Deficit rises faster than predicted Billions in red ink will hobble Clinton

January 07, 1993|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Staff Writer

LITTLE ROCK, Ark. -- The Clinton administration's economic policy options narrowed dramatically yesterday when President Bush introduced his final $1.5 trillion budget, with the deficit worsening by $176 billion over the next five years.

President-elect Bill Clinton, apparently setting the stage for the harsh policy choices he will have to make, said yesterday the figures showed "the full magnitude of the debt we will inherit and the challenge that we must confront."

The final Bush budget, a bare-bones document detailing the administration's economic legacy, showed a deficit for fiscal 1994 of $292.4 billion -- $18.2 billion above the figure projected in July.

The deficits then rise steadily, hitting $319 billion in fiscal 1997.

Aside from sounding an alarm, the Bush budget is largely meaningless. It has no political future after the president's term ends Jan. 20. Marlin Fitzwater, the White House press secretary, described it simply as "a summary budget."

Mr. Clinton will introduce his own budget, reordering spending, cutting programs and raising revenues as he sees fit. He must do this by the first Monday in February. This document will be at the core of the economic debate that will consume the Democrat-controlled Congress and the administration in coming weeks as the new president presents his 100-day action program.

The new deficit projections from the Office of Management and Budget (OMB) threw into jeopardy the Clinton core campaign promise to halve the deficit in four years. When that promise was made the projected 1997 deficit was less than $200 billion.

Richard Darman, Mr. Bush's budget director, warned that unless unneeded federal programs are eliminated, private investment encouraged and the growth of mandatory spending programs, such as Medicare, curbed, "America's long-term budgetary and economic problems could not be addressed satisfactorily."

The Clinton economic team believes that even the new projections are $50 billion to $60 billion below the real 1997 figure because the OMB used the "unrealistic" policy assumption that there would be no growth in discretionary spending in fiscal 1997.

Their own projection puts the 1997 deficit between $350 billion and $360 billion, with the possibility of it exceeding $400 billion by the end of the decade. Clinton aides accused the Bush administration of "camouflaging" the real figures to shift the blame onto the new administration.

"This sounds the final warning bell: This endless pattern of rising deficits must stop," Mr. Clinton said in a prepared statement yesterday.

"It is long past time we replace this legacy of debt with a new era of investment and fiscal responsibility," he said. "We must make the difficult choices that will allow us to close both the budget deficit and the investment deficit that together threaten our future."

The budget deficit is the amount by which federal expenditures exceed revenues. The investment deficit is the shortfall in productive spending that prevents full employment and improved living standards.

Mr. Clinton has pledged to address both through a short-term stimulus package and a long-term deficit reduction program. The new projections are likely to shift the focus of the program toward deficit reduction.

George Stephanopoulos, Mr. Clinton's spokesman, said yesterday that the new figures would make the challenge of reducing both deficits "more difficult but more necessary."

"These numbers show that the deficit is far worse than anybody has been telling us for a long, long time," Mr. Stephanopoulos said. "Certainly, there will be adjustments based on changing realities."

The new deficit figure will overshadow the first full policy meeting of the Clinton economic team in Little Rock today. The meeting will review the economic situation and the policy options.

Those options include an increase in public spending on bridges, roads and other infrastructure, a middle-class tax cut, and an investment tax credit to spur the economy.

To reduce the deficit they include increasing taxes on the wealthy, health-care reform and increasing revenues through economic growth, which would provide more taxable individual and corporate income.

The economy recently has been showing convincing signs of revival, and Mr. Clinton may restrict any growth package to a symbolic initiative to fulfill his campaign promise of putting America back to work.

There can now be no symbolism to his deficit reduction effort. Mr. Darman, the OMB director, said yesterday that to halve the deficit in four years at current rates of taxation and program levels the economy would have to grow at an annual rate of between 4.4 percent and 4.8 percent. Most economists see a long-term growth rate of little more than 3 percent.

This means Mr. Clinton will have to look for more spending cuts or increased taxes -- unpalatable choices.

One tax that appears to have gained increasing acceptance is a gasoline tax. This would be easy to administer and fast to collect at the gas pump.

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