Popular Request/By Popular Request (Arsenal Computer)(SysOptics Distribution System).ISO/misc_1/clint_3.txt

Text File | 1993-03-01 | 7KB | 124 lines

These are selected portions from an article in the current
Newsweek.  I think it's a well-done objective look at Clinton's
economic plan.  Some of the material is debatable, but I think
for the most part its right on track.  Statistics just out show
that the economy grew at an spectacular rate of 4.6% in the
fourth quarter of 1992 before Mr. Clinton took office.  The
question now becomes, do we need Clintonomics and can we afford
it? Many economists have lately demonstrated their concern by
pointing out that this is absolutely the worst time to be
raising taxes.  Although many American's like to think of
corporations as these big, evil, greedy, heartless entities,
they are still the lifeblood of the economy -- and if you raise
taxes on corporations it will directly impact not only economic
growth and development but every American consumer as well.
America could use a more intelligently designed corporate tax
structure, but certainly not a higher one.  I'm all for
sacrifice and cutting the deficit (if Clinton can keep spending
under control) but it needs to be done without suffocating the
economic growth spurt that has just begun.  As long as the
economy grows faster than the deficit, we are on the right
track.  But should we now be raising taxes and risk suffocating
the economy and high inflation rates for Clinton's new spending
agenda?  That's just one of the questions this article deals
with:

    Even if all Clinton's investments were highly productive, their
impact on economic growth would be tiny.  It's more important
that most businesses achieve small gains in efficiency than for
a few showcase projects or industries to succeed spectacularly.
Consider this bit of arithmetic:  we now have $10 trillion worth
of business plants, machinery and buildings.  A negligible 0.2
percent increase in the return on this investment would raise
the nation's production by $20 billion.  To have the same impact
on production, new government spending programs (or tax breaks)
of $20 billion would have to achieve a 100 percent return on
spending.  That is, every dollar spent would have to create a
dollar of new production.  Few investments have such returns
(The same thing incidentally, is true of spending on public
schools and worker training.  Spending better what we already
spend is more important than spending a bit more).



What we ought to be debating is the useful role of government.
What can it do effectively -- and what should it do?  Why?  Who
should pay?  Why?  How can we achieve these ends without unduly
burdening the private sector?  The real value of having a
balanced budget as a principle of governance is that it forces
us to face these questions.  It requires politicians and the
public to ask whether the expected benefits of new programs are
worth the cost of higher taxes.  But first we must drop the
pretense that the budget is mainly a mechanism to promote faster
economic growth -- as opposed to a framework of setting the
boundaries between government and private responsibilities.

    Clinton hasn't accepted that proposition or its harsh
discipline.  To be fair, there are plenty of things to like in
his program.  He's correct that higher taxes are needed to curb
the deficit, and well-off -- who benefit from the stable society
government provides -- should bear a heavier load.  (A caveat,
though:  Clinton's new tax increases should be imposed by
curbing tax breaks -- for example, the mortgage
interest-rate-deduction -- and not raising rates).  His energy
tax and the tax on more social security income are long-overdue
proposals. Another good idea is cutting taxes on low-income
workers by expanding the earned-income tax credit.  As Clinton
says, the best way to help the working poor is to let them keep
more of their earnings.

    But otherwise, much of Clinton's program ignores his own
rhetoric.  "It is time for government to demonstrate...that we
can be frugal as any household in America" is what he said --
but not how he as acted.  He proposes a long list of new
programs and tax breaks.  Many merely reward favored
constituencies or support faddish ideas.  Between 1993 and 1997,
Clinton wants to spend $646 million on high-speed rail research
[there was an article on the front of today's Wall Street
Journal that discussed the major problems with such industrial
policy initiatives].  He proposes an Agriculture Department
"tree-planting initiative" over the same period for $246
million.  By 1997, his new spending proposals and tax breaks
total $55 billion annually.

    Likewise, many programs that "don't work or are no longer
needed" -- the White House's words -- escaped the ax.  Farm
subsidies (about $10 billion annually) are a relic of the
1930's.  Government sponsored culture -- everything from the
endowment for the arts to public TV subsidies -- costs about $1
billion annually and is a frill in an era of $300 billion
deficits.  In 1992 Amtrack cost $831 million and carried only a
tiny fraction of the nation's inner city passengers.   Are these
truly compelling government responsibilities?  A disciplined
Clinton could have cut the deficits at least $50 billion more by
chopping an extra $20 billion from spending and paring his own
proposals by $30 billion.

    The idea that Clinton is heroically confronting the deficits
is an illusion.  By 1997, the deficit-- after five years of assumed
economic expansion [a risky assumption considering Clinton's
proposed tax hikes] -- drops to a low of 2.7 percent of GDP and
then rises again.  Hey, we've been here before.  In 1989 --
after another long expansion -- the deficit was 2.9 percent of
GDP.  Clinton's failure is all the more glaring, because other
items on his agenda (health insurance for the uninsured, welfare
reform) would also require more spending and taxes.  The
statistics are dry, but consider their real world implications.
Clinton's present program proposes tax increases equal to
roughly 1 percent of GDP.  Thus, the remaining deficit -- if
closed entirely by higher taxes -- would require a tax increase
about three times as large.

    We must ultimately decide what we want from government.
Ever since the 1930's we have had expansive notions of its role.
Government should ensure economic growth, help the needy and
respond to all manner of social problems.  The deficits are both
the consequence and the symbol of this open-ended optimism.
Clinton might have begun to reverse this cycle by focusing
governments responsibilities.  But the very ambitiousness of his
proposals goes in just the opposite direction.  Rather than
dispelling our confusion, he deepens it.