WASHINGTON - An election-year plan by congressional Republicans to cut taxes and balance the budget would drive up long-term interest rates, Robert Rubin, director of the president's economic council, charged yesterday.
"This is a recipe to relive exactly the kind of environment that George Bush gave you. This is horrendous economic policy," Rubin said during a briefing at the White House.
"Independent of what the [Federal Reserve] does, long-term bond markets are going to do the same thing they did during the Reagan arid Bush years: there would be an enormous premium on interest rates to reflect the deficit this would create," Rubin said.
House Republicans are scheduled today to unveil what they call "Contract with America," a long-term budget plan that includes a middle-income tax cut, a capital gains tax cut, and a scheme to eliminate the federal budget deficit in either five or seven years.
Rubin and other senior administration officials yesterday blasted a draft of the plan released Friday, contending that the plan proposes only a fraction of the spending cuts that would be needed to balance the budget in no more than seven years.
"Even if one assumed unchallenged that [the Republicans] would do all of these cuts, there would still be at least a $800 billion shortfall and [that] would likely increase the deficit," according to an evaluation of the plan released by the White House. "To fulfill their contract by the year 2000 would mean a 20% reduction in Medicare and Social Security."
"It's a Voodoo II plan," said Laura D'Andrea Tyson, head of the President's Council of Economic Advisers, while addressing the National Association of Business Economists, which met in Washington yesterday.
"It's warmed-over Reaganism we saw in the 1980s," said Leon Panetta, White House chief of staff, also at the White House briefing. "They don't answer the question: How are they going to pay for it?"
According to administration estimates, the five-year plan to balance the budget would require about $1 trillion in budget savings, and the seven-year plan would need about $1.7 trillion in spending cuts. Yet the plan in its current form only suggests about $220 billion in spending cuts, the White House said.
Rubin and Panetta predicted that the plan would lead to soaring deficits because the balanced-budget aspect would be forgotten as voters embraced the tax cuts but not the drastic spending cuts needed.
