Budget battle: Congress will reconvene amid haze of unsettled dust
Here is the economic score as Congress shortly returns to handle one of the most uncertain situations in modern times: * Unemployment. The jobless rate is around 7.3 percent.
* Inflation. As measured by the consumer price index, prices rose at a 8.4 percent annual rate in May, the latest month for which figures are available. This is causing concern among some circles because it is so high. But it appears as a hopeful sign to others because it is below "double digit" levels.
* The prime rate. Two major banks, New York's Chase Manhattan Bank and the First National Bank of Chicago, have raised their prime rate to 20 1/2 percent, while most banks remain at 20 percent. This comes close to the record 21 1/2 percent peak reached near Christmas. The Federal Reserve Board holds the key; easier credit means faster business expansion but also risks more inflation.
* Stocks and bonds. Wall Street signals uncertainty. The Dow Jones Industrial Average of stocks, a key Wall Street barometer, has dropped 65 to 70 points from an April 27 high of 1,024.05.
* Politics. President Reagan seems successful in pushing Congress toward big budget and tax cuts, but Wall Street has'nt responded yet. Simultaneously, long- range questions of social consequences appear.
Nearly everybody agrees that this is a time of extraordinary uncertainty. Even some conservatives also aren't sure that the President's program will pull the economy out of a slump without increasing inflation.
At one level Mr. reagan is hailed for bringing a halt to social welfare expansion that has gone on for 50 years. At another the Reagan "counter-revolution" is attacked as deepening social inequalities between rich and poor.
Rep. Henry S. Reuss (D) of Wisconsin, chairman of the Joint Economic Committee argues that disparity between rich and poor is increasing in America.
Citing a study by the Organization of Cooperation and Development, he said that of seven industrial countries examined, the US stands second only to France in economic inequality. There was less inequality in West Germany, Canada, Sweden, the United Kingdom, and Japan, he said.
In the US the poorest 20 percent had a lower share of before-tax income than any other country, including France, according to the study. Mr. Reuss declares the Reagan program will increase the disparity.
Now comes the second part of the big administration maneuver -- taxes.
Mr. Reagan wants to cut taxes to encourage business recovery by promoting the "supply side," that is, by stimulating production and output. He told the NAACP convention at Denver, June 29, that business recovery would help low-income groups more than the assorted social welfare programs which he is cutting.
"I earnestly and deeply believe the economic package we have put forth," he said, "will move us toward black economic freedom because it is aimed at lifting an entire country and not just parts of it."
Reagan's "counter-revolution," if successful, will have long-range consequences.
Food stamps, for example, are the largest single federal welfare program, expected to cost $11.4 billion in 1981. The administration aims at cuts of $1.5 billion, by one estimate. Cuts will remove a million beneficiaries in FY 1982 and food stamp benefits will be reduced for 21 million others. If unemployment increases, the demand for food stamps will rise, and social tension presumably will increase.
As for Congress, many Democrats are still wonder what hit them on Friday, June 26. Though they have a nominal majority in the House of Representatives, the defection of 29 Democrats -- mostly from the South -- gave Mr. Reagan a 217 -to-211 victory on his budget $38 billion budget-cut package. Because Republicans control the Senate, the big slash in expenditures seems certain.
Democratic leaders from 15 House committees had drafted their own bill to cut federal expenditures, granting Mr. Reagan an estimated three-quarters of what he asked. But these proposals contained cuts that Republicans charged were not made in good faith. A 600-page administration substitute was prepared hastily, with parts scribbled on margins. Although it is one of the most important bills of modern times, it did not reach the desks of House members until after debate began. Lacking close committee scrutiny some features are still uncert ain.