New Clinton Economic Plan Studied : Democrats: Extra tax cuts, spending programs being considered to pull economy out of its slump if Arkansas governor is elected President.

Democratic presidential nominee Bill Clinton, fearful the economy could remain in a slump next year, is considering an accelerated recovery program calling for additional federal spending and expanded tax cuts if he wins next month’s election, his advisers said Thursday.

Clinton has asked his senior advisers to study ways to restructure his proposed economic agenda, the centerpiece of his campaign to unseat President Bush, by applying extra fiscal stimulus early next year while deferring deficit reduction until the economy is stronger.

The strategy under discussion within the Clinton camp would involve “front-loading” Clinton’s proposals for new federal spending on roads, bridges and other infrastructure improvements in an effort to begin creating jobs in early 1993. His advisers said they also are studying the merits of expanding his proposed business tax credit for investments in new plants and equipment during the first year of a Clinton Administration.

“There is a broad consensus (within the Clinton camp) that, if the economy is still dead in the water by January, something needs to be done . . . some short-term strategy will probably be needed,” said Robert Reich, a professor at the Kennedy School of Government at Harvard University and a key Clinton economic adviser.

Senior aides stress that Clinton will not make a decision on whether to adopt a more stimulative economic package until after the Nov. 3 election. Although his economic advisers are leaning toward a more stimulative program, they have not yet made a formal recommendation.

An accelerated recovery program might prove popular with voters concerned about the sluggish pace of the economy, but it carries considerable political risks. Any plan that relies on spending increases or tax reductions would run up the federal deficit, and Clinton already has drawn fire from critics who contend that he is not serious about deficit reduction.

Sensitive to those charges, Clinton’s advisers said he remains committed to his original target of cutting the deficit in half over four years. That goal could still be achieved even if he agrees to an accelerated stimulus package, they insisted, by making proportionate reductions in the spending and tax provisions later in a four-year term. The commitment to scale back the program during the “out years” would be ironclad, they said.

“Gov. Clinton doesn’t want to send out irresponsible signals; he wants to make it clear that he is concerned about the deficit,” said Gene Sperling, economic policy director for the Clinton campaign.

Still, some experts worry that an accelerated stimulus package would destroy Clinton’s credibility on deficit reduction. Any pledge to make up for the budget shortfalls in later years would sound like traditional Democratic rhetoric to skeptics. The prospect of rising deficits could frighten the financial markets, leading to higher long-term interest rates.

“It is very, very difficult to be credible on deficit reduction when you are saying you are going to do it down the road,” noted Rudolph Penner, a former director of the Congressional Budget Office.

“I would approach any stimulus package with a great deal of caution,” House Budget Committee Chairman Leon E. Panetta (D-Carmel Valley) said. “It has to be linked to a definite deficit reduction plan. And even then, once you open this up, you are going to have a tremendous amount of pressure in Congress to do a lot of other things as well. You could lose control.”

Clinton and his advisers have been privately discussing stimulative options for months, but the debate within the Clinton camp has taken on new urgency as it has become clear that the recovery is proceeding slowly, if at all.

After picking up steam earlier in the year, economic growth slowed to an annual rate of only 1.4% during the second quarter. The current consensus forecast among economists is 1.8% growth this year and 2.7% in 1993, significantly less than the historic rates recorded during periods of recovery. Many analysts say the economy needs to expand at an annual rate of 3% or more before the nation’s stubbornly high unemployment rate will subside.

With President Bush still behind in the polls and the prospect of a Clinton presidency increasingly likely, the Democratic nominee and his advisers have begun to worry about the shape of the economy next January.

The sluggish pace of economic growth despite repeated interest rate reductions appear to have convinced many of Clinton’s closest advisers, along with many mainstream economists, that the government may need to provide a stimulative jolt to get the nation moving again.

Fiscal stimulus, in the form of increased federal spending or temporary tax reductions, traditionally has been one of the most effective means to fight recession. But Washington has been reluctant to open the spigots during the current slump because doing so would increase a federal budget deficit already expected to reach about $300 billion this year.

For months, the Clinton camp has sought to strike a delicate balance between the conflicting policy demands of economic recovery and deficit reduction. While attacking Bush for his failure to take more aggressive action to end the recession, Clinton has been careful to portray himself as a new kind of Democrat, one who takes the deficit issue seriously. He has sought to fend off Republican charges that he is a traditional “tax-and-spend” liberal.

Even within the Democratic Party, Clinton has faced conflicting advice over whether to focus on recovery or deficit control. “We have been getting pulled in two directions, by those who argue we should do deficit reduction faster and others who say we should get the economy going,” Sperling acknowledged.

But as signs of a flagging recovery have mounted, Clinton and his advisers appear to have been moving toward a strategy that would make economic stimulus their top priority, with deficit reduction to be tackled later.

“Obviously, you can’t do everything right away,” said Derek Shearer, an economist at Occidental College in Los Angeles and another Clinton adviser.

“As the economy has continued to be weak, he (Clinton) has spent more time studying the dilemma of how you balance recovery and deficit reduction,” Sperling said. “He is very interested in these ideas.”

On the campaign trail, Clinton has offered some hints about his thinking, arguing that the nation really faces two deficits. Besides the chronic budget shortfall, he cites the need to address an equally serious “investment deficit.”

Clinton has argued that a sharp decline in public and private investment in recent years has limited the growth in American productivity, undermining employment opportunities and threatening the nation’s long-term prosperity. He has said a single-minded focus on the budget deficit ignores the need for the government to address the investment deficit, through a combination of public works programs to upgrade the nation’s infrastructure and tax incentives for business to build new plants and hire new workers.

Until recently, however, Clinton did not appear willing to take the next step of considering a short-term stimulus package that would take precedence over deficit reduction. But in the first presidential debate Sunday, his advisers noted, Clinton signaled that he was leaning toward stimulus. He criticized the harsh economic medicine advocated by independent candidate Ross Perot and suggested that he would propose a jobs program on his first day in office.

“When Clinton talked about a jobs program, he was referring to short-term stimulus,” Altman said.

Clinton’s advisers were reluctant to talk about their internal debate over short-term recovery options.

“I think it is important to be clear that nothing has been decided . . . this is a post-Nov. 3 type of decision,” said Roger Altman, vice chairman of the Blackstone Group and a close Clinton adviser. Altman has been rumored to be a top candidate for Treasury secretary if Clinton is elected.

Altman and other Clinton advisers acknowledged that they are studying a range of proposals.

Although the final scope of the program has not been determined, Clinton advisers said two key proposals are receiving the most serious consideration: accelerated infrastructure spending and an expanded investment tax credit.