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                                                                                COVER STORIES, Page 39

THE ECONOMY

Baby Steps


Neither Bush nor Clinton is confronting the hard numbers, but
at least each is proposing ...

By JOHN GREENWALD


    Who would do the best job of leading the U.S. out of its
economic mess? Would it be President Bush, who advocates tax
cuts to unleash what Republicans like to call the magic of the
marketplace? Or Bill Clinton, who wants to use the power of
Washington to rebuild America's creaky infrastructure and pour
resources into job-training programs?

    At its economic forum last week in New York City, TIME
asked a panel of leading economists and marketplace experts to
assess the Bush and Clinton programs. Such analysis is a bit
like looking at clouds, since both candidates offer wispy
details and imaginative arithmetic. Their vagueness is not
surprising, as the federal deficit has made it almost impossible
to craft a stimulative economic plan in which the numbers add
up without aggravating the red ink. "They really don't have
solutions because the problems are so complicated nobody can
solve them, not even within the next 10 years," said the Boston
Co.'s chief economist, Allen Sinai.

    Yet overall, the TIME panel welcomed the campaign as the
start of a long-overdue effort by political leaders to wrestle
with underlying economic problems and to put forth long-term
solutions. Between the two candidates, the economists judged
Clinton as somewhat more aggressive in doing so. "This is a
watershed year in terms of the proposals that we've seen," said
Sinai. "Both candidates are at least admitting and calling
attention to the problems." The public nonetheless is still
struggling to weigh the merits of the proposals and find any
salvation in them. "Neither candidate's program has had any
effect on consumer confidence whatsoever," said Gail Fosler,
chief economist of the Conference Board, which tracks consumer
and business trends. The TIME forum's analysis of the major
proposals:


    GROWTH

    Neither Bush nor Clinton would do much to jump-start the
economy next year, according to panel members. "There's much ado
about nothing here, from a broad economic point of view," said
Sinai, noting that the candidates' tax and spending proposals
tended to offset each other, leaving little room for stimulus.
The Bush program, which is chockablock with spending cuts to
pay for tax reductions, "would make a weak upturn a little
weaker," Sinai said, while Clinton's plans "would make a weak
upturn no worse, but not really any better." In the long run,
he added, "the Clinton program would give us more productivity
and more potential output."


    JOBS

    The heart of Clinton's plan calls for an $80 billion
four-year public-works project to rebuild roads and bridges and
create a national fiber-optic information network to enhance
learning and to link homes, schools and offices. Clinton also
wants a national education and retraining program, financed by
a 1.5% payroll tax, for all employees from the mail room to the
executive suite. Bush rejects the very idea of public-works proj
ects but has belatedly called for a $10 billion four-year
worker-retraining program.

    By and large, members of the TIME panel endorsed Clinton's
infrastructure plan. "We could start to repair roads and put a
lot of people to work without any increase in wage costs because
there are so many unemployed construction workers," said Donald
Ratajczak, director of the economic forecasting center at
Georgia State University. Fosler, however, said the plan would
"dress the economy up rather than fix it."

    The panel generally liked Clinton's education and training
proposals as well. But Dan Lacey, publisher of the newsletter
Workplace Trends, warned that unions could frustrate the
Democrat's plan for a national apprenticeship program by
limiting entry to such skilled occupations as plumbing and
carpentry. "If you don't believe it," he said, "ask a unionized
plumber whether he thinks it's a good idea to increase the
number of plumbers in America tenfold." Lacey added that neither
party had addressed burgeoning payroll costs, ranging from
health insurance to Social Security, which will discourage firms
from hiring employees even when the economy picks up steam.


    TAXES

    Bush would reduce personal income tax rates 1% across the
board, saving the average family about $5 a week, which he would
offset with mostly unspecified spending cuts. And he continues
to call for chopping the top capital-gains rate from 28% to
15.4%. Clinton would juggle the tax code to redistribute income,
cutting taxes by about $11.50 a week for a middle-class family
of four, raising the top rate from 31% to 36% on incomes above
$200,000 and slapping a surcharge on earnings above $1 million.
Clinton would also lower the capital-gains rate to 14% for
long-term investments in new companies and crack down on alleged
tax avoidance by foreign firms with U.S. operations.

    TIME's panel generally saw little to cheer in either
Bush's or Clinton's income tax proposals. The economists said
the Robin Hood-like Clinton plan would tend to reduce saving by
the wealthy without providing much of a boost to the embattled
middle class. Bush's across-the-board tax reduction, said
Ratajczak, would provide far less stimulus today than in 1980,
when the wealthy paid a top rate of 50%. Similarly, a cut in the
capital-gains tax would have less punch now, when inflation is
low, than it would in periods when inflation is driving up asset
values, Ratajczak said. Moreover, the economists noted, the
national obsession with income tax cuts seems to be fading. Said
David Hale, chief economist for Kemper Financial Services: "The
tax-cut issue is not important as it was, because the public
focus has shifted to the holes in our system."


    SPENDING

    To pay for tax cuts, Bush would save $293 billion over
five years by placing a cap on the runaway growth of such
entitlement programs as Medicare, food stamps and farm subsidies
while exempting the largest and most politically explosive item,
Social Security. He also would give taxpayers the option of
checking off 10% of their taxes to reduce the federal debt,
thereby triggering spending cuts, most of them unspecified so
far, that could total another $250 billion. The TIME economists
saw Bush's cuts as political gimmicks with little chance of
enactment. "You can't cut in all the places that his program
says and have anything left of government," Sinai asserted.

    To help finance his infrastructure buildup and other
spending, Clinton would eliminate 100,000 federal jobs and pare
defense spending by $40 billion more than Bush has called for
over four years. Many of Clinton's spending cuts, including more
than $17 billion to be saved by a management overhaul of the
Resolution Trust Corporation, which is handling the savings and
loan cleanup, seem overly dreamy, according to Fosler. Concurred
Hale: "The defense cuts are not in my opinion obtainable" in
view of regional conflicts in Eastern Europe and other parts of
the world.


    THE FEDERAL DEFICIT

    While the budgetary impact of the candidates' proposals
rests on a host of iffy assumptions, Sinai calculates that the
Bush and Clinton plans would both shrink the federal deficit.
Bush's plan might reduce the shortfall (currently about $350
billion annually) by a total of nearly $245 billion over five
years, while Clinton's would shave some $80 billion over four
years. Yet the panelists argued that deficit cutting, which
tends to slow economic growth, should be put off until the
economy is stronger. "I think the public is right to worry about
the deficit but wrong to worry about it this year," said
Ratajczak. "We should put it on a back burner, but only for the
short run."


    HEALTH CARE

    Bush and Clinton have been maddeningly vague about their
health-care prescriptions, particularly with regard to how they
would finance them. Bush would provide tax credits for the poor
to enable them to pay as much as $3,750 for basic health
insurance for a family; but he has not said how he would recoup
the lost tax revenues. Clinton would give companies and
employees the option of buying health insurance from a
government-sponsored program. But, like Bush, he has not
discussed the crucial issue of funding. Hale warned that a
payroll tax to finance health care, which Clinton's camp has
considered, would destroy jobs at small companies.


    TRADE

    Bush strongly endorses the North American Free Trade
Agreement, which would link the U.S., Mexico and Canada into a
single trade bloc. Clinton has waffled on the pact, calling for
more provisions to protect the environment and retrain U.S.
workers who would lose their jobs if employers moved to Mexico.
TIME's panelists generally supported the pact, contending that
more jobs would be gained through expanded export opportunities
than would be lost through factory relocations. Lacey dissented,
warning that the pact would turn Mexico into "a low-wage
industrial ghetto" that would drain off U.S. jobs.

    None of these programs would have any impact unless the
next President could get them through Congress. Panel members
agreed that Clinton would have an easier time of it, since both
houses seem likely to remain in Democratic hands. But whatever
program does emerge from the legislature next year will bear a
marked congressional imprint. "My own very strong feeling is
that a stalemate is not a workable outcome," Fosler said,
regardless of who is elected President. Both candidates
recognize that voters have become impatient with government
gridlock, she noted. "I think there is a sense that nobody is
in control."

    TIME's panelists said the next President should move
swiftly in his first 100 days to fill that void. Sinai and
Ratajczak stressed the need for programs to put people to work
and spur long-term growth. Hale called for stimulus at first and
a program to reduce the deficit. Fosler urged a review of all
federal policies that affect business costs, with a view to
bringing them down. But no matter what ideas they advocated, the
economists agreed that the time for clear and concerted action
has arrived.