Recovery around the corner, Bush's advisers say Report urges passage of tax-cut package

February 06, 1992|By New York Times News Service

WASHINGTON -- President Bush's economic advisers said yesterday that the nation's sagging economy probably will rebound in a few months, and they rebutted arguments that living standards have dropped under the Reagan and Bush administrations.

In the president's Annual Economic Report, the White House said the nation's economy would grow by a sluggish 1.6 percent this year if Congress did not pass the president's package of tax cuts and other measures intended to stimulate growth. If Congress enacted the program, the report said, growth would climb to 2.2 percent.

Some economists said that forecast exaggerated the stimulus the package would give the economy.

The report, more partisan than usual, said conditions were ripe for a recovery because interest rates, inflation and inventories are all low.

"The economy is expected to be sluggish in the early months of 1992, but growth is expected to pick up in the middle part of the year," it said.

Last year's report also said recovery was around the corner, that the downturn would be mild and brief and that it would end by the middle of 1991. Instead, a small upturn that began last spring stalled badly in the fall.

The report, which was signed by the president and the Council of Economic Advisers, said the recession was not the fault of the Bush administration, blaming instead the invasion of Kuwait, the Federal Reserve and banks that drove themselves to ruin.

The report said that if the president's proposals is adopted, the nation's economy "is then expected to return to solid" economic growth of about 3 percent a year through the mid-1990s and unemployment is expected to fall to less than 5.5 percent from the current 7.1 percent.

In his State of the Union address last week, Mr. Bush called for cutting capital gains taxes, giving a $5,000 credit to first-time homebuyers and increasing income tax deductions for families with children.

Speaking yesterday to a group of small business executives, Mr. Bush urged them to back his program, calling it "a rifle shot approach" to spurring the economy. The description appeared to leave some listeners puzzled.

The report said unemployment would level off or head slightly upward over the next few months but would drift down in the second half of the year.

Michael J. Boskin, chairman of the president's Council of Economic Advisers, acknowledged that the White House's forecast might be wrong again.

If consumer confidence turns up or the credit crunch ends sooner than expected, he said, the report may prove too pessimistic. If, for example, the economies of Europe and Japan remain sluggish and they import fewer U.S. goods as a result, the report may prove to be overly optimistic.

"You can't rule out the possibility that there will be some surprises," Mr. Boskin said in a news briefing.

In his introduction to the report, Mr. Bush said 1991 was a "challenging year for the American economy" and added, "Output was stagnant and unemployment rose."

Sen. Paul S. Sarbanes, D-Md., who heads Congress' Joint Economic Committee, said, "The administration is forecasting a very weak, anemic recovery that will leave us with all of the serious economic problems we have now. The important point is that we will be coming out of the longest recession in the postwar period with the weakest growth the nation has ever experienced after a recession."

The report acknowledged that income disparities between the rich and poor increased during the Reagan and Bush years, but it said that incomes of the poorest fifth of Americans, the middle fifth and the richest fifth have all increased over the last dozen years. The figures included earned and unearned income, such as welfare payments. People in the remaining fifths were not included in the study.

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