Economic Games: Foreign & Domestic The General's Monetary Absurdity Nixon at the Controls
FISHER, LOUIS
Nixon at the Controls By Louis Fisher Nixon's conceptions of the Presidency and fiscal management. The campaign has led us to expect new leadership, a new team, and fresh approaches. In U.S. News...
...The experience of this past year, though, illustrates again the difficulty of instituting significant cutbacks...
...The 1968 Republican platform reiterated party strictures against centralized government and economic controls, and Nixon has specifically rejected stand-by tax powers as a solution to the problem of stabilizing the economy...
...It has been rumored that the final Economic Report of the Johnson Administration will propose bold reforms, a conjecture reinforced by Johnson's endorsement of Presidential stand-by tax powers when he spoke December 4 before the Business Council...
...By process of elimination, Nixon himself may find stand-by tax powers the only countercyclical control worth using...
...In any event, it is highly improbable that a surcharge proposal each January would coincide with the needs of the economy...
...In that case the so-called gap in first-strike capability and in submarines will pass into history along with the "missile gap" discovered by John Kennedy in 1960...
...Each year it provides for the President to place an annual request before Congress for an adjustment in the tax surcharge...
...If, in the meantime, unanticipated factors begin to slow the economy, this "anti-inflation" tax increase might precipitate a slight recession in mid-1969...
...Otherwise, Nixon will be playing engineer without a throttle...
...If stand-by tax powers are proposed in January 1969, the legislative response should be more positive than in 1962...
...A policy of planned unemployment, moreover, would so stigmatize the Republican party that it would be decades before the country was willing to elect another of its Presidential candidates...
...McCracken appears to be less interested in short-run tax changes today, but the stand-by device is not without conservative support...
...Traditional gop opposition will be somewhat muted by a Republican in the White House, and Democrats might support the proposal for two reasons: confidence that they can control enough votes in both Houses to defeat a Nixon tax recommendation they find unappealing, and confidence that before long a Democrat will be President...
...His proposals for a volunteer army, stronger nato, greater arms superiority over Soviet Russia, and larger deployment of the abm system, portend a new round of increases in military spending...
...But throwing another million or so workers off the job in order to restrain inflation would certainly be grotesque for a society that claims the ingenuity to reach the moon...
...Apparently Federal action will first be passed through the cleansing filter of private enterprise, and controls will be limited to tax incentives and credit and monetary policy, allowing business to retain maximum freedom in allocating its resources...
...And he has pledged to end as soon as possible the restrictions on private investment abroad...
...Stand-by tax powers seem more radical, but in the event of a recession conservatives would certainly prefer to stimulate the economy with a tax cut than with increased spending...
...If the economy needs to be stimulated, however, the Nixon administration is likely to avoid compensatory spending and rely on tax reduction...
...News & World Report, June 18, 1962, McCracken explained: "I'd give the President power to vary tax rates somewhat during business ups and downs...
...In fact, nothing could better support Republican principles than taking a vigorous and effective stand against inflation by using stand-by powers to increase taxes...
...But executive patience with legislative tax procedures in stabilization policy has been strained to the breaking point by the 12-month delay between President Johnson's recommendation for a tax surcharge and its enactment in June 1968...
...He does not seem to have any concrete thoughts on alternative controls...
...But this debatable approach is surely no substitute for a stabilization policy...
...This may sound radical, but it's actually conservative...
...That is why Paul W. McCracken, the Nixon choice to head up the Council of Economic Advisers, announced his support for stand-by tax powers in 1962...
...The record of inaction on unemployment by Republican administrations in the early 1930s, and throughout the Eisenhower period, represented one level of political irresponsibility: To tolerate unemployment was one achievement...
...It would reduce pressures to spend our way out of a recession...
...In the event of a recession, the most reliable weapon would be an increase in Federal spending—not by taking public works projects "off the shelf," with all the consequent delays of land acquisition and contract letting, but rather by accelerating large-scale rural and urban development programs already under way, such as Appalachia and Model Cities...
...Economists have been pushing for these controls ever since the 1940s...
...In Business Week, September 28, Nixon maintained that Presidential tax discretion was "not a solution" to fiscal difficulties...
...additional time elapses before the tax cut affects take-home pay...
...Now we have Nixon identifying himself as the driver, but neglecting to specify the controls...
...The Senate Republican Conference declared in 1966 that it was "unalterably opposed" to granting any stand-by, emergency or other authority to the President to raise or lower taxes...
...In addition, there is little chance that Nixon can even hold expenditures constant...
...Shortly before the election, Vice President Humphrey recommended that we either give the President stand-by tax authority or else create new legislative procedures "to insure quick action on Presidential proposals to activate agreed changes in tax rates...
...William Howard Taft, led the way for an executive budget, and it was Republican leadership that decided to delegate flexible tariff powers to the President in 1922...
...Besides postponing needed improvements in the public sector, and making income distribution more inequitable, the results of this approach are less predictable...
...His convention statement invoked such stock phrases as, "We need more economy in government and less government in the economy...
...This procedure would involve the usual steps of Presidential recommendation and legislative consideration...
...Once in office, Nixon may choose to forget these campaign statements...
...The fiscal 1969 budget, which called for expenditures of $186.1 billion, was supposed to be trimmed by $6 billion...
...In 1962, Eisenhower characterized the Kennedy request for stand-by powers as an "unconscionable grab of power...
...Since large-scale retrenchment is impracticable as an inflationary control, Nixon might listen to those in business circles who suggest that the soundest approach to inflation is to let unemployment climb toward 5.5 per cent...
...The Eisenhower Administration managed to be plagued simultaneously by both unemployment and inflation...
...The 1968 Democratic platform called for new methods to permit "prompt, temporary changes in tax rates within prescribed limits with full participation of the Congress in the decisions...
...After all, it would not be the first time thai the gop has chosen to transfer greater economic powers to the President...
...There is no evidence that Nixon's "new economics" amounts to anything more than a euphemism to describe tax and credit incentives for the business world...
...For instance, the 10 per cent tax surcharge passed in June 1968 was intended as a restraint on inflationary pressures, but it took a year to enact the tax increase, and months are passing as we wait for it to take hold...
...To cover inflationary periods, Presidents would also need authority to raise the tax level...
...A Republican President...
...Liberal critics of countercyclical tax policy in the Kennedy and Johnson Administrations appreciate the ease with which this supposedly radical instrument could be transformed into "reactionary Keynesianism," and tax reduction, as a substitute for spending, appeals to Republicans...
...With such a time lag, the fiscal action could have a perverse result...
...In signing the tax surcharge on June 28, President Johnson asked how we could avoid "the threat of fiscal stalemate" experienced in 1968...
...The effects of antirecession spending can be predicted and directed toward social improvement...
...So the Stein proposal is new only to the extent that it would make a surcharge adjustment request routine...
...Should Nixon be faced with inflationary pressures, his conservative advisers can be expected to propose their favorite remedy: reduction in Federal spending...
...On the domestic side, Nixon would like to eliminate such programs as the Job Corps, but he probably cannot afford the political cost and the open alienation of the black community...
...Several decades ago we spoke of an "economic steering wheel" without bothering to specify who should sit behind it...
...True, both of these measures were conservative...
...It would be rather difficult, too, to say the least, for President-elect Nixon to "Bring Us Together" by deliberately pursuing a policy that hit hardest at the Negro population, already suffering from a disproportionate degree of unemployment...
...Thus, we can expect oil and mineral depletion allowances, various tax-incentive schemes designed to attract private investment into the cities, and a tax-credit program to encourage job training by employers...
...Regardless of the traditional Republican aversion to economic controls and Presidential power, the new administration may find itself forced to give serious consideration to the idea of stand-by tax power...
...A"new device" for stabilizing the economy has been proposed recently by Herbert Stein, a Nixon economic adviser...
...The most significant countercyclical control recommended in recent years is Presidential tax discretion, requested by John F. Kennedy in 1962...
...He told the Republican convention in July that there was "nothing the matter with the engine of free enterprise that cannot be corrected by placing a prudent and sober engineer at the throttle...
...Nevertheless, it is not entirely preposterous to suggest that the Republicans, having consistently opposed stand-by tax powers, might yet come to sponsor them...
...The executive budget was intended largely to reduce Federal expenditures and the national debt, while the flexible tariff act was used principally by Presidents Harding and Coolidge to push up tariff rates...
...A tantalizing series of announcements, unfolding for the past eight months, point to new consideration of standby tax powers in 1969...
...Yet since Nixon clearly does not intend to "take up the lag" with compensatory Federal investment and expenditure, it is difficult to see how these levers will function...
...The Nixon administration will be walking the narrow tightrope between recession and inflation for the next four years...
...He wanted discretionary authority to reduce taxes by as much as 5 per cent, subject to legislative veto, as a weapon against recession...
...Months later, after the smoke of legislative and executive action had cleared away, observers rubbed their eyes to find a budget of $186 billion...
...News & World Report, October 7, Nixon referred to himself as a "new economist," because he believes in using tax and credit policies "for the purpose of taking up the lag where the private sector is not providing adequate employment...
...It will be awkward for him to admit this, for Republican opposition to the idea has been adamant...
...In an address to the Nieman Fellows this past spring, Joseph A. Califano Jr., special assistant to LBJ, asked why Presidents should not have power commensurate with their economic responsibilities, specifically the power to raise and lower taxes...
...to aim for it, quite another...
...This resolution was subsequently endorsed by the joint Senate-House Republican Leadership...
...and no one can know whether the extra pay will be applied to consumption or to savings...
...If economic indicators in February, March and April signal the need for a tax change, must the President wait until the following January before recommending action...
...Even if Nixon should decide to accept a temporary unemployment rate of 4.5-5 per cent, there is little reason to believe unemployment is the cure for inflation...
...Over cbs, October 23, he promised an economic policy which "absolutely prohibits the use o* Washington's fiscal powers to increase the administration's political control...
...Of course, the President is free to ask for tax adjustments any time he wants, but "consideration" may mean a delay of six months to a year...
...Congress viewed the Kennedy proposal with such disdain that the White House dropped the idea...
...It needs every fiscal weapon it can command...
...A Republican administration, beset by the same problems of mandatory payments, legislative increases in programs, and social demands, would find it just as difficult to reduce expenditures...
...There is no way to estimate the delay between Presidential recommendation and legislative action...
...The image of a master economic engineer sitting at the controls, judiciously pulling levers at the proper moment, is reassuring...
...What are his options...
...Indeed, it is a primitive and cynical method of coping with inflation...
Vol. 51 • December 1968 • No. 24
