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Deficit trust fund plan dismissed as a gimmick Economists agree that it won't help


WASHINGTON -- Economists who rarely agree on anything are dismissing President Clinton's proposal to establish a deficit reduction trust fund as a political gimmick that would do nothing to balance the nation's books.

Criticism of the move to earmark all new revenues for deficit reduction came from all sides yesterday, even as Rep. Charles E. Schumer, a New York Democrat, was drafting the necessary legislation.

It will be submitted, at Mr. Clinton's behest, as early as next week as an amendment to the budget reconciliation bill in an effort to bolster public confidence in the administration's commitment to reducing the deficit.

"For the people who read the headlines, it will work just perfectly," said Stanley Collender, director of budget policy for Price Waterhouse. "But anybody who knows anything about the budget will understand that what he is doing can't have much impact. It's just a gimmick."

Under the plan, $496 billion in projected new tax revenues, spending cuts and interest payment savings in the Clinton budget would be directed into the proposed deficit reduction trust fund over five years. All the money in the special fund would be spent on deficit reduction.

But it would not prevent the government from borrowing more to replace the revenues paid into the fund and would exclude the new taxes to be raised to help finance the administration's health care reform.

In the first formal reaction, the Congressional Budget Office director, Robert D. Reischauer, told a congressional panel yesterday: "Creating such a trust fund could not ensure any particular deficit outcome."

Mr. Reischauer pointed to the 1990 budget agreement, designed to produce over five years $500 billion in tax increases and spending cuts that would be earmarked for deficit reduction. The agreement has held, but the deficit has not been reduced because a weak economy lowered federal income while spending on entitlement programs such as Medicare grew faster than expected.

Instead of a trust fund, Mr. Reischauer endorsed "strong enforcement" of existing budget agreements and suggested that Congress could pass legislation requiring the president to submit additional deficit-reduction measures if the deficit outlook deteriorates.

Polls suggest Mr. Clinton has failed to convince voters that he is serious about halving the annual deficit, now $320 billion, in five years. Instead, he has been badly gored by charges from Republicans and his former campaign rival, Ross Perot, that he is just another "tax-and-spend" Democrat.

Administration officials said the move to establish the new fund is an attempt to demonstrate Mr. Clinton's determination to use new revenues strictly for deficit reduction.

"This is an added insurance policy, and it shows the American people clearly that we are doing what we intend to do," said the White House spokesman, George Stephanopoulos, yesterday.

Critics of the proposal yesterday made three basic points:

* It is a bookkeeping maneuver, used for political rather than economic reasons, that will not change the actual budget figures;

* It is as likely to increase as to lessen attacks on Mr. Clinton's handling of the economy;

* It is unlikely to impress taxpayers, who are increasingly hostile to political gimmickry and incensed at government handling of existing trust funds.

Carol Cox-Wait, president of the Committee for a Responsible Budget, said her basic fear was that the initiative "really could heighten, validate and reinforce voter cynicism and anger about the political situation in Washington."

Her organization regularly holds deficit-reduction exercises for ordinary voters around the country, presenting them with the difficult options of raising taxes or cutting spending that are necessary to bring the deficit down. She has been particularly struck by the popular outrage that surfaces at these meetings over the government's use of the Social Security Trust Fund as a financial bail-out. In effect, the government taps the trust funds in exchange for paper IOUs in the form of Treasury bills.

"The anger about government stealing Social Security Trust money is so evident, visceral and real, that the very thought of creating a similar methodology so that people could subsequently discover that the only thing in the deficit reduction fund are government IOUs is bizarre," said Ms. Cox-Wait.

To Cynthia Latta, economist with Boston-based DRI-McGraw-Hill, the proposal is "laughable." "He's just out on the hustings making more campaign speeches," she said. "But I don't think the public is that easily fooled. The public knows that if you want to reduce the deficit you have to cut spending or raise taxes, and they would a heck of a lot rather you cut spending."

Barry P. Bosworth, former Carter administration official and now a senior fellow at the liberal Brookings Institution, acknowledged that Mr. Clinton faced the problem of persuading a skeptical public that he was serious about deficit reduction.

But, he said, "I think at this point, government can restore its credibility only by actual actions.

"If the president brings a budget in this year at a deficit less than what he said, and next year he brings in a budget with a deficit less than what he said, people will begin to think the government means it."


President Clinton's Rose Garden news conference at 1 p.m. today will be televised by CBS, CNN, Fox, C-SPAN and NBC.

ABC had not decided by late yesterday whether it would broadcast the 30-minute news conference, the president's third since taking office.

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