Trust Fund to Cut Deficit Urged : Budget: Clinton aims to ensure that money produced by tax increases and spending reductions is not diverted to other uses. Dole calls the proposal ‘just a gimmick.’

President Clinton, trying to boost sagging public support for his economic agenda, said Wednesday that he would ask Congress to create a trust fund to ensure that tax hikes and spending cuts intended to reduce the deficit are actually used for that purpose.

In a speech to college students, Clinton said Americans have become wary of repeated government promises to do something about a federal deficit that has continued to grow. His proposal, he said, would set up a mechanism to ensure that government would not divert savings that had been achieved by painful tax increases and cuts in government services.

“After 12 years of rising deficits, the American people are feeling deceived about the issue,” he said in a speech delivered at the historic Cooper Union School for the Advancement of Science and Art. “I don’t blame the people for being distrustful about what they hear from Washington when it comes to bringing down the debt.”

But the proposal was quickly dismissed by critics as a bookkeeping fiction designed to deflect political opposition to the tax hikes and spending increases sought by the Administration.

The trust fund “is just a gimmick to make his unpopular tax increases look good,” said Senate Minority Leader Bob Dole (R-Kan.), who led the GOP filibuster that derailed Clinton’s economic stimulus plan. “The American people don’t care where the new taxes go; they don’t want them, period, in a trust fund or anywhere else.”

Clinton has submitted to Congress a long-term economic agenda that it estimates would reduce the federal government’s annual deficits by a total of $496 billion over five years. If it accomplished its goals, the deficit would fall from the current level of roughly 5% of the economy to about 2.5%.

The plan has run into difficulty because many voters believe that Congress will simply take the higher taxes Clinton has proposed and use them to pay for new spending. Clinton has contributed to that suspicion by proposing $150 billion in new “investment” spending for programs ranging from Head Start to defense conversion and worker training.

The trust fund proposal would address that complaint by earmarking all of the proposed tax increases and a portion of the spending cuts in Clinton’s budget for deficit reduction, making them unavailable for new spending.

Administration officials said the trust fund would be created by legislation as an amendment to existing budget enforcement rules. It would contain $377 billion of the tax increases and spending cuts proposed in the Administration’s five-year deficit-reduction plan.

The creation of the trust fund would not increase the spending cuts or reduce the new “investment” spending in Clinton’s economic agenda. Nor would it affect any other portion of the budget, which is beginning to make its way through Congress.

Since the White House announced its budget plan in February, it has drawn fire from critics who say the proposed cuts could be undone in later years. And recent polls have shown that many Americans who initially liked Clinton’s economic package had come to view it as heavy on tax hikes and not aggressive enough in deficit cuts.

“This is a response to a very common plea we’ve had from members of Congress and average citizens,” said Gene R. Sperling, a White House economic aide. “This locks up the savings and throws away the key.”

Clinton reiterated his belief in the idea and countered Republican criticism later Wednesday evening during remarks at Fordham University in Manhattan. “It’s not a gimmick, it’s a meaningful thing,” he said.

“The real question is whether our friends in the Republican Party are going to be willing to reverse the huge tax cuts since 1981. . . . “

The creation of the trust fund would not actually set aside those billions in a separate fund, but in fact would leave them mingled with other tax dollars, the Administration acknowledged. Nor would it change the overall level of the deficit, nor prevent Congress from increasing the deficit by appropriating more money than the government has taken in.

But Sperling argued that the special budget enforcement rules would have the same effect as diverting the money into a separate account. And he said there could be severe political penalties if Congress voted to later use the money for other purposes.

“It does say this will go for one purpose and one purpose only, so it does have the effect of setting it aside,” he said.

The idea of establishing such a trust fund has been advocated by a number of members of Congress, including Rep. Charles E. Schumer (D-N.Y.), Sen. Bill Bradley (D-N.J.), Sen. Dennis DeConcini (D-Ariz.), and, recently, Rep. Jane Harman (D-Marina del Rey).

The proposal came during a week in which Clinton has spoken out on themes designed to show that his first concern is for the broad middle class, rather than narrow interest groups.

In a two-day jaunt through the Midwest, he struck a variety of themes intended to win points with mainstream America, from welfare reform and his new college loan proposal to campaign finance and limits on Washington lobbyists.

One special audience for the deficit trust fund proposal was the Ross Perot voters, who have been eager for deficit cuts and whom Clinton has consistently courted.

“Perot should praise the President for doing this,” Schumer said.

The $377 billion that would be earmarked for deficit reduction consists of $255 billion in proposed tax increases, $72 billion in cuts in federal entitlement programs like Medicare and $50 billion in reduced interest payments, the Administration said.