President's Plan Targets Nation's Culture of Debt
Fiscal plan would limit consumption, spur savings and investment
PRESIDENT Clinton embarked on an ambitious course this week by taking the first step toward his goal of transforming the nation's economic culture.
He is attempting to revamp a debt-based lifestyle that is deeply entrenched in the United States. Individuals spend more than they earn, businesses borrow beyond their means, and the overall national debt, above $4 trillion, is rising at a rate faster than $13,000 per second.
The economic plan "changes our priorities," says Office of Management and Budget Director Leon Panetta. The former House Budget Committee chairman, who has spent the last decade at loggerheads with Republican administrations as federal coffers were depleted by reckless bipartisan spending, asserts that Mr. Clinton's new approach restores accountability "so we can pay our bills."
Mr. Panetta is Clinton's top fiscal strategist, and is now leading the charge to within the decade reduce the annual federal deficit from 1992's $290 billion to $62 billion - or less than 1 percent of the nation's output of goods and services.
That would mean a sharp drop in government borrowing, which would in turn push interest rates down and make capital cheaper for the private sector, which Clinton calls "the real engine of economic growth in this country." But if the country continues to live beyond its means, the federal deficit will double by the end of the decade, deficit hawks warn.
"We've already seen a [market] reduction in interest rates since the election," says Treasury Secretary Lloyd Bentsen. That development, he says, is "an appreciation of the fact that this administration is serious about cutting the deficit."
In his effort to move the country from a consumer society to one of savings and investment, Clinton begs the cooperation of his political opposition to endorse a bold set of tax and spending proposals:
* A broad range of incentives for business development, from research and development tax rebates to credits for small and mid-sized companies.
* Measures to dampen energy consumption, such as new levies on transportation fuels and home heating oil.
* A redirection in federal outlays from entitlements to programs designed to increase the nation's productivity, including infrastructure and job training.
But Republicans such as House minority whip Newt Gingrich (R) of Georgia are blasting Clinton's income tax hikes as "an anti-savings tax bill."
Industry interests, such as the American Petroleum Institute (API), call the energy tax "a job killer on a mammoth scale" and expects a $170 billion cost to the economy over the next five years. The API cites energy-intensive industries that will incur higher costs of operation and lay off 600,000 workers, and consumers who will dip into savings to pay higher fuel bills.
To counter the barrage of charges, Clinton's economic team is fanning out across the country.
Laura D'Andrea Tyson, chairwoman of the White House Council of Economic Advisers, underscores how the long-term impact of the economic program will work in everyone's favor. Reducing the deficit by $247 billion over the next four years will have an across-the-board, direct impact on Americans. Slashing government spending will create "room for businesses, students, and households to invest in expansion and jobs, education and housing," she says, by providing lower interest rates.
Business tax incentives, she says, "are meant to reverse the trend that we are investing less in research and development than our competitors."
Margo Thorning, chief economist for the American Council for Capital Formation, has long been a proponent of boosting the competitiveness of US companies, yet she is one of the plan's vocal detractors. "The higher tax rates on both individuals and corporations will probably discourage both personal and business savings," she says. At present, Americans save less than 5 percent of their disposable income, compared with Germany's 12 percent and Japan's 20 percent.
While she welcomes the permanent research-and-development tax credit for small and mid-sized firms, she laments that the rebate is only temporary for large firms. "Government data show it's the big companies who invest the most in plants and equipment. And we want to encourage more, because it increases productivity. But by the time they've planned and financed the investment, the tax credit has expired."
As supporters and opponents line up over the next several weeks, some unlikely alliances may form that result in a conversion of America's propensity to consume into a quest for savings and investment.
John Clendenin, chairman and CEO of the BellSouth Corporation, who also chairs the Committee for Economic Development - a group of top business leaders and university presidents - says the most important element in boosting the nation's productivity and living standards is "to raise the national savings rate.
Calling the federal budget deficit "the No. 1 threat to the American economy," he urges deep cuts from entitlements to the defense sector. And the accompanying new taxes must aim at the "broadest base possible," with a focus on discouraging consumption rather than discouraging savings and investment.
Even labor leaders are considering the challenge. The AFL-CIO, for example, may decide to put its lobbying weight behind a national consumption tax on goods and services in order to help finance universal health care for Americans.