Budget Juggling Awaits Bush. DEFICIT, DOLLAR, EXPORTS BOBBLE
TO tax or not to tax? George Bush's protestations to the contrary, that will be the Hamlet-like question confronting him when he assumes the presidency and faces the realities of the federal deficit. The American people have read his lips and still expect him to increase taxes, according to recent polls.Skip to next paragraph
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The question is central as Mr. Bush plans his domestic priorities. Although he has yet to spell out his agenda, his overarching concern, economic and political analysts agree, is to assure the continued health of the United States economy. Reducing the budget deficit will have to be a component of policy.
``His first priority is to maintain economic growth,'' says Jerry Jasinowski, chief economist of the National Association of Manufacturers. ``That will require market access abroad, expanding exports, and generally making progress on the international front on one hand and making some progress on the budget deficit, so capital spending will continue.''
With the US now functioning in an increasingly interdependent global economy, domestic economic policy is closely linked to international considerations. Thus an early concern for Bush will be to open up Japanese and other markets by implementing the trade law passed in the Reagan administration.
SOME senior administration officials worry, too, about foreign reaction to the state of the dollar if Mr. Bush and Congress do not move on the deficit. Unless Bush comes out with a solid long-term plan for bringing down the deficit, say officials, he risks a sudden drop in the dollar.
``The Japanese are just waiting,'' says a well-placed US official. ``They'll give him about two weeks to see if he really does something about our economic policies. They've been playing along with him at Treasury in this effort to manage the dollar, but they could cause an early crisis by letting the dollar fall.''
European exporters, the official says, have probably concluded that their export industries will not collapse if the dollar were to find its own level because Americans are buying up foreign products even when they are more expensive.
``There's no way to get the attention of the American political system but to provoke a crisis,'' warns the official. ``We're so hooked on foreign borrowing [to cover the budget deficit] that the only way to stop the addiction is cold turkey.''
The concern is that if the dollar begins to fall in the international market, the Federal Reserve Board will be forced to increase interest rates to hold investors, and this will act as a drag on the US economy.
BECAUSE everyone, including the President-elect, is aware of the deficit problem, it is certain to receive quick attention. Richard Darman, who will be Mr. Bush's budget director, is expected to find a way to reassure Wall Street and the stock markets.
A ``flexible freeze'' on spending, which Bush advocated throughout his campaign, would doubtless be part of any strategy, say analysts. This tactic holds down increases in entitlements and defense spending.
While entitlements are a politically sore subject, there is a gathering consensus within the government on the need to bring the spiraling defense budget under control. It extends to the corporate world as well.