WASHINGTON - When it comes to economic policy, the bond market is critical of George Bush's record and worried about Bill Clinton's promises.

President Bush, who pledged to continue the vigorous growth of the Reagan era, has presided over a recession and the slowest economic expansion since Herbert Hoover. This has provided the market with some fat gains but not much confidence in the country's prospects.

Gov. Bill Clinton of Arkansas says he can get America growing again, and he promises to reshuffle the federal budget and step up investment in the nation's aging infrastructure. That would be a plus for the municipal market, but his commitment to higher taxes on the wealthy and more federal spending leave market participants on edge.

What emerges from interviews with Wall Street analysts, the rhetoric of both political camps, and talks with campaign advisers, is a picture of a Mexican stand-off for the financial community.

There does not seem to be much enthusiasm for a president who waited until the Republican National Convention to announce new plans for reviving the economy, and there is skepticism that the Democrat's blueprints amount to anything more than smoke.

Underlying these doubts is a sense among some analysts that the problems of a $4 trillion national debt, a shrinking defense sector, rising health-care costs, massive entitlement programs, tight bank lending practices, and other economic challenges will continue to hem in any President who is in office.

"The most noteworthy aspect of the whole political season is the complacency of Wall Street," said Neal Soss, chief economist for First Boston Corp. "Maybe the market is now coming around to the judgment that things are pretty clearly embedded on the fiscal side, so it doesn't matter a whole lot who wins. And neither candidate is preaching a radical approach to the budget that would make much difference."

"We think that no matter who wins, bonds are going to sell off next year," said John Mueller, chief economist for Lehrman Bell Mueller Cannon Inc., a business investment and forecasting firm in Arlington, Va. "Bond yields will still go lower by the end of this year, but they'll be turning up by the start of next year and they'll be heading higher. The reason is that growth will be faster next year, and inflation will probably bottom by the end of 1992."

Mr. Bush's new economic plan, unveiled in Houston, calls for unspecified tax cuts paid for by unspecified spending cuts, with a checkoff system that would enable taxpayers to earmark as much as 10% of their income tax payments for deficit reduction.

To control spending, Mr. Bush pledged to impose a cap on Medicare and other entitlement programs, except for Social Security, and to veto spending bills that exceed his requests. He also renewed his drive for a balanced-budget amendment.

On Wall Street, which has seen a lot of Presidents vow to get tough on the budget, Mr. Bush's latest ideas did not draw high marks for credibility. "Budget watchers doubtless will focus on the enormous political hurdles to cutting entitlement programs," analysts at Salomon Brothers told clients in a market letter.

The Inflation Battle

"Lacking specifics, it's impossible to take Bush's declaration seriously; or, at best, it can be taken as seriously as his ~no new taxes' pledge," commented analysts at Mitsubishi Bank.

Mr. Soss believes it may not even matter whether Mr. Bush means what he says. "A second Bush term holds every promise of-accomplishing as little as the first term," he said, "not just because of the nature of the Bush programs, or the lack thereof, but because as a lame duck he will be even more at odds with Congress."

At the same time, it is clear that the Clinton campaign has failed to dispel deeply entrenched suspicions in the financial community that the Democrats remain wedded to a tax-and-spend strategy and a bigger role for the government.

"I think it's fair to say in general that while a Democratic regime is going to boost taxes and spending, we don't know by how much, " said Mickey Levy, chief economist for CRT Government Securities Inc.

Perhaps the biggest success President Bush can claim is that inflation and interest rates, first pushed down by Ronald Reagan and Paul Volcker, have been tamed during his four years.

To, be sure, Mr. Bush has been helped by a cooperative Federal Reserve, and the soft economy has suppressed demand for credit outside the federal sector. But there is no getting around the improved inflation climate and the stunning gains in the bond market that have come with lower rates.

Since January 1989, when Mr. Bush took office, the yield on one-year Treasury bills has tumbled below 3.5% from nearly 8.5%, and the 30-year bond has fallen below 7.3% from nearly 9%. Consumer prices, which were rising at an annual rate of 4.7% when Mr. Bush took office, are now running at a more comfortable 3% pace.

With inflation and rates retreating to levels that have not been seen since the early 1960s, a solid foundation is in place for sustained growth over the next several years, administration officials say. It is a point that Treasury Secretary Nicholas Brady is making on his road trips around the nation at GOP fund-raisers.

But in dealing with the budget and spurring economic growth that generates jobs, the Bush record is far less impressive. The costs of the savings and loan bailout and the recession are expected to swell the federal budget deficit to a record $333 billion this year, according to the Office of Management and Budget. As a result, the share of the deficit as a share of gross domestic product is expected to hit 5.7%.

Real gross domestic product has averaged a puny annual rate of 0.4% in the last three years, making for the worst performance of any modern-day President. The slow pace of expansion has resulted in only scattered job gains while the unemployment rate has drifted as high as 7.8% in June, its highest level since 1984. Growth in per capita income during the Bush years has stagnated.

Mr. Bush's advisers have been quick to point fingers of blame at Congress for failing to pass the administration's budget proposals. "The Congress has failed to deliver," said Richard Darman, director of the Office of Management. and Budget, when he met with reporters to deliver the administration's mid-session budget review.

Indeed, Mr. Bush has offered up a full load of budget initiatives that quickly got chewed up in the congressional buzz saw. He has championed a $5,000 tax credit for first-time home buyers, educational reforms, a job training program, permanent extension of the research and development tax credit, tax breaks for urban enterprise zones, and a cut in the capital gains tax. To promote long-term growth, Mr. Bush has advanced legislation on energy, expanded banking services, and product liability reforms.

In February, he put forward a detailed set of health-care proposals aimed at expanding coverage and containing costs. The program calls for setting up a system of transferable health-care certificates for moderate- and low-income families. Essentially, people would be able to claim tax credits or deductions for health-care costs.

The President has repeatedly backed a capital gains tax cut, arguing that it would stimulate investment, add jobs, and reduce the deficit over the long term. And he can claim credit for the North American Free Trade Agreement, which business backers say will spur investment and create jobs as U.S. firms find new markets in Mexico and Canada.

Democrats scoff at Mr. Bush's complaints that his hands have been tied on economic policy. They say he spent his time on global politics while allowing the domestic agenda to rot.

"I think it is disingenuous at best to somehow say that after four years in office, that everybody else is to blame, that it is the Federal Reserve, that it is Saddam Hussein, that it is the Congress, that it is the press, that it is somebody else and that the President isn't saying in part, "~Look, I assume some responsibility here,'" said House Budget Committee Chairman Leon Panetta, D-Calif., during a recent hearing.

Even Republican sympathizers say the Bush strategy of finger pointing lacks credibility, given the agonizingly slow growth of the last few years and the President's own record of acceding to the 1991 budget agreement with its $125 billion in tax increases.

"The tactic of explaining all this away by blaming the Democratic-controlled Congress has been tried all year and shows no sign of working," the GOP-leaning firm of Lehrman Bell Mueller Cannon said in a letter to clients.

For Mr. Clinton, now just joining the national stage. the profilem i; not a record that can be criticized but the need to convince investors and the general public that a new approach to govemment will maka difference. In fact, the governor's economic program is the product of several years of effort by Democratic party centrists to establish an agenda that could appeal to middle America.

One of Mr. Clinton's top economic advisers is Robert Shapiro, whose writings attracted the eye of the Arkansas govemor when he was on the Democratic Leadership Council. Mr. Clinton is a founding member of the group, which was set up to configure more mainstream positions for the party after Ronald Reagan's 1984 landslide reelection.

The Clinton Plan

Mr. Shapiro is now a vice president at the Progressive Policy Institute, an affiliate of the leadership group, and the author of Mr. Clinton's middle-income tax proposals. Other top advisers include Robert Reich, a professor at Harvard's John F. Kennedy School of Government; Roger Altman, vice chairman of the Blackstone Group; and Ira Magaziner, a business consultant; and Robert Rubin, co-chairman of Goldman, Sachs & Co.

And, while many upper-income heads of financial firms remain committed to the GOP, the Clinton campaign has some backers on Wall Street such as takeover artist Bruce Wasserstein, lawyer Arthur Liman. and bond trader Michael Steinhardt.

The Clinton budget proposals are part of his effort to put together a fresh package of priorities that shifts tax burdens and channels more federal resources to domestic needs. It is a program. Mr. Shapiro said in an interview, designed to help reverse "a generation-long slowdown in the economy's basic capacity to create wealth."

The Clinton plan calls for a fourth tax bracket of 36% on couples with an adjusted gross income of $200,000 and individuals with income of around $130,000. There is also a 10% surtax on millionaires and an increase in the alternative minimum tax for individuals.

For businesses, the budget promises to close corporate loopholes, principally by stepping up taxes on U.S. subsidiaries of foreign firms that Mr. Clinton says are escaping their fair share of the burden through a practice known as "transfer pricing."

While increasing taxes on the wealthy and corporations, Mr. Clinton is backing tax relief for the middle class with a tax credit for families with children and some unspecified rate relief for families without children. He is also in favor of an expanded earned income tax credit for the working poor. The details of the tax cuts have not been made public.

Other tax provisions include a permanent extension of the research and development tax credit, I and a targeted capital gains tax cut for new businesses.

Overall, the Clinton program calls for approximately $104 billion in tax cuts over four years, which would be more than offset by $150 billion in tax increases.

However, his plans also build in gains in productivity, revenue gains from economic growth, and spending cuts that would combine to slice the deficit in half by the end of Mr. Clinton's first term. Under a moderate economic growth forecast, the budget calls for a $141 billion deficit by 1996, down from $295 billion in 1993.

The spending initiatives in the Clinton budget emphasize stepped-up federal outlays of $20 billion a year on communications, transportation, and environmental facilities. The Rebuild America fund promises to channel money to traditional municipal needs such as roads and bridges, as well as high-speed rail, computer networks, and environmental technologies.

At the same time, Mr. Clinton is promising to eliminate 100,000 federal government jobs aind eliminate wasteful spending. He pledges to ask Congress for a line-item veto - a longtime demand of President Bush - and to cut administrative expenges at all federal agencies by 3%.

Analysts are skeptical about the Clinton budget figures. Many liken the projected savings to the Republican budget devices that helped make "smoke and mirrors" a common phrase in the capital. Others say the Democrats hope to dodge hard choices by growing their way out of the deficit.

Notably absent in the Clinton budget are any major reforms to Social Security and other entitlement programs, which make up more than half of all federal outlays.

And the budget projects no extra expenditures for health care, despite Mr. Clinton's call for expanded insurance coverage. Nor does it factor in any of the extra costs that businesses would bear under his "pay or play" plan to make employers ensure coverage for all workers.

"It's very well-written, but it is very elusive, and that creates uncertainty in the markets," said Mr. Levy of CRT Government Securities. "I think things are not well specified on purpose. The purpose is to lay out a broad game plan and show the voting electorate that he is a player. But he doesn't want to reveal everything in his package. If he started revealing it, then people could poke holes in it."

"There's no real deficit cutting in there." said Sandra Shaber, an economist with the Futures Group.

Mr. Shapiro said he and others on Mr. Clinton's staff worked hard to put together a credible set of budget numbers. Expanded health care is to be phased in along with cost-containment measures, he said, and the projections for economic growth are based on those of the Congressional Budget Office and the Bush administration.

The financial community does not have anything to fear from a Clinton presidency, Mr. Shapiro said. "It's hard to believe that Wall Street could lose confidence in Bill Clinton relative to the deficit record of George Bush. We will do a damn sight better, and the market will be very happy."

Some analysts said the Clinton budget is not a bad one. "The initial reaction is that Clinton is a tax-and-spend and bigger-deficit Democrat, and the bond market won't like that," said L. Douglas Lee, chief economist for County Natwest, USA. "Now, whether that in fact turns out to be the case, I think, is really open to a lot of question.

"Yes, Clinton probably would want to tax more and spend more. Does that mean a bigger budget deficit? Well, maybe it does, and maybe it doesn't. It's not clear that Clinton would increase the budget deficit, and his proposals at least on the face of it would actually reduce it a little bit."

Mr. Lee called the Clinton strategy of using the budget to make the economy work better by reallocating federal resources, with less money on defense and more money on highways, "a bunch of baloney." But he said there is a chance that Mr. Clinton, as a Democrat, could work with Congress in coming up with a program to contain the Medicare and Medicaid outlays that are eating up an ever larger share of the budget.

As for President Bush, said Mr. Lee, "We've had no significant economic policy, and if we re-elect George Bush, I'm quite confident we can look forward to another four years of no significant economic policy, regardless of what George Bush proposes. If you're happy with what we got for the last four years, vote for George and you'll get it for four more."

Others insist that there is a danger from a Clinton presidency. "He's taking more money out of the private economy and shifting it over to government," said Stephen Entin, a resident scholar at the Institute for Research on the Economics of Taxation and a former deputy assistant secretary at Treasury during the Reagan administration. "He's got a lot of mandates, and he's going to impose costs on the private sector."

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