Commentary: An earnest attack on the US deficit

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The Independent Online
Emulating the approach taken by Ronald Reagan at the start of his administration 12 years ago, Bill Clinton is going to great lengths to prepare the American public for the snowstorm of economic proposals he plans to unleash in his first State of the Union address tomorrow. The package's main elements have been well leaked. The President himself, just as Mr Reagan did, has taken to the airwaves to sell them to the voters.

For Mr Reagan, the strategy was highly effective. His State of the Union address brought so positive a public response that resistance in Congress and from special interest groups was all but swept away. Mr Clinton may find the going much tougher. Unlike Mr Reagan, he is not offering tax cuts but tax increases with cuts in government spending. The message is one of shared sacrifice, which will come in a variety of forms.

The first to hurt will be the very rich, for whom the tax rate is expected to rise from 31 to 36 per cent. Corporation taxes will also go up, and the middle classes will be asked to accept an additional burden, probably through increased energy taxation. Wealthier retirees will be made to pay more tax on their social security benefits. The spending cuts will mainly hit the military, although the President has tried to set an example by pruning a quarter of the White House staff and 100,000 other Washington jobs.

All this amounts to what looks like an earnest attempt finally to tackle the federal deficit. The best guess is that the package should roughly halve the deficit - to dollars 145bn - over the four years of Mr Clinton's term. That depends, of course, on Congress accepting the prescription and resisting the inevitable pressure from lobby groups to pick it apart. A Gallup poll yesterday suggested the electorate was divided exactly down the middle on whether sacrifice was necessary to ensure recovery and new jobs.

The other plank of the package - a dollars 31bn economic stimulus initiative split between business tax breaks and infrastructure spending - may win public favour quite easily. Its worth, however, is questionable - if only because it sends a conflicting signal about Mr Clinton's seriousness over cutting the deficit and resisting the tax-and-spend urge. With accumulating signs that the US economy has at long last begun a sustainable expansion, the best policy is patience.