Clinton Deficit-Reduction Plan Counts Some Tax Hikes as Cuts

PASSING THE `DUCK TEST'

SOME of the spending cuts in President Clinton's deficit-reduction plan might not pass what Bush-era budget director Richard Darman called the "duck test."

If it quacks like a duck, it's a duck, he would say of suspected tax increases.

Many items Mr. Clinton labels spending cuts raise revenue through people writing checks to the United States Treasury, suspiciously like tax increases. The label hardly matters, except that Clinton argues that his deficit reduction is balanced - one dollar of spending cuts for every dollar of tax increase over the next four years.

He wants to raise recreation fees on federal lands by $76 million a year by 1997, for example. He raises another $50 million a year by hiking registration fees at the Securities and Exchange Commission. Taxing a greater portion of Social Security benefits on upper-income retirees should raise $6.9 billion a year by 1997.

All these fees and taxes, along with many more, are counted as spending cuts in Mr. Clinton's plan.

Clinton's generous definition of spending cuts serves to magnify his cuts and minimize his revenue raising. If raising fees, royalties, and benefit taxes counted as taxes, then over four years his deficit reduction would be at least 60 percent tax hikes to 40 percent spending cuts.

Some ambiguous entries are listed on the tax side as well. Clinton proposes expanding the Earned Income Tax Credit (EITC) by $7 billion by 1997. The EITC serves to lower the taxes of the working poor and even send government money to those too poor to pay anything in a kind of reverse tax.

This proposal is counted as a tax cut, so it lowers Clinton's tax-hike total. But 90 percent of the cost of EITC, in fact, is not lower taxes but government spending on those who have paid no taxes at all. John Cogan, a senior fellow at the Hoover Institution and former Office of Management and Budget official in the Reagan administration, argues that this money should be counted as a spending increase rather than a tax cut.

The White House has few defenders for how it categorizes some of its spending and taxing items, but budget experts credit it for generally honest numbers in its attack on the deficit.

The White House is promising to cut the deficit by $140 billion by 1997, the end of Clinton's term. "I think they'll make it," says Allen Schick, a Brookings Institution expert on the federal budget.

The deficit could be higher if health-care costs continue to run wild or lower if the economy performs well, he adds. How Americans view an administration that knocks $100 million off a still-high deficit depends on how the economy is doing, he says. "The deficit looks higher if the economy is rotten."

The Clinton package builds on the 1990 budget deal that was so politically devastating to George Bush. Budget director Leon Panetta says that the Clinton package would meet the budget caps set in that deal for fiscal years 1994 (beginning next October) and 1995.

Paul Leonard, an analyst at the Center for Budget and Policy Priorities, says that the 1990 deal has worked to control the deficit - as far as it went. The deficit rose anyway because of the recession and health-care costs. But without that deal, it would have been much higher, he argues.

The Clinton proposal, over four years, nearly matches its domestic spending cuts with spending increases in other areas. So the change in the bottom line comes from deep defense cuts and tax increases.

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