Favourable response to call for sacrifice: President Clinton takes tough tax message to the people - Europe reacts cautiously amidst fears on US protectionism

AMID INITIAL popular support for his appeal to Congress - and beyond to the American people - to 'face the facts' about the country's ills and accept a harsh regimen of higher taxes and reduced government spending, President Bill Clinton and his cabinet yesterday began a hard-sell tour across the country.

In a first election-style rally in St Louis, Missouri, last night Mr Clinton reiterated the message delivered on Wednesday night in his State of the Union address - that the time has come to accept sacrifices as the only way to reverse the growth of the crippling federal deficit.

First polls suggested a broad willingness among voters to give the Clinton prescription a try. A Gallup poll for CNN and USA Today showed 79 per cent favouring his plan, with 64 per cent doing so enthusiastically.

A repudiation of the free-wheeling, tax-cutting Reagan-Bush legacy, the Clinton plan is a nearly dollars 500bn (pounds 345bn) assault on the deficit by way of tax increases and far-ranging cuts in federal spending, particulary for the military. Partly off-setting it, though, will be a modest 'investment' programme to create, in the first year, 500,000 new jobs.

Aware that he has reneged on a campaign pledge to reduce taxes for the 'forgotten middle-class', the President imbued his speech with allusions to its avowed fairness and the concentration of the burden on the rich. Among Americans, he said, '98.8 per cent' will escape increases in income tax.

But pain in some degree is threatened for every American, bar the poorest, in the form of an across-the-board energy tax, some pruning of medical and social-security benefits and the elimination of some government spending. This, Mr Clinton argued with open passion, is the only option for the country if the growth in the federal deficit is finally to be reversed.

'Let's just face the facts. For 20 years, through administrations of both parties, incomes have stalled and debt has exploded and productivity has not grown as it should. We cannot deny the reality of our condition. We have got to play the hand we were dealt and play it as best we can,' he intoned. Pleading with Congress to resist the temptation to defend favourite causes and resist specific cut-backs, the President declared: 'We're going to have no sacred cows except the abiding interest of the American people.'

To underline his commitment to setting an example in government itself, Mr Clinton announced a freeze in all federal employee wage levels this year and rises for the rest of his presidency at 1 per cent under inflation. He had already announced a 25 per cent cut in White House staff.

The President also ranged over many other domestic policy objectives, not specifically addressed in the economic package. Most notably, he lingered on health-care reform, to be piloted by his wife, Hillary. Displaying emotion, he said: 'All our efforts to strengthen the economy will fail unless we take this year - not next year, not five years from now, but this year - bold steps to reform our health care system.'

Overall, the Clinton plan aims to increase tax revenue by dollars 246bn and cut spending by dollars 253bn over four years. Income tax would rise sharply, from a rate of 31 per cent to 36 per cent, for families with earned income above dollars 140,000 and for individuals earning dollars 115,000. For people earning more than dollars 250,000, there would be an additional 10 per cent surtax.

Only those earning less than dollars 30,000 would escape the proposed energy tax, by way of off-setting tax credits. To be measured in British thermal units (Btus), the new levy would be applied to all energy sources and should raise the government an extra dollars 71bn over five years - at a cost of dollars 100 to dollars 150 a year for average households.

The cuts from defence spending over four years are put at dollars 76bn, with bigger-than-planned reductions in funding for the Star Wars anti-missile defence system and a further shrinkage in active troop numbers. Cuts on another 150 items are also detailed.

Showing his teeth, page 19

Commentary, page 23

(Photograph omitted)

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