A many-striped tax cut
I don't know whether we should have a tax cut now or not. I have been listening to various experts before Senate and House committees on the subject. It has got into politics. Ronald Reagan wants an immediate across-the-board 10 percent income tax cut, with substantial additional corporate tax reductions. President Carter is more cautious; he has taken a maybe-but position. It is funny to see the positions of the parties apparently reversed: generally it is the Republicans who are cautious-conservative, the Democrats who are impetuous-liberal.
The issue seems to be whether you regard inflation as a greater danger than recession. A tax cut would boost the economy (and it needs it) but it would probably also increase the danger of inflation (already serious). There are gradations and modifications of both positions. Some people are passionate over it. The trouble is, for the eager reporter, that experts don't agree.
On the conservative side I have a good deal of confidence in Dr. Arthur Burns , former head of the Federal Reserve board, the careful, deliberate, unflappable exponent of what might be called the Eastern establishment. He has long been an adviser to Republicans and appeared to support Governor Reagan. He has recently headed a prestigious group, the "Committee to Fight Inflation." Its 13 founders include five former secretaries of the Treasury, two former chairmen of the Fed, a one-time chairman of the Council of Economic Advisers, and assorted ex-government big shots in the economic and financial area. In effect they seem to be telling Governor Reagan (if I understand their cautious statements), "Hold your horses; go slow on this tax cut drive!"
Appearing before the House Ways and Means Committee last week Dr. Burns said these things about inflation: In 1939, 16 cents would buy what a dollar buys today. For a century and a half the US avoided persistent, cumulative decline in the purchasing power of the currency and until 1939 consumer price levels moved down about as many years as they moved up. But now it is changed: In the past 40 years the general price level has gone up, Dr. Burns says, almost without interruption; in annual figures, indeed, it has risen steadily since 1955. More than that, the advance has been accelerating. Since 1950 the budget has been in balance only five years; since 1970 there has been a deficit every year.
Dr. Burns warns solemnly that inflation is eroding America's economic, political, and moral strength. He is deeply concerned. So what would he do now? He and his group, it appears, want tax cuts, but they want "anti-inflationary" tax cuts, not "quickie" tax cuts. What is the distinction? Dr. Burns defines his "anti-inflationary" procedure as giving tax reductions to business (to stimulate production) but spreading it out over the next five to seven years, and making the reductions quite small in the first two years.
Congress, almost certainly, won't take this advice. It is focused on short-run, countercyclical cuts. This approach is part political, part genuine concern for the immediate unemployed. There is a respectable body of economic opinion that thinks the economy needs stimulus right away, but this group is divided, too: The more militant segment favors the Kemp-Roth proposal for an across-the board 10 percent cut in income taxes annually for each of three years. Governor Reagan favors this for at least the first year. The less militant group favors an immediate tax cut but not the sweeping Kemp-Roth proposal.
You can find authorities for almost any course. Walter Heller wants a tax cut. Economists Otto Eckstein and Martin Feldstein say yes -- but after the election. John Kenneth Galbraith wants wage-price controls -- and perhaps gasoline rationing (so does Senator Kennedy). Business leaders are split: some for tax cuts before election, others after. President Carter is an "after-election" man; he says it is too serious and complicated a matter to rush into in the heat of political partisanship.
Conclusion? I think that mounting unemployment, which may reach 9 percent, is pushing Congress toward almost inevitable tax cutting. The support of Republicans and of presidential candidate Reagan is an unusual feature. Dr. Arthur Burns may plead for slower action but this is an election year.