Bush vs. Clinton: Does Either Have a Clue on the Economy? : The two candidates offer proposals that don’t quite add up . . . What’s clear is that U.S. policies need rethinking

President Bush spends his time trashing the draft record of his Democratic nemesis, Gov. Bill Clinton. The Arkansas governor accuses his Republican opponent of ducking a debate. Their preoccupations during this presidential campaign appear silly considering that Americans are worried sick about keeping, finding or training for a job. The No. 1 public concern is the uncertain economy. Jittery consumers find themselves in the midst of the most wrenching and unsettling economic changes since the Great Depression.

The United States is still the world’s biggest economic power and the U.S. standard of living remains the highest, but Americans are plainly dispirited. Over time, real income, adjusted for inflation, has been on the decline; underemployment is chronic and job losses seem unending. With the Cold War’s end--however welcome--disquiet has overcome the home front. The U.S. economic house clearly is out of order.

The Struggling Economy: Not Exactly a Pretty Picture

The Bush Administration, with its known preference for the laissez-faire free market, has relied heavily on exports and lower interest rates to spur growth. But the United States has remained unable to shake its longest recession since the end of World War II.

Unprecedented structural changes and imbalances caused by downsizing in the defense industry, the savings and loan debacle and a subsequent retrenchment in banking, retailing and other service industries have frustrated hopes for a normal cycle of recovery. And, to make matters worse, world demand for U.S. goods has dipped.

Competitive pressures of a global economy require coherent long-term U.S. policies that signal to domestic and world markets that the government has a plan that stimulates economic growth and productivity--and pares down the nation’s huge debt.

Achieving a plausible formula for that is no simple exercise, but at least Clinton, who has been hammering away at Bush’s vulnerable economic record, was the first to outline an economic plan of some form and substance. That prompted a response from Bush, who for a long time had taken an exceedingly hopeful view of the possibilities for economic recovery without major changes in government policy.

Details of each candidate’s proposals remain sketchy. Both claim to be able to reduce federal spending and create new programs for health care and job training without raising overall taxes. Problem is, there’s a huge difference between how much each candidate is proposing to cut and how much each is proposing to spend. Meanwhile, the candidates avoid the D-word (deficit), prompting Ross Perot to threaten to re-enter the presidential picture.

Post-Voodoo Economics: Balancing Acts That Tax Credibility

Bush maintains that he can balance the budget without raising taxes. But his proposed tax cuts and spending cuts are dwarfed by hefty proposed new expenditures for health care and job training programs. In total, the two sides of the ledger do not balance. Bad news--worse arithmetic.

Similarly, Clinton’s proposed $220 billion in spending for education, training and infrastructure over four years, together with the estimated $140-billion tab for his health care program, exceeds his proposed spending cuts.

The gaps in the proposals make Swiss cheese of the Republican and Democratic economic platforms. The glaring holes do not leave enough information to satisfy voters anxious to figure out whether Bush or Clinton has a definitive, workable plan.

Looming Over All the Campaign Promises: The Frankenstein Deficit

A major drag on the nation’s $6-trillion economy is the monster national debt of $4 trillion. This year’s budget deficit alone is more than $300 billion. The money that goes to finance the debt is a drain on savings that could be used to invest in business, education and other vital resources.

Immediate deficit-cutting measures could slow economic growth or, worse, plunge the economy deeper into the red. But it is possible, indeed desirable, for Bush and Clinton to display some commitment to a deficit-reduction program that would kick in by, say, 1994.

Rosy projections and gimmicks predominate: Clinton believes the economy can grow enough to reverse the deficit trend line; though rebuffed by the Senate Friday, Bush’s idea would be to give taxpayers the option of checking a box on their returns to contribute 10% of their taxes to reducing the federal debt. Bush supports a constitutional amendment to balance the budget, even though he has yet to submit a balanced budget himself. Congress rejected such an amendment as political posturing. So it goes. It is interesting that both candidates seek a line-item veto to give the President power to trim the budget. But none of these approaches is any substitute for a thoughtful, concerted plan to cut the deficit.

Can the Nation Spend and Cut Its Way Out of Recession?

The burdensome deficit requires discipline and hard choices in federal spending. It’s obvious that using fiscal, or spending, policies to stimulate the economy may become more necessary as it becomes clearer that pushing interest rates down much further isn’t going to jump-start the economy.

What do the candidates say? As part of Bush’s campaign against big government, he proposes cutting the salaries of highly paid federal employees, including himself and the vice president. He would also reduce the White House budget by 33%--if that were matched by congressional cutbacks--and cap mandatory entitlement programs, except for Social Security.

Clinton would trim the federal payroll by 100,000 jobs and reduce defense spending by $38 billion more than Bush. He would unilaterally cut the White House staff by 25%.

But Clinton would spend $220-billion on a four-year federal-stimulus plan that concentrates on four areas: transportation, a nationwide information network of fiber optics, environmental technology and defense conversion to help communities make economic transitions. His education and retraining program would be financed by a 1.5% payroll tax. Bush also backs a $10-billion worker retraining program, without specified funding. The costs of such new programs are likely to be greater than the proposed cuts.

If You Get a Handle on Health Care Costs, Then You Have Something

Controlling health care costs is key to any long-term budget savings. Each candidate has proposed broad outlines for a program to provide accessible basic medical care; the goal is to contain out-of-control costs. Neither has stated specifically how he would fund his program.

Either Candidate for Raising Taxes? Well, Not Really, but . . .

Two years ago, Bush agreed to tax increases in a budget compromise with Congress. He now regrets having reneged on his “read my lips” tax pledge of 1988 and is pushing for lower taxes. Bush would reduce personal income tax rates 1% across the board, which means the average family would save about $5 a week. Bush would reduce the top capital gains tax rate to 15.4% from 28%, as well as cut some corporate taxes and assessments on small business. He wants to make the research and development tax credit permanent.

Clinton would give the middle class a tax cut of about $11.50 a week but raise the tax rate to 36% from 31% for those with incomes of more than $200,000. He also would put a surcharge on earnings above $1 million. He would cut capital gains to 14% from 28% on long-term investment in new firms. He would increase revenues by taxing foreign firms with U.S. operations that heretofore have escaped U.S. taxation.

Promising to cut taxes is a campaign gimmick that attracts voters, but actual reductions could prove elusive. Indeed, new taxes may be necessary to finance the much-needed programs for health care and worker training. Moreover, fiddling with the tax code now makes sense if doing so provides incentives to generate jobs and stimulate investment in small business, research and development, new technology and worker training. Once the economy is on the rebound, that might be the time to take a good, long look at revamping the troubled U.S. tax code.

It’s true that both candidates are now acknowledging the serious economic problems confronting the nation. But Bush and Clinton have provided economic plans that raise more questions than they answer. Their opportunistic tax pitches and failure to take on the deficit undercut their credibility. Even so, Clinton has more on the table than Bush, and even if all of it does not add up--and that’s a not inconsequential flaw in economic planning--at least it’s the start of an effort to stimulate a serious debate, and a real effort, on what is needed to get the economy moving again.