Clinton’s Chief Economist Issues Rebuttal : Economy: Annual report responds to the Republican fiscal agenda, taking many of its claims to task.

One week after President Clinton issued a politically cautious budget that left it to Congress to rein in costly programs, Clinton’s chief economic adviser gave a forceful response to the conservative GOP tide that has been largely absent from White House rhetoric since the November elections.

In the annual Economic Report of the President issued Monday, Laura D’Andrea Tyson, who chairs the White House Council of Economic Advisers, took on the Republican agenda.

Her report, which bears Clinton’s signature, says a balanced-budget amendment would “completely remove fiscal policy from the economic policy arsenal,” while a capital gains tax cut is “problematic and ultimately ill-advised . . . and is likely to encourage more tax sheltering activities.”

Tyson’s report dismisses GOP efforts to employ “dynamic scoring,” a technique that would change the way the government estimates how much revenue would be taken in from revisions in tax laws. Many Republicans would like to use the technique to prove that huge tax cuts would pay for themselves--possibly even concluding that a tax cut would actually increase tax revenue.

“Budget decisions involving tens of billions of dollars are too important to leave to ‘dynamic scoring’ techniques which are fraught with uncertainties and easily manipulated. It is not hard to imagine how ‘dynamic scoring’ techniques could be used to justify generous tax cuts, when it is all too likely that they would cause a large increase in the deficit.”

Tyson also took on another element of the House Republican “contract with America” campaign manifesto.

“Another example of a proposal that is deeply flawed is the “neutral cost recovery system,” a tax proposal in the contract that, Tyson argues, would “effectively shield businesses from taxation on many of their investments while permitting them to deduct fully the costs of debt to finance those investments. This would create a large economic distortion in investment choices,” she said.

Her report mounts a strong defense of the Administration’s economic record, widely castigated by Republican leaders, by arguing that Clinton attacked the fiscal mess left over from the Reagan and Bush administrations and began to stabilize the budget deficit. For example, Tyson argued that if interest payments on the national debt built up during 12 years of Republican rule are excluded, the budget would now be “essentially balanced.”

The fiscal 1994 budget was more than $50 billion lower than the 1993 budget and “about $100 billion lower than what had been forecast before” the enactment of Clinton’s 1993 economic plan, she said. Tyson also lampooned Republicans who wrongly predicted that Clinton’s plan would quickly lead to a recession. Instead, she noted, “the economy has not enjoyed such a healthy expansion of strong growth and modest inflation in more than a generation.”

“The effects of the Administration’s budget plan on economic performance were in line with (the Administration’s) predictions--and completely at odds with the gloomy prognostications of its critics,” Tyson added.

Tyson also showed that she is not afraid to take on sacred cows. Federal agriculture policies that date back to the New Deal are now badly out of date, she argued, largely because “the farm sector no longer looms large in the macroeconomy.”

The report indirectly offers some ammunition to critics of the Administration’s decision not to push for changes in health care this year in the wake of its bruising defeat on the issue last year.

It details how per-capita health care costs are likely to soar from $3,300 to $5,200 over the next five years if left unchecked. (However, a consulting firm reported Monday that a nationwide survey shows that businesses cut spending on health care benefits last year.)

The Economic Report, the work of the Council of Economic Advisers, traditionally gives voice to the policy concerns of the chairman. It appears to be in line with what Tyson’s aides see as her more assertive approach to politics in recent weeks.

In testimony on Capitol Hill before committees now controlled by Republicans this year, Tyson has been much less reluctant than other Administration officials to go on the offensive.

In a House Budget Committee hearing on Clinton’s budget last week, for example, Tyson savaged freshman Rep. Steve Largent (R-Okla.) when he implied that she was being “hypocritical and disingenuous” in her testimony.

“You obviously think that I’m lying, that I’m hypocritical, so I’m just not going to answer any of your questions,” she said. “Why should I bother?”