Clinton back-tracks on tax pledge

THE prospect of an early income-tax cut to boost the US economy all but vanished yesterday as President-elect Clinton's designated Budget Director made clear that measures to cut the ever-growing budget deficit and boost investment would be the main tasks of the Democratic administration.

'Our first priority will be to make deficit reductions,' said Leon Panetta at his confirmation hearing before the Senate's Governmental Affairs Committee. 'The second is to lay out a long term investment path, and after that we'll decide whether we can make tax cuts.'

The testimony of Mr Panetta, named last month to head the immensely powerful Office of Management and Budget, is the clearest sign yet that, even before the inauguration of the 42nd President next week, harsh economic realities are forcing Mr Clinton's advisers to backtrack on central campaign pledges, most notably the promise to halve the government's dollars 300bn (pounds 200bn) annual deficit in his first term, and to make tax cuts to help middle-class Americans.

Under intense questioning from both Republicans and Democrats on the committee, Mr Panetta declared his goal was to 'grind the deficit down' to around 1 per cent of GDP, compared with around 5 per cent at present.

But he acknowledged that forecasts of a sharply increased deficit in 1996 and 1997 had thrown previous calculations awry. A halved deficit was now merely 'one of the goals and one of the options' before Mr Clinton presents his overall economic plan to the country 'sometime in February'.

Mr Panetta said details of his first budget, for 1993/1994, would probably be tabled in March.

For all the probing, however, yesterday's hearing did nothing to dent the impression that, barring sensational revelations, Mr Panetta, like other Clinton cabinet nominees, will sail virtually unchallenged through his confirmation hearing.

Only occasionally was the tone mocking: had the President-elect been 'hearing-impaired?' inquired Maine's Republican Senator William Cohen. He was referring to Mr Clinton's failure to heed a series of warnings from congressional and other experts last summer that the true deficit was running considerably higher than either the White House or the assumptions underlying the Clinton/Gore manifesto, 'Putting People First', admitted.

Generally the atmosphere was friendly in the extreme. The 54- year-old Mr Panetta, a former chairman of the House Budget Committee and one of the architects of the ill-fated 1990 budget agreement between Congress and the White House, has long been admired and respected on Capitol Hill. His anti-deficit credentials are not in doubt - indeed he had the temerity during the campaign to criticise Mr Clinton's arithmetic as unrealistic.

What is more, Congress is in a far less partisan frame of mind than a few months ago, when it twice deliberately passed provocative tax-cutting bills to elicit politically embarrassing vetoes from President Bush. These are dead and buried. For the time being, even Republicans are ready to co-operate with the White House in the early stages of the new administration when Mr Clinton's prestige and popularity will be at their zenith.

The country, too, seems ready for what Mr Panetta warned would be 'painful' therapy, including perhaps even caps on health care and welfare entitlements, of which both parties shunned the very mention during the campaign. Polls suggest ordinary citizens would prefer action to reduce the deficit, even at the expense of foregoing tax-cuts.

Strengthening his hand, too, is congressional relief at being rid of Richard Darman, Mr Bush's outgoing Budget Director, whose treatment of Congress could verge on the contemptuous as he explained away one massive budget deficit after another.

'You've got the toughest job in government bar none,' one Senator sympathised, 'after a decade of the most irresponsible fiscal management at a federal level this century.'

(Photograph omitted)