13:22 EST Message-ID: \SE A \HD Many say proposals will worsen the deficit \BY Donald Lambro \CR THE WASHINGTON TIMES President-elect Bill Clinton, feeling the heat from the bond market and the Federal Reserve Board over his economic stimulus plan, faced growing questions yesterday from critics who say the plan will worsen the deficit. "What he's proposing appears to be a return to modified Keynesian pump-priming spending," said Richard Rahn, former chief economist for the U.S. Chamber of Commerce. "This was Jimmy Carter's approach, and it's unlikely to be successful." Mr. Rahn, now an economic adviser, said that Mr. Clinton's plan to raise taxes on people making over $200,000 a year in adjusted gross income will be "a disincentive on work, savings and investment and will result in a net loss to the economy." "I'm willing to bet that there will not be a gain in net tax revenues to the government," he said. At the same time, Mr. Clinton got a hands-on lesson yesterday showing how his public comments as the president-elect can sharply influence the financial markets. A casual observation made to a group of reporters about the shape of the economy resulted in a late selloff in blue chip stocks that crushed a rally of nearly 20 points. The Dow Jones industrial average ended up only 0.81 of a point at 3,240.87. Talking with reporters as he left the Arkansas Capitol in Little Rock, Mr. Clinton noted that the jobless rate had come down slightly over the past four months but said, "Underneath unemployment is up, production is down, there are a lot of very troubling signs in the economy." His remarks were in sharp contrast to his formal statement issued last week to reassure the nervous financial markets, acknowledging that he understood "the need to pursue stability even as we pursue new growth." Yet Mr. Clinton, proceeding slowly and cautiously in putting together his transition team, has made it clear that he does not intend to be rushed into choosing his economic team and fashioning the economic stimulus package that he will send to Congress once he is sworn into office. While it had been anticipated that Mr. Clinton would name his Treasury secretary and other economic advisers soon after his election to show the country that he was moving swiftly on the economy, he has not done so. Mr. Clinton's delay may be due in part to his election by a 43 percent plurality, one of the lowest on record, as well as to the time it has taken him to recuperate from the grueling physical strain of his campaign. But Clinton advisers privately say that he has set a goal of naming his Treasury secretary and budget director and the chairman of his new Economic Security Council before Thanksgiving, according to a report yesterday in the Wall Street Journal. Meanwhile, in an attempt to further assure the financial markets that his economic plan will not worsen the deficit, Mr. Clinton has said he will meet soon with top business leaders and economists in Litle Rock. But Clinton spokesman George Stephanopoulos told reporters yesterday that the summit meeting was only for "information gathering" to try to forge a consensus in the business community on economic policy. He said he doubted that the meeting would result in any changes in the economic blueprint that Mr. Clinton unveiled in his campaign. Clinton advisers were surprised by last week's interest-rate boost in the bond market in response to Mr. Clinton's plans to seek $220 billion in new spending over four years as part of his economic stimulus plan. Interest rates have risen in part due to the bond market's jitters over fears that the spending stimulus will push the deficit up further next year. "The Clinton people we've talked to were taken aback by the bond market falling," economic analyst Mac Carey of Johnson-Smick International said. Fears of rising interest rates, which were cut to a 20-year low under the Bush administration, were underscored further last week when an unnamed senior Federal Reserve Board official warned Mr. Clinton against rushing forward with a stimulus package next year. "It could be that we're going to be starting the year with a more solid rate of growth than we've seen," the official told Reuters news agency. "There are enough uncertainties that people should not jump to conclusions about the efficacy of fiscal stimulus at this time." The unusually strong remarks from the senior central bank official pointed to the difficulty that Mr. Clinton and his advisers will face in trying to develop a consensus on his plan to spur economic growth through a combination of new spending measures and higher taxes on businesses and upper-income people. They also underscored the importance of taking the Fed's views into account in crafting an economic recovery program, policy analysts said. "There are big questions ahead about whether he'll go for a real stimulus or something smaller," said Thomas Mann, director of governmental studies at the Brookings Institution. "And those questions will depend, among other things, on the shape of the economy. "He may not want to get a deficit [spending] bill," Mr. Mann said. "He may go heavy on the tax cut side and seek a strong investment tax credit and capital gains cut." This article is copyright 1992 The Washington Times. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM