Bush Seeks to Set Election-Year Course

Much in his program is familiar; Head Start increased, defense pared $50 billion, some regulations are eased. STATE OF THE UNION

THE battle to rehabilitate the public perception of President Bush is beginning now in earnest.

The Bush-Quayle campaign sees the next few weeks as critical to establishing the president's control of the national agenda.

Mr. Bush finally produced his long-awaited road map Tuesday night for leading the country out of hard times. Now Cabinet secretaries, campaign volunteers, and Republican politicians have been tapped to promote the credibility of the program during the weeks before the nation's first primary Feb. 18 in New Hampshire.

Already, that is proving a difficult task. The program Bush outlined in his State of the Union address is largely familiar, and many who received it sympathetically still were unimpressed with its promise for the economy.

"I don't think it's very strong tonic in the short run, and in the long run it's mostly rhetoric," says Dennis J. Aigner, a professor of economics and management at the University of California at Irvine. The State of the Union, he says, "was primarily a political speech, not a lot of economic policy." (Democratic candidates in New Hampshire reply, Page 2; British respond to Bush arms control plans, Page 3.)

Sen. Dave Durenberger of Minnesota, a moderate Republican, is concerned about the impact of the Bush plans on the federal budget: "I can't believe that all that stuff is not going to increase the deficit."

Sam Kernell, a presidential scholar at the University of California at San Diego, notes that the changes Bush proposed making on his own, without the approval of Congress, are "quite limited and unglamorous unlikely to set confidence soaring.

And the public understands that much of what requires the cooperation of Congress is not going to happen, he says.

The newest element of the Bush plan for stimulating the economy is his proposal to prune the amount withheld from paychecks for income taxes. Due to outdated practices at the Internal Revenue Services, about $80 billion is withheld from paychecks every year only to be refunded to taxpayers. The Bush proposal would cut roughly $25 billion from withholding.

Beginning in March, this adjustment will increase take-home pay by an average of $300 a year per taxpayer.

Senior administration officials insist that the Bush program does not break the 1990 budget agreement that required all changes to pass a pay-as-you-go test. "The president is totally committed to holding the deficit down," one official says.

The major savings in the president's proposed new budget are in defense. Bush is offering an additional $50 billion in defense cuts over the next five years.

For the first time since the nuclear age began in 1945, the US will have no nuclear weapons in production, if the budget is accepted. The number of nuclear warheads would be cut to half the levels agreed to last year under the START treaty.

The White House has divided its economic program into two parts: short-term measures to get the economy moving again and long-term investments in economic strength.

In the short term, the president can take some steps on his own authority. These include adjusting how much the IRS withholds for taxes, speeding up some federal spending projects, putting new regulations on hold for three months and squelching some that are burdensome to business, and easing regulations that keep credit too tight at banks and thrift institutions.

Other steps must pass Congress to become law. These include various tax changes to make investment cheaper, cutting the highest capital-gains tax rate from 28 percent to 15.4 percent, granting first-time home buyers a $5,000 tax credit, allowing greater tax write-offs for real-estate losses, and extending the duration of unemployment benefits again.

Over the long term, the president is eager to complete negotiations on global free-trade rules, as well as extend a free-trade zone in the Americans.

He proposes easing the financial burden on families by raising the tax exemption $500 for each child.

He would also allow the use of Individual Retirement Accounts for education or medical expenses without penalties for early withdrawal.

Among the measures he seeks to control federal spending is a freeze in the number of federal jobs outside defense. That will cut jobs.

He wants to expand the Head Start program for preparing poor children for school by $600 million, enough to cover all eligible children.

Most of his proposals to encourage research and experimentation, to improve education through parental choice, and create more incentives for enterprise and homeownership in poor neighborhoods are familiar Bush administration offerings.

Conservative Republicans succeeded in winning most of their points in the Bush program over White House moderates: a March 20 deadline for Congress to pass short-term measures, a capital-gains tax rate close to 15 percent, and the removal of caps that officials planned to put on the number of health benefits that could enjoy tax-free status.

The president will outline the details of his health-care reforms Feb. 6, but an administration official calls them "probably as significant a health-care program as has ever been announced in this country."

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