Keeping (the Economy) Cool with Carter

...A STATUS-QUO BUDGET Keeping (the Economy) Cool with Carter BY SIDNEY WEINTRAUB THE PRESIDENT's budget message always provides some diversion from January snows and Christmas bills This year, Jimmy Carter almost succeeded in deflecting attention from the inelegant ejection of a too-successful U S attorney in Philadelphia who was guilty of uprooting corrupt politicians Ultimately, though, what he had to offer proved too old hat to hold anyone's interest for very long Until two years ago, the January budget submission was designed to begin July 1, giving it several months to be chopped and reshaped by Congress With the fiscal year now commencing October 1, the President's proposals are still more vulnerable to Capitol Hill assault, especially the asserted prerogatives of the Congressional Budget Office Carter's proposals will thus survive in the manner of ritualistic January stock market forecasts object to daily revision, as winter yields to spring, quick design changes will be the motif under Congressional pressure and shifting economic conditions What the budget in its present form does provide is a clue to White House thinking on economic and social programs It is no cause for rejoicing The details may have been tailored by Treasury Secretary W Michael Blu-menthal, but Bert Lance can undoubtedly live with the Carter plan for "encouraging" business Whether the rest of the country can do so as well is open to serious question Historically, the $504-billion outlay will be this budget's chief claim to fame Yet last month, the staggering total was greeted with yawns Not too many years ago, you may recall, Lyndon Johnson squirmed at the prospect of being the first $100-bilhon President Today, all numbers are bigger, if not better Inflation is the pacemaker Price levels have jumped over 100 per cent since the Johnson days, given better control of our price destinies the budget numbers would add up to about $250 billion...

...The gross national product (GNP) has also expanded prodigiously Not until 1971, the lamentable Nixon year of "now is never" on wage and price controls, did the GNP hit the trillion mark for the first time Seven years later, it has reached $2 trillion, and by 1983 it is scheduled to top $3 trillion Despite the higher GNP, real budget growth is and will continue to be relatively nil As the President has observed, the intended Federal outlay will drop this year from 22 6 per cent Sidney Weintraub, a new NL contributor, is professor of economics at the University of Pennsylvania of GNP to 22 per cent, it is expected to fall below 20 per cent by the end of a hypothetical second term On spending the President is a prisoner of the past His budget, preferring meager modifications to innovation and change, reflects a theme of Keeping Cool with Carter, as in the old Coolidge posters Thus 85 per cent of the total expenditure of $504 billion can be traced to (in billions of dollars) defense (108 1), transfer payments (201 8), grants to state and local governments (81 6), and interest payments (39 8) Of the two largest categories, transfer payments are largely self-sustaining through Social Security taxes, and defense spending barely exceeds the inflation rate Fiscal conservatism is definitely in bloom (Incidentally, the custom of riveting attention on Washington has obscured the fact that state and local expenditures bulk ever larger Of the $400 billion of 1977 government purchases, state and local agencies put out $255 bilhon and Washington $145 billion, with about $100 bilhon of it going for defense ) Revenue reshuffling promises some "reform" initiatives, although their benefits are hard to discern and they are unlikely to be quickly embraced by Congress or the voters There is, first of all, a $53 billion deficit One can expect the usual "inflationary" howls But the deficit is little more than 10 per cent of outlays the 1933 deficit was 50 per cent, and prices fell Only noisy rhetoric and social accounting confusion, in fact, support a one-to-one link between deficits and inflation That in the 51 budgets since 1929 there have been just 9 years of surplus, often in piddling amounts, has not prevented the price level from behaving well (at least until recently) And considering the uninterrupted series of Nixon-Ford deficits totalling $300 billion, the Republican calls for fiscal prudence are particularly hard to entertain Higher Social Security taxes for fiscal 1979 should add about $20 billion to the Treasury This, however, will cancel out the cftect ot a tax-cut carrot of $25 billion, and there will not be sufficient fiscal stimulus to brighten the employment picture As for the impact of the Carter tax cut on the average citizen, individuals earning up to about $23,000 will pay a trifle less in taxes (almost a revival of last spring's ill-fated $50 rebate), tax credits by family size, in lieu of an income deduction, should aid those who make less than $20,000 But none of this is unlikely to inspire hosannas for Carter as a tax savior Other parts of the tax package are a longer way from enactment This isn't as ominous as it sounds, for some of the Administration's proposals are reflections more of Blumenthal's theology of tax form "simplicity" than of the true mission of a tax system—affecting the market economy favorably, in terms of jobs, prices and welfare Behind the smoke-screen of simplicity, for example, and generally accompanied by pieties on equity, are thrusts at deductions for home-mortgage interest, for medical care, for charitable contributions, and even for state and local property and income taxes While Treasury apparently believes it is fairer to tax gross rather than net income, few Americans the poor included ould agree that this is what makes the U S tax system a "disgrace to the human race " Fortunately, this kind of "reform" is likely to make slow progress through Congress Whatever the case, the debate on the floor will almost certainly be occupied mainly with small potatoes Typical of the quality of discussion was Speaker of the House Thomas P O'Neill's comment that, in talking to waiters, he has learned their jobs would be jeopardized, and restaurants would be closed, if the "three-Martini business lunch perk" were abolished Maybe the way to create jobs for all (as waiters) is to provide full tax deductions to families dining out McDonalds could then truly sav "We do it all for vou Opinions ot cabbies are as vet unsolicited On the question ot jobs, part ot the Administration slowpoke strategy seems to be to raise the figure for "acceptable unemployment" 3 5 per cent in 1968, it is currently 4 9 per cent In fairness, Carter does project a 5 per cent yearly drop in both unemployment and inflation But in view of the President's utter lack of a serious price or job-creation pohcy, and the continued tumbling of the dollar abroad, his forecast reinforces the opinion that wishful thinking is alive and flourishing in Washington Indeed, reading the price and wage policy is enough to leave the biggest Carter supporter underwhelmed The "new' approach apparently consists of seeking out industry and labor "discussions " How nice—and how feeble Nixon, in his impeachable Presidency, spoke in his best Sunday football prose of an economic "game plan " This turned out to be the creation of unemployment havoc to stop inflation, plus some talk of a gradual" sortie, a kind of sneaking up on inflation from behind The most generous assessment would not detect any advance in the Carter program-it has guaranteed inflation and unemployment another four-year hitch The one good mark comes for the President's determination, despite intermittent wavering, to do something on energy, ironically, Congress seems uninterested Otherwise, neither Bert Lance nor Blumenthal offers an abrupt change from, say, Nixon's man at the Treasury, John Connally —except that the Texan's wage and price controls were more sensitive to the politics of economic realities Carter cohorts also make their "confidence" pitch to businessmen (who take little cheer in the declining stock market, the debased dollar, higher payroll levies, and income taxes that challenge their perks), and ignore the nation's real problems, like health care and teenage unemployment While the bitter winter ot '78 will be long gone b\ the time this budget goes into ettect, the chilling effects ot Jimmy Carter's approach to the econom\ will be with us throughout fiscal '79...