Tinsel and the Tax Cuts

RETAILERS are pretty pleased. With one more shopping day before Christmas, they expect to meet or beat analysts' predictions of a 5 to 6 percent increase in holiday sales over last year. Some analysts say it's proof the economy is moving full steam ahead. Shoppers must be feeling more confident than ever.

But are they? And if they feel confident now, will they feel the same way in a year - or in a few months - as credit card bills roll in, Washington's tax-cut battle intensifies, and higher inflation and an expanded deficit loom as real possibilities?

On Tuesday, the Federal Reserve Board chose not to raise interest rates for what would have been the seventh time this year. Economists predict, however, that the Fed will act again to slow the economy next month. They say rate hikes could gently slow the economy down - or lead to recession.

And then there's the thorny issue of tax cuts and the federal deficit. Last week, President Clinton proposed a tax reduction for families earning less than $100,000 a year. The cuts are projected to cost $60 billion over the next five years. Mr. Clinton said he would trim $76 billion from the budget over the same period, $24 billion of which would come from eliminating some federal programs. He hasn't specified where the other $52 billion will come from. Americans may worry more once they learn what, and how much, will have to go.

The political motivation behind Clinton's actions was clear. So clear, in fact, that his disapproval rating has since reached 53 percent. Of those questioned in a USA Today/CNN/Gallup Poll, 64 percent say the president was responding to pressure from Republicans.

Both parties promise to be fiscally responsible. A reduction in taxes will be paid for, they say. But is it worth it? Despite Clinton's pledge that his plan will save $16 billion for deficit reduction, the proposed tax cuts portend a significantly larger deficit over time.

Not surprisingly, most poll respondents support a federal income-tax reduction. More surprising is that 70 percent say if Congress can cut spending, the deficit should be a higher priority than the tax cuts.

Americans are opening wide their wallets, but whether they will do the same next year is uncertain. One thing is clear: The tax-cut proposals aren't the reassurance Congress and the president have intended them to be.