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Kellner: candidates lack formula for recovery.

So, who does Irwin Kellner, one of the most respected economists and prognosticator in the nation, believe is the presidential candidate to lead us to economic recovery and growth? It's not Bush. It's not Clinton. And it's not Perot.

"None of the candidates running for president of the United States has it right, in my opinion," said Kellner, chief economist for Chemical Bank Corp.

Kellner offered his "prescription for progress" - which can be summed up as increase confidence and buyer power - at a recent joint meeting of the Building Owners and Managers Association (BOMA) and the Institute of Real Estate Managers (IREM).

One candidate, presumably Perot, has the reduction of the deficit as his main target, Kellner said. If you raise taxes to balance the budget, he said, you cut consumer spending. This was the same path, he said, that helped Hoover turn a major recession into the Great Depression.

Another presidential hopeful, he said, wants to tax less and spend more.

The economy, he said, faces two major problems: The slow pace of growth and the budget deficit. These things, he said, are both compounded by the intrusion of the federal government in the financial markets

Kellner's recommended:

(1) Creating jobs by getting federal funds for transportation out to the state and local governments. The Transportation Efficiency Act of '91, Kellner said, slated some $30 billion for highways, bridges and tunnels over a five-year period. The money is being held, however, he said, because there are few matching funds.

"When you hire people, they get a paycheck. They spend everything you give them and more ... "

(2) Cutting Social Security taxes. By reducing such levies, he said, you give the average family $25 more per month, which translates to greater buying power. In addition, he said, reducing or maintaining the luxury tax should not be seen as merely a boon to the rich. As more boats, houses and cars are purchased, more people are employed.

(3) Repealing the 1986 Tax Act. Cutting the Capital Gains Tax, shortening depreciation and other changes, he said, will trigger investment.

According to the National Bureau of Economic Research, Kellner said, residential construction is down one-third because of the 1986 tax act.

In addition, he said, new business ventures have dropped "precipitously" especially small and medium-sized businesses - the backbone.

We need also, he said, to examine the bank regulatory process. "Have they gone overboard?"

"If we do all this, then you can begin to tackle the second problem - the budget deficit," he said.

Kellner proposed freezing all government spending, instituting a value-added tax on everything except medical, housing and food, taxing import oil and a raising sin taxes.

"There's nothing wrong with our economy and real estate industry that a good dose of confidence would not cure," he said.

The federal reserve's lowering of interest rates, Kellner said, has not restored confidence. It has, however, he said, hurt those that depend on interest income. Kellner predicts the Federal Reserve's next move will be to higher interest rates.

"All of these methods have been tried,' he said. "Monetary policy has done all it can.
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Title Annotation:economist Irwin Kellner comments on presidential candidates at recent meeting of real estate industry professionals
Author:Fitzgerald, Therese
Publication:Real Estate Weekly
Date:Oct 28, 1992
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