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Clinton's team at bat.

The Clinton administration is gearing up to pursue an activist economic policy. This will entail higher taxes, increased spending and expanded regulation. Stimulating economic growth is a key, but the full impact of President Clinton's initiatives will not be felt until late this year.

The Clinton administration has set a number of economic goals, which include: * Increasing business investment: by enacting a 10% investment tax credit offering new businesses a 50% exclusion from corporate profits tax; making the existing research and development tax credit permanent; providing credits for firms in urban enterprise zones; and expanding loan programs for small businesses in cities. * Using federal money to create jobs: By spending $20 billion per year for four years to construct transportation, information and environmental-protection systems; and spending $60 billion over four years on education and training. * Rewriting tax policy: By raising the top federal income tax rate from 33% to 36% for families earning more than $200,000 per year; and taxing the profits of U.S.-based foreign companies at the same rate as American corporations. * Reducing the budget deficit: By cutting the federal budget deficit from $341 billion in fiscal year 1993 (which ends Sept. 30) to $141 billion in fiscal year 1996. This will be achieved via spending cuts, tax increases and revenue generated by a moderately faster rate of economic growth. * Reducing federal expenses: By eliminating 100,000 federal jobs via attrition; requiring a 3% across-the-board cut in federal agency administrative expenses; and requesting that Congress grant the president a line-item veto. * Boosting foreign trade: By supporting the North American Free Trade Agreement if provisions are included to protect Mexico's environment and to retrain U.S. workers who lose their jobs; supporting negotiations to expand the General Agreement on Tariffs and Trade to include rules on trade in agricultural commodities; and protecting rights on software and other intellectual property. * Expanding health care: By creating a Federal Health Standards Board that will design a core benefits package.

Most of the Clinton program is positive. The overall rate of economic growth will quicken moderately through a faster rise in gross domestic product. Aggregate demand, as measured by consumer expenditures, will increase. Nonresidential and residential fixed investments may climb, but not as much as plant and equipment investment. Exports will not pick up much. The continued lag will reflect lower economic activity abroad. Imports will rise faster, mirroring the pickup in U.S. economic activity.

Federal government purchases of goods and services will expand sharply. Defense spending would decline faster, but nondefense outlays would rise substantially. Much of the increase would reflect outlays on public works, especially highways, bridges and communications. State and local spending will also increase, reflecting new federal programs at state and local levels.

Industrial production, homebuilding and sales of new cars are projected to expand rapidly, and there could be an expansion of jobs and a large drop in unemployment. But, the federal budget deficit will expand first and then decline slowly under Clinton. While federal revenue may grow more rapidly, outlays will expand at a faster rate, at least, initially. To finance the vigorous level of economic growth, the money supply will expand and interest rates will also rise. However, the inflation rate should not pick up much due to continued excess industrial capacity and high unemployment.

I assume that Congress will not approve all these economic policy recommendations. However, President Clinton will probably get most of what he requests. Economic performance should improve significantly over the next few years.
Clinton's Economic
Crystal Ball
Projected annual economic growth from 1993 to 1995 if
President Clinton's economic policies are adopted.
 1993 1994 1995
Gross domestic product 2.8% 3.5% 3.7%
Exports 4.7% 5.8% 5.9%
Imports 7.0% 10.0% 8.5%
Industrial production 4.5% 4.2% 4.0%
Housing starts(*) 1.31 1.43 1.45
New car sales(*) 9.2 9.7 9.8
Unemployment(*) 8.9 8.0 7.3
(*) In millions
Source: Brimmer & Co., Washington, D.C., 1993.
COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:economic policy
Author:Brimmer, Andrew
Publication:Black Enterprise
Date:Apr 1, 1993
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