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Rubin Praises Cutting Inflation Calculation

Monday, December 9, 1996

OnLine

Clinton administration officials Dec. 8 praised a congressionally appointed panel for recommending that the Consumer Price Index be adjusted downward, while congressional leaders said it is up to the White House to initiate action to remedy the problem.

A panel, headed by former Council of Economic Advisers Chairman Michael Boskin, suggested that the current method of calculating the CPI exaggerates inflation by 1.1 percentage points annually, causing the government to over-spend on cost of living adjustments pegged to spending programs such as Social Security.

"I think Boskin had it exactly right," said Treasury Secretary Robert Rubin, appearing on NBC’s Meet The Press. "He’s put out the report and now we have to let the experts digest that report and get a sense of whether there is a broad-based agreement around the country on changes that should be made," the Treasury secretary said.

The administration plans to work with Congress to study the panel’s report, Office of Management and Budget Director Franklin Raines said on CNN’s Late Edition. The panel’s recommendations will be studied in an "expeditious way," he added.

White House must implement proposal

Congressional Republicans say now that they have made the recommendations, it is up to President Clinton to take the next step and implement them. "The ball’s in the president’s hands," House Budget Committee Chairman John Kasich, R-Ohio, said on Meet The Press.

"If he wants to make the CPI more accurate Republicans will be there to support him, but if he doesn’t want to do it, we’re probably going to be out there criticizing him for not wanting to get this right," Kasich said.

Both the administration and congressional leaders would like to use the revenues gained by reducing the CPI calculation to reduce the deficit and to pay for other tax incentives that must be offset under budget rules.

Neither the White House nor the GOP Congress wants to move unilaterally on the CPI issue. Both sides fear voters whose benefits would be cut by the downward adjustment to the inflation calculation will blame them for the cuts, so both are acting cautiously.

Policymakers also want to avoid the perception that by adjusting the CPI, painful decisions about how to reduce the federal budget deficit can be put off. "This should not be approached as a budget issue," Senate Budget Committee Chairman Pete Domenici, R-N.M., said on Late Edition.

Also de-emphasizing the CPI’s impact on the deficit, Rubin said, "What we need is a CPI that reflects inflation as accurately as possible."

Capital gains comments

Kasich and Senate Majority Leader Trent Lott, R-Miss., who spoke on Fox News Sunday, reiterated their support for a capital gains rate reduction as part of the budget process.

Rubin said a capital gains rate cut would "not be a priority" for the administration, but that it will be "one of the items that we will have to have in our ultimate negotiations."

An agreement to lower the capital gains tax rate probably will come only in the context of a broad compromise between the White House and Congress on the budget, House Ways and Means and Senate Finance Committee aides said.

As has been the case in years past, prospects for reaching a broad agreement on the budget seem relatively good at this early stage in the process, but the optimism for such a deal could fade as the year progresses, the aides added.