Cuomo commission urges spending to lift economy $70 billion increase in deficit projected

November 17, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- A major economic report yesterday urged the Clinton administration to increase the federal budget deficit by $70 billion this fiscal year to boost the economy and promptly underscored the intensity of the Democrats' debate over how much stimulus is needed.

The $70 billion figure was advanced by the independent Commission on Competitiveness. The commission was established in 1987 by New York Gov. Mario M. Cuomo, bringing together leaders of business, labor and academia to draft a national economic blueprint.

New York banker Robert A. Rubin, a commission member who has been mentioned as a possible Treasury secretary in the Clinton administration, quickly distanced himself from the proposal, and Sen. Paul S. Sarbanes, the Maryland Democrat who chairs the Joint Economic Committee, balked at what he called "a pretty big figure for Congress to digest."

The commission's plan parallels President-elect Bill Clinton's commitment to a balanced program of immediate economic stimulus. But the plan is far more specific than anything yet produced by the Clinton camp.

In general, Mr. Clinton wants to increase public spending alongside a gradual deficit reduction through increased taxes on the rich, deeper defense cuts and health-care reform.

During his news conference yesterday in Little Rock, Ark., Mr. Clinton said he would not delay pump-priming measures, despite signs of a recovery gaining momentum. "I have seen nothing which so far makes me believe that we should do less than what I have recommended in the campaign," Mr. Clinton said.

The commission urges increased investment in infrastructure of $50 billion in fiscal 1993 and then $65 billion in infrastructure annually for the following eight years. Combined with increased outlays on education and training, it suggests public spending should average $100 billion a year -- "a level that strikes a balance between the nation's competing needs."

Economists generally anticipate that Mr. Clinton will have to increase the deficit initially to get the sort of economic growth needed to create jobs and reduce the deficit later.

In its report, "America's Agenda, Rebuilding Economic Strength," the Cuomo commission projects that the fiscal 1993 deficit will increase from $327 billion to $397 billion. The $70 billion increase is at the high end of a range of increases that recently has been projected by economists and think tanks.

Mr. Sarbanes, a consistent advocate of a major stimulus package, said he found the $70 billion projection "a pretty big figure." He said Congress must strike a balance between stimulating the economy and "giving an assurance on the deficit front . . . so that there is not a growing sense that you're just slipping back into the old ways."

Mr. Clinton campaigned as a new-style Democrat, avoiding the tax-and-spend label that Republicans have routinely attached to their opponents. During the campaign, Mr. Clinton balanced his immediate promise to boost the economy with an equal commitment to reduce the deficit.

In ordering their priorities, the new administration and Congress would have to be "aware" of the Federal Reserve's monetary policy, Mr. Sarbanes told reporters at a luncheon to unveil the Cuomo report. He added that he felt that the central bank should consider lowering the rates again, given low inflation, slow growth and idle industrial capacity in the economy.

Another restraint on the administration's scope for action is hostility on the financial markets to any indication of runaway spending and borrowing by the Democrats, which would increase the nation's budget deficit and lift long-term interest rates. Economists say higher long-term rates would choke any growth Mr. Clinton hoped to gain.

Mr. Rubin, co-chairman of the New York investment bank Goldman Sachs and a major Clinton fund-raiser, said: "I don't have a view as to whether they [the Clinton administration] should have a stimulus program up front. If they do have one up front, I would suspect they would be very careful to get a sense of how the street [Wall Street financial markets] would react to any kind of stimulus they were thinking of."

Mr. Rubin said he agreed with the need to bring the deficit down "in the fullness of time," but he cautioned it would be "very difficult" to design a "trigger mechanism" to tie together a stimulus package and a deficit reduction program.

The 54-year-old banker insisted: "I don't have a view as to whether there ought to be a stimulus first and then a deficit reduction program. And I don't have a view whether, if we are going to have this program, whether the stimulus should be $30 billion or $70 billion."

Another member of the Cuomo commission also widely tipped for economic office is Laura D'Andrea Tyson, professor of economics and business administration at the University of California, Berkeley. She said: "I think the deficit will initially go up. The commission, like the Clinton campaign, took the view we have a judicious balancing act in front of us. We have to worry about deficit reduction, but at the same time we have to worry about stimulating the economy to get it out of the doldrums.

"We need to set in motion now a process where we spend money on things we need to spend money on, but we need to bed those programs in a deficit reduction program over four or five years."

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