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This file contains materials relating to tax reform, tax cuts, and the President's October 6, 1975 proposal for tax cuts and spending reductions.
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Taxes (3)
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This file contains materials relating to tax reform, tax cuts, and the President's October 6, 1975 proposal for tax cuts and spending reductions.
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James M. Cannon Files (Ford Administration)
James Cannon's Issues Files
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The original documents are located in Box 34, folder "Taxes (3)" of the James M. Cannon
Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 34 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
Draft
10/6/75
Good Evening:
I have asked for this opportunity to talk with you
tonight because it is important that all of us begin facing
up to a fundamental decision about our future.
For several years, it has been apparent that America
was nearing a crossroads in our history. Today we are
there.
To put it simply, we must decide whether we shall
continue in the direction of recent years -- the path toward
bigger Government, higher taxes, and higher inflation --
or whether we shall now take a new direction -- bringing
a halt to the momentous growth of Government, restoring
our prosperity, and allowing each of you a greater voice in
your own future.
If we are to be true to our ideals and our heritage,
there can be only one answer.
- 2 -
Tonight I want to set forth two proposals that taken
together -- as they must be -- represent the answer I
Bellion we must choose.
60
First, I propose that we make a substantial and
permanent reduction in our Federal taxes; and,
-- Second, I propose that we make a substantial reduction
in the growth of Federal spending.
Let me emphasize at the outset that these proposals
must be tied together in one package. It would be dangerous
and irresponsible to adopt one without the other, and I
will not accept that as an answer for our future. As your
President, I want these proposals acted upon together in
the Congress. Together, they represent one central and
fundamental decision: that America belongs to you, the
people, and not to your government.
Each of you knows from experience about the economic
- 3 -
struggles of recent months. You know what it means to pay
more and more of your income just to feed and clothe your
family, to get to work, and to maintain a decent home. You
know the fear that strikes the human heart when a friend or
member of your family is laid off work. And you know the
anxiety that comes when these forces seem beyond your own
control.
None of us wants to repeat the experiences of the past
year. We want steady prices. We want steady jobs. And
above all, we want to have a chance to get ahead again, to
know that our destiny lies in our own hands and not-in
Washington or some other far away place.
Fortunately, there are encouraging signs that we have
weathered the worst of this storm. The recovery that began
this spring is now gathering momentum. If we act wisely, it
will continue on an upward path.
- 4 -
Yet we should not be deceived. All of us must recognize
that just beneath the surface there are still deep-seated
problems in our economy --- problems that have been building
up over the years and will not quickly disappear.
If you had a car that needed major repairs and you
asked the local garage to make only minor adjustments, the
car might run better for a while but eventually it will
give you serious trouble. The same thing is true of our
economy. If we make only minor repairs now but fail to
attack the underlying causes of our economic problems, we
may seem better off for a while, but we will be risking far
more trouble down the road.
We must find answers that serve us not only this year
but for years to come.
Here in Washington, we can help. I know that because
it is here in Washington that much of America's vitality and
- 5 -
prosperity have been drained away. It is here that one big
spending program after another has been piled on the Federal
pyramid, taking a larger share of your personal income and
creating record budget deficits. Here the printing presses
have churned out more and more money that is worth less and
less. Here a massive, often overzealous bureaucracy has
been erected that has become too involved in trying to run
too much of our daily life.
Over the years, these excesses have played a major role
in driving up prices, driving up interest rates, and holding
down jobs. We do not have to look far for our underlying
problems. It can fairly be said that much of our inflation
as well as our unemployment should bear a label: "Made in
Washington, D.C."
As we emerge from this recession, we thus face the
basic choice: Shall we continue these patterns in Washington
or shall WC set off in a new direction? We cannot do both;
- 6 -
we cannot go down both roads at the same time. We must
choose.
GERALD FORD LIBRARY
Tonight, I propose that we enact into permanent law tax
reductions totaling $27.7 billion -- the biggest single tax
cut in our history. Earlier this year the Congress passed
and I signed a temporary tax cut covering calendar year
1975. That temporary law will expire at the end of this
year and unless we act now, your taxes will go up again in
January. I am proposing that we sweep away that temporary
law and replace it, effective January 1, with a permanent
Federal income tax cut that will be both larger and more
equitable.
Three quarters of this permanent reduction will be for
individual taxpayers. And the chief benefits will be concentrated
where they belong: among working people. The working men
and women of this country are the backbone of America --
- 7 -
sturdy and industrious -- but we cannot continue asking them
to bear an unfair portion of the tax burden. I propose
that we lighten the tax load for them and for all other
Americans in three ways:
-- By raising everyone's personal tax exemption from
$750 to $1000;
-- By raising the minimum standard deduction for single
people to $1800 and for married couples to $2500; and
-- By lowering our basic personal income tax rates.
Together, these measures will not only decrease everyone's
taxes but they will also help to make up for the ravages of
inflation and they will simplify the tax returns for millions
of Americans. The total package represents a substantial
reduction below the rates that will otherwise take effect
this January. Under my proposal, a family of four earning a
total of $14,000 a year -- now the average income in the
- 8 -
United States -- would be entitled to a permanent tax reduction
of $412 a year -- a 27 percent reduction.
GLRALD FORD LIBRARY
The other quarter of the tax reduction will be directed
at business in a way that creates more jobs. If companies
and plants are to regain their footing and to hire more
employees in the future, they must have greater incentives
for investment and they must be allowed some reduction in
their tax rates. In order to create jobs -- good jobs --
this country must build new plants and new equipment and we
must have a growing economy. The tax cuts that I am proposing ---
including a permanent increase in the investment tax credit
and a two percent reduction in the corporate tax rate -- are
specifically designed for that purpose.
But let us recognize that cutting taxes can be only
half the answer. If we cut only taxes but do not cut the
growth of government spending, budget deficits will continue
- 9 -
to mushroom, the Federal Government will continue to borrow
too much money from the private sector, we will have more
inflation, and ultimately we will have more unemployment.
Substantial cuts in your taxes must be tied to substantial
cuts in the growth of government spending.
Anyone who has followed the upward leap in Federal
spending can only shake his head in astonishment. Back in
1962, the Federal budget for the first time in our history
ran over $100 billion. In only eight years, however, the
budget doubled in size. And now in the coming fiscal year,
unless we act, it will double again to over $400 billion.
One of the reasons for this horrendous growth is that
much of the increase in each year's budget is required by
programs already on the books. Many of these programs were
first enacted years ago, and while individually they might
have seemed manageable then, today -- taken together --
- 10 -
they are out of control. They are like a freight train
whose lights were first seen far off in the night. That
train has been coming closer and closer, and now it is
FORD LIBRARY
roaring down upon us. If we don't slow it down, Federal
spending next year could easily jump to $420 billion or
more -- and that is without a single new Federal program.
Therefore, I propose tonight that we halt this alarming
growth by holding spending in the coming year to $395 billion.
That means a cut of $25 billion below what we will spend if
we just stand still and let the train run over us. More
importantly, it means almost a dollar-for-dollar cut in
taxes and spending: for every dollar that we return to the
American taxpayer, we must also cut our projected spending
by the same amount.
If WC allow "politics as usual" to prevail in the Congress,
there will be a temptation to take the easy way out, approving
the tax cuts and taking no action on the spending cuts.
- 11 -
That must not happen, and I intend to stop it. I want to
make it clear that I will go forward with the tax cuts that
I am proposing only if there is a clear, affirmative decision
by your representatives in the House and the Senate that
they will also hold spending next year to $395 billion. I
will not hesitate to veto any measure passed by the Congress
which violates the spirit of that understanding. I want
these actions to be a first step -- and they are a crucial
step -- toward balancing the Federal budget within three
years.
This programme
In January, I will present to the Congress. a request
that no new spending programs be enacted and that many of
our current programs be held below their projected levels.
When I do, you will hear immediate protests from one group
or another contending that Washington should keep up an
endless flow of benefits and subsidies. But we have to face
hard realities: our resources are limited. We must learn
- 12 -
to live within our means.
Spending discipline by the Federal Government must be
applied across the board. It cannot be isolated to one area
such as social programs nor can we completely insulate any
area such as defense. All must be restrained. I believe
that your Congressmen should stop trying SO hard to find new
programs that spend your money, and get to work figuring out
how to make the old programs work better. We should get rid
of the programs that don't work in order to make room for
those that do. And in the process, we can begin cutting
back the swollen Federal bureaucracy.
Let me emphasize that what I am proposing is not a
reduction in current spending but in the gigantic increases
that will take place next year unless we act decisively. I
want to work with the Congress and with you, the people, to
insure that those who deserve the help of our nation continue
receiving that help. We do not intend to cure the ills of
this economy at the expense of the elderly, the poor,
- 13 -
or the men and women who have borne our nation's arms. There
will be no cutbacks in social security. Similarly, I will
not permit reductions in any part of our defense budget that
would jeopardize our national security. We must maintain
a strong national defense and a strong economy.
Sometimes when fancy new spending programs reach my
desk, promising something for almost nothing and carrying
appealing and often deceptive labels, I wonder who the
supporters think they're kidding. From my visits with the
American people, I find most of them believe that what the
government puts in your front pocket, it slips out of your
back pocket through taxes and inflation. They are figuring
out that they are not getting their money's worth from their
taxes. They believe that the politics of Federal spending
has become too much of a shell game. And I must say that I
agree with them.
America's greatness was not built by taxing people to
- 14 -
their limits but by letting them exercise their freedom and
their ingenuity to their limits. Freedom and prosperity go
hand in hand. The proof is there to see across the globe.
Only by releasing the full energies of our people -- only by
getting the government off your back and out of your pocket --
will we achieve our goals of stable prices and more jobs.
My Fellow Americans, I deeply believe that our nation
must not continue down the road we have been traveling.
Down this road lies the wreckage of many great nations
of the past. Indeed, we see today in our own land that
our biggest city -- a great city -- has now reached a day
of reckoning. None of us wants to see that city fail;
all of us care especially about the people of that city.
But as they work to get back on the right path, let us
never forget what led that city to the brink; and let us
VOW that these United States will never reach that same
predicament.
- 15 -
Let us choose instead the other fork -- the road that
we know to be tested, the road that will work.
As your President, I cannot take this journey alone.
I need the help of you, the American people, to persuade
your Congressmen and your Senators that you want your taxes
cut and that you want the growth in spending cut -- now.
I need the help of the farmer in Iowa, the housewife in
California, the retired couple in Florida, the small businessman
in New Jersey, the student in Texas -- all of you. This
must be a national effort. America should not belong to the
government but to the people; and now you must serve the
Nation by helping us to make the right choice for the future.
Thank you and good evening.
EMBARGOED FOR RELEASE
OCTOBER 6, 1975
UNTIL 6:01 P.M. EDT
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
WILLIAM E. SIMON
SECRETARY OF THE DEPARTMENT OF TREASURY
JAMES T. LYNN
DIRECTOR OF THE
OFFICE OF MANAGEMENT AND BUDGET
ALAN GREENSPAN
CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
AND
CHARLES WALKER
ASSISTANT SECRETARY OF THE TREASURY
ROOM 450
EXECUTIVE OFFICE BUILDING
5:44 P.M. EDT
MR. NESSEN: I don't know who the leader of this
group is.
SECRETARY SIMON: I will start.
You know the President has been working for several
weeks on questions relating to Federal taxes and spending.
Tonight, he has asked for television time, which Ron just
spoke to.
First, as you can see from the fact sheets, the
President is going to propose a substantial and permanent
reduction in Federal taxes, going far beyond the temporary
tax cut that expires at the end of this year. The total
cut will be approximately $28 billion, approximately three-
quarters for individuals and one-quarter for business.
Secondly, he is going to propose a substantial
reduction in Federal spending, below those levels that are
projected for fiscal year 1977. Jim Lynn is going to
elaborate in a second, before your questions.
Federal spending will, in fiscal 1977, easily
surpass $420 billion unless affirmative action is taken, and
taken right now. The President is asking that the spending
be held in fiscal 1977 to $395 billion, a reduction of an
equivalent amount of $28 billion.
MORE
(OVER)
- 2 -
I want to emphasize how important it is that
everyone understand that these two proposals are regarded
as one package. The President is going to ask Congress
to act on them both now, and he is insisting that only if
Congress is willing to adopt a spending ceiling for fiscal
1977 will he go forward with these major taxcuts.
It would be dangerous and irresponsible to cut
taxes andnot cut the growth in Federal spending. That would
only leave us with huge deficits, higher interest rates and
more inflation and eventually more unemployment.
So, the two proposals are inextricably tied
together, and we are presenting them as one single package.
Together, they are designed to return more economic decision-
making to our private sector.
The President is going to address more fully
tonight why it is important to halt the trend toward big
Government in this country. In this session, I want to talk
more specifically about three particular advantages of this,
what we consider balanced fiscal package: the economic
advantages, the financial advantages and the psychological
advantages.
First of all, on the economic side, in the short-
term this package will provide us with a stronger foundation
to sustain the momentum of our current recovery. In the
long-term, the discipline imposed upon the growth in the
budget will reduce the inflationary pressure generated by
Federal spending.
There can be no question that curbing the
explosive growth is an essential weapon in the long-term
fight against inflation. Furthermore, by reducing taxes,
as well as spending, we will also encourage greater savings
and investment, a process that is imperative if we are to
create jobs and increase productivity and increase real
earnings in this country.
In short, it is going to provide a higher standard
of living for all of us.
Second, this program will improve conditions in the
financial markets. By tying spending cuts to tax cuts, the
President is insuring that during the next few years our budget
deficits will be progressively smaller and the Federal
Government will not soak up as much money through borrowing
in our private capital markets.
For all practical purposes, too many small- and
medium-sized businesses are crowded out of our capital
markets today. By reducing Federal borrowing, the Government
will reduce the upward pressure it places on interest
rates. Lenders are going to be more willing to lend long-
term and more private borrowers are going to gain access
to the credit markets.
MORE
- 3 -
Again, this process is essential for assuring
long-term economic growth. As the President will say
tonight, our ultimate objective is to bring the budget into
balance within three years.
Psychological: Finally we have to take into
account the public's perception of Government itself.
Clearly, public confidence in the Government's ability to
reduce inflation has been eroded by the last decade of huge
increases in Federal spending, along with the huge increases
in our budget deficits.
Over time, that process has built inflationary
expectations into all of our society. The President is
intent upon changing those expectations through this
porgram and further efforts in the future.
Let me re-emphasize the determination of the
President and the full Administration to stop the uncontrolled
growth of Government outlays and to return to the American
people more of the decision-making on how their incomes are
going to be spent.
Unless action is taken, Federal Government spending
can be expected to increase by approximately $53 billion in fiscal
1977. Outlays as a share of GNP will continue to rise.
Outlays in fiscal 1977 would reach $423 billion. Roughly,
four and a quarter times higher than outlays just 15 years
ago.
The President's program is designed to restrain
this growth and to reduce the share of GNP going into the
Federal Government. This plunging process is vital to the
economic and financial well being of our people.
I might add that in my recent testimony before
the Congress, I have been heartened by the desire expressed
by both budget committees to work with us in holding down
spending and holding down the attendant deficits.
We hope that the full Congress is now going to
join with us in adopting this very important package that
the President is submitting.
Now Jimmy would like to, I am sure, address the
expenditure side.
MR. LYNN: Bill, I think you have covered it
sufficiently for openers. I would, kind of reversing the
roles a little bit, draw your attention specifically to the
tables that are included in the fact sheet showing the
impact on the various families.
MORE
- 4 -
What we have here is a situation where practically
dollar for dollar, if you compare the 1974 law before the 1975
temporary cuts were put in, of a dollar for dollar reduction
in the expenditures from where they would have gone without
restraing for a comparable amount of benefit on the side
of tax reductions.
I think at this point, unless Alan, you have some-
thing to add, why don't we let these ladies and gentlemen
ask their questions. That is the most important thing.
Q
On those very tables you mentioned, can
we have some figures below $5,000 of income, and why weren't
they supplied in the first place?
MR. WALKER: I think we have them not below $5,000
because of the non-change that is involved there.
Q Not for single people. There are changes, some
of whom are tax exempt now, and I am wondering if they
would still be tax exempt under this proposal?
MR. WALKER: I can see that.
SECRETARY SIMON: I can show you that, Eileen,
because I have a table that shows you the new tax exempt
income for singles and marrieds.
Q
Mr. Secretary, you say these proposals of
tax and spending ceilings are linked. Are they going to
be linked in their presentation to the Hill, and is there
any way that this can be done through the statutory
provisions?
SECRETARY SIMON: What the President is going
to do is urge the Congress to adopt a spending ceiling
for fiscal year 1977 of $395 billion. At that point, he
would accept the tax reduction as outlined here on the
tax side.
Q
Is the President going to save $28 billion?
Q Will it be something informal? You are not
going to propose a tax bill to Ways and Means that would
have a spending ceiling tied into it?
SECRETARY SIMON: The Ways and Means Committee
will be told the conditions under which we would accept
this type of a tax proposal, that is correct.
Q
Does that mean that if the Congress will not
vote your ceiling that the President will oppose and perhaps
veto tax cuts in the coming election year?
MORE
- 5 -
SECRETARY SIMON: If the Congress rejected the
notion of putting a $395 billion spending limit on the
fiscal 1977 budget and sent down a tax bill here, in this
regard this President would veto it.
Q
Can I follow that? From a practical stand-
point, however, isn't it likely that we would act on
the tax cut this fall? They don't have to take up the
question of the ceiling until next year.
SECRETARY SIMON: I want Jimmy to talk to this,
too. We think they have got plenty of time in the three
months that are remaining. They have been working for
several months, the budget committees, on fiscal 1976.
They have the figures for 1977. We are going to be
delighted to work with them on processes.
MR. LYNN: I suppose they could do almost anything,
you are right. They could delay, but it seems to me the
delay will cost the taxpayers money. What our hope would be
is that they take action on both sides of this equation now
so that the taxes can take effect -- the cuts could take
effect -- as of January 1.
Q
The question did not suggest that they would
delay on voting the tax out, but after all, they, just
within the last few weeks, set the ceiling on fiscal 1976,
didn't they? So, is it reasonable to expect them to set
a ceiling on fiscal 1977 this fall?
MR. LYNN: I most certainly think it is. First,
let me say I have been testifying before the Congress that
one of the things that have disturbed me so much is that
I see consideration of various programs before the Congress,
including consideration of extension of the tax cut without
any figures being explored with respect to what the effects
are in fiscal year 1977.
Just to give you an example, the President vetoed
the education bill. The effect of that override of his
veto is to add almost $1 billion to expenditures in fiscal
year 1977.
We don't see, frankly, how they can take action
with respect to the taxes without setting for themselves
now a target, as we have done.
Q
Mr. Lynn, you have got $53 billion worth of
expenditures detailed here. Are you now, or is the President
later, going to send up a list of specific cuts of the total
$28 billion, or are you leaving that all to the Congress?
MR. LYNN: Oh, no. Of course we will. We are
doing that in the budget process. What we are doing now is
our usual budget review that occurs this time of year. This
budget will be presented to the President, he will make his
changes in it, and all of those cuts will be expressly set
forth in his January budget for fiscal year 1977.
MORE
- 6 -
Q
In order for Congress to take action now,
don't you have to provide a list of where you want the
$28 billion cut?
MR. LYNN: No, I don't think SO. My own feeling
about that is that Congress can adopt an overall ceiling
to show their concurrence with this approach of trying to
moderate the growth of Government and give the American
taxpayers a break without having their detailed make-up.
We have done enough work in the course of the last months
to see that it can be done. Now, very frankly, the
exact ways that it should be done should be to determine
in concert with the departments and agencies
They have a principal role here and we want to see
that they play those roles and will develop that budget
just like the budget committees will be working on details
of their budget when they see the President's budget.
All we are asking at this point is that they adopt
an overall ceiling, not the make-up of that ceiling.
Q
Mr. Lynn, as you know, many previous
Administrations have been frustrated by trying to impose
a firm ceiling on Congressional spending and I suppose one
reason for that is that many of these spending programs
are open-ended in their appropriations impact. How do you
specifically plan to deal with such problems where Congress
authorizes spending under a program and sets no ceiling
as long as people qualify?
MR. LYNN: You mean so-called entitlement programs
where anybody that qualifies can come in.
I think what it takes in that area is legislative
action. It takes affirmative legislative action. You are
absolutely right, that does not lie within the control of
the President. That is why he is calling on the Congress
to join him in this effort.
This cannot be done by the President acting alone,
it does require the cooperation of the Congress.
Q
Mr. Simon, glancing quickly at the figures
here, it does seem that the higher the income, the larger
the tax reduction, and it also seems that a special provision,
such low income allowance from the 1975 laws, is now being
eliminated. Is that the general thrust of this proposal
by the President?
MORE
- 7 -
SECRETARY SIMON: In general. You have to go through
and take a look at the singles and the marrieds and how the
various dependents are affected. Basically, the maximum
benefit does not come at the maximum income. With the cut-
off the maximum benefit is approximately the $25,000 income
level and, naturally, there is some flow-throus effect from
(A) a combination of the 1975 tax reduction, plus the mag-
nification.
Now, let me explain to you what magnification is.
The 1975 tax reduction was for an 8-month period; that was
$8 billion for individuals. In order to annualize it for
a 12-month period we had to make it $12 million so that
is 50 percent larger. We then added, of course, the $8.6
billion more and provided this restructuring, removing, as
you said, Phil, that to simplify, just have a single
standard deduction.
Q
Mr. Simon, does this package have your full
support?
SECRETARY SIMON: Wait a minute. Alan wants to
add something to that.
MR. GREENSPAN: I think if you will take the
percentage changes in tax liability, they start the highest
at the lowest level and they proceed downward thereafter
throughout the whole tax schedule so that I would say the actual
percentage change in taxes is very small at the bottom end
of the scale.
SECRETARY SIMON: Let me give it to you in the
zero to $5,000 area, the percentage reduction in tax liability
is 61.3 percent.
Q
Compared to which year?
SECRETARY SIMON: That is with the tax reduction
proposals at 1975 levels of income, Eileen.
Q
But compared to 1975 law or --
SECRETARY SIMON: That is compared to the 1972-4
law before the 1975 change.
$5,000 to $10,000 the tax reduction in tax liability,
35 percent; 23 percent in the $10,000 to $15,000; 17.7 in
the $15,000 to $20,000; and 11.7 in the $20,000 to $30,000
so that you can see --
Q
Let's have that compared to the 1975 law.
Q
Are you talking about the dependents now or
single?
MORE
- 8 -
SECRETARY SIMON: That is the income distribution
of the President's tax reduction proposal. That is overall.
Q
What was the last figure?
SECRETARY SIMON: 11.7 in the $20,000 to $30,000.
Q
Can we have those compared to present law;
that is, 1975 law?
MR. GREENSPAN: It will show the same.
Q
Let's have the numbers.
SECRETARY SIMON: We don't have the numbers
compared to the 1975 law. We have it magnified but that would
not show the same as the 1975 laws that exist today. We have
it magnified to the -- you know, adding the $4 billion, the
50 percent on and the percentages change at that point but
still heavily weighted and we only have it on the percentage
reduction -- no we don't have the specific one you say to
the existing 1975 tax law.
Q
Are all these cuts permanent or only some of them
permanent and some of them temporary?
SECRETARY SIMON: No, this is a permanent tax
reduction recommendation by the President.
Q
Mr. Secretary, what is the economic situation
that has caused you to decide not only to continue the 1975
tax reductions but to increase them substantially?
SECRETARY SIMON: When we talk about the
economic situation, what we are trying to do,as I say,
is control the explosive growth, as I said in my opening
comments, and in Federal spending.
Q
That is nine months after the start of the
calendar year.
SECRETARY SIMON: We are talking about fiscal
year 1977 as well and I, myself, have always personally
favored tax reductions to return the decision-making
back to the American people if at the same time we can
have a simultaneous reduction in expenditures, permanent
reduction.
Q
But the permanent reduction, as I understand
the program, does not apply to the months immediately ahead.
It only applies to fiscal 1977.
SECRETARY SIMON: No. Obviously the six months
immediately ahead for the half a year would be a continuation.
No, until July 1.
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Q
Don't you have a transition quarter?
SECRETARY SIMON: Well, the investment tax credit
of course is 1977.
Q
Doesn't fiscal 1977 start October 1?
MR. LYNN: October 1 of next year.
Q
So it is nine months.
Mr. Simon, could you tell us then what the
economic factors are that would make you decide to do this?
SECRETARY SIMON: Well, I tried to outline it... that
there were economic and psychological and, of course,
financial market-related reasons why we should reduce this
growth in spending and reduce the deficit,as I said in my
opening remarks.
Q
Well, does the recovery seem inadequate?
SECRETARY SIMON: No, it most certainly does not.
As I believe Alan's last report, the third quarter growth
will be reported in the next couple of weeks and is going to
show strong real growth -- I think stronger than anyone had
originally predicted, and that real growth is projected.
The average real GNP growth through June 30, 1976,
we can say is still roughly 7 percent.
Q
Mr. Secretary, did I understand you correctly
earlier that you said the President would veto a tax cut
if it were not accompanied by the other?
SECRETARY SIMON: That is correct. If the Congress
sent down a tax reduction for a year or permanently in the
absence of adopting a spending ceiling for fiscal 1977 of
$395 billion, he would veto it.
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- 10 -
Q
Aren't you almost certainly getting into a
situation, given the way the whole tax thing has gone so far,
the way the whole energy thing goes, that you will get a
proposal from the Congress for a tax cut, of at least as large
as yours, possibly larger, and heavily weighted to the bottom
of the scale, and you will get the other deferred completely
from consideration until some later date so you won't have
a yes or no and you will sit in this limbo and then the
President has. to make a decision?
SECRETARY SIMON: I would certainly hope you are
wrong, and as I say, the President has made a decision as
far as what he would do, if indeed that happened, and a
tax bill came down. I think that (a) the way this tax
proposal has been structured, and (b) the need for a curb
in Federal spending is well recognized on Capitol Hill,
as it isin the Executive Branch of Government, so I am
optomistic that we are going to get some action on a
$395 billion spending ceiling.
Q
What form would the spending ceiling take?
Would it be a budget resolution to the procedures that
are now in place?
SECRETARY SIMON: Yes, it would be what, the
second current
MR. LYNN: I would think they could do it any
number of ways. One way would be by a resolution of the
Congress. Another way. would be in the preamble to the
tax legislation. I would not purport to tell or even
suggest the manner in which Congress can do it, but I am
certain there are a number of ways that they can do it.
Now, it is the matter of their will to do it if
they decide to do it. If a majority of both Houses decide
to do it, they will find a way to do it, and there are ways
available.
Q
The Budget Reform Act reserves jurisdiction
in the Senate and House budget committees. The Ways and
Means Committee does not have anything to do with spending.
MR. LYNN: Again, I would hope that what we will
see in the Congress is a coordination of those efforts. As
I have said, even in testimony I believe it was before the
House side that one of the things that bothered me was that
we were seeing a mark up with regard to a tax extension at
a time prior to even the mark up for fiscal year 1976 on
the budget side and on the second concurrent resolution.
I happen to feel you have got to look at 1977
numbers every bit as much as you have to look at 1976
numbers when you are deciding what the taxation structure
ought to be from here on out, and that decision is before
Congress because the old temporary cut runs out December 31.
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10 -
Q
Aren't you almost certainly getting into a
situation given the way the whole tax thing has gone so far,
the way the whole energy thing goes, that you will get a
proposal from the Congress for a tax cut of at least as large
as yours, possibly larger, and heavily weighted to the bottom
of the scale, and you will get the other deferred completely
from consideration until some later date so you won't have
a yes or no and you will sit in this limbo and then the
President has to make a decision?
SECRETARY SIMON: I would certainly hope you are
wrong, and as I say, the President has made a decision as
far as what he would do, if indeed that happened, and a
tax bill came down I think that (a) the way this tax
proposal has been structured, and (b) the need for a curb
in Federal spending is well recognized on Capitol Hill,
as it isin the Executive Branch of Government, so I am
optomistic that we are going to get some action on a
$395 billion spending ceiling.
Q
What form would the spending ceiling take?
Would it be a budget resolution to the procedures that
are now in place?
SECRETARY SIMON: Yes, it would be what, the
second
current
MR. LYNN: I would think they could do it any
number of ways. One way would be by a resolution of the
Congress. Another way, would be in the preamble to the
tax legislation. I would not purport to tell or even
suggest the manner in which Congress can do it, but I am
certain there are a number of ways that they can do it.
Now, it is the matter of their will to do it if
they decide to do it. If a majority of both Houses decide
to do it, they will find a way to do it, and there are ways
available.
Q The Budget Reform Act reserves jurisdiction
in the Senate and House budget committees. The Ways and
Means Committee does not have anything to do with spending.
MR. LYNN: Again, I would hope that what we will
see in the Congress is a coordination of those efforts. As
I have said, even in testimony I believe it was before the
House side that one of the things that bothered me was that
we were seeing a mark up with regard to a tax extension at
a time prior to even the mark up for fiscal year 1976 on
the budget side and on the second concurrent resolution.
I happen to feel you have got to look at 1977
numbers every bit as much as you have to look at 1976
numbers when you are deciding what the taxation structure
ought to be from here on out, and that decision is before
Congress because the old temporary cut runs out December 31.
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- 11 -
Q Would you buy a sense of the Congress reso-
lution, or would it have to be binding law?
MR. LYNN: Look, after all, the budget resolution,
for example, is a sense of the Congress in the sense that
they are setting their preliminary target for the existing
year. I would suggest they can use the same procedure
that they have used for their budget resolution process,
if that is the way they care to do it, but we certainly
would not want to suggest that one way or another is
absolutely essential.
So long as that signal comes through strongly from
the Congress to the American people and to the President that
they are willing also to work to keep that $395 billion
ceiling, that will do the trick.
Q Mr. Secretary, could I come back to Joe
Slevin's question?
Q Mr. Secretary, the ceiling you are recommending
does not become effective until the fiscal year beginning
October 1, 1976. What effect, if any, do you suggest this
should have on appropriations matters before the Congress
for this fiscal year current and for the interim period
between July 1 and October 1? Wouldn't that require
some cutback so you have an estimate?
MR. LYNN: As you know, we already still have
before the Congress requests for reductions from what a
current services path would take you or even more from
the path Congress seems to be on on both the authorization
bill and appropriation bills. I would hope that at the same
time -- or I should say in keeping with their agreement to
also work with us on the $395 billion ceiling -- they would
start looking very hard and adopt the kind of proposals for
moderation for 1976 that we have proposed.
As you know, now that we are well into the fiscal
year, a number of those can't be recaptured for the period
of time that has already elapsed, but there is still plenty
of room for them to exercise budget restraint for the
rest of the year, and we would urge them to do so.
Q
Secretary Lynn, getting back to Joe Slevin's
question about economic rationale for the program and can
either you or Mr. Greenspan elaborate on that; specifically,
is this program supposed to have a net fiscal stimulus?
Q
Question?
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- 12 -
SECRETARY SIMON: Is this program supposed to have
a net fiscal stimulus?
This program has, as I said, three parts to it:
One, to help sustain the current economic advance. I think
everyone is pretty generally agreed right now -- that private
as well as the Government forecasters -- that the economic
recovery is well underway and it is going to be strong and
indeed vigorous here in the early months of the recovery and
into the next year.
The questions that seem to be raised right now are
what indeed is the third quarter? Some are even questioning
the second quarter of the calendar year 1976.
Also, a program like this helps to lessen the strain
on the financial system by reducing the inflation itself
over the long-run and more importantly, the inflationary
expectations as people begin to realize that we are getting
a handle on this budget deficit problem, that we are not going
to allow this explosive growth in Federal expenditures to
continue at the very larger percentages that they have, and,
finally, and just as importantly, to slow the secular Federal
Government inroads into the lives by returning the money
to the American people that is now being presently spent by
the Government.
Alan, would you like to add to that?
Q Before you go, Mr. Secretary, on your point
that they helped to sustain the economic advance, how do you
help sustain the economic advance when you cut expenditures
by the same amount that you reduce taxes?
SECRETARY SIMON: Well, on a simple accounting
basis one might say that that has, as I say on a simple
accounting basis, a neutral effect but I am afraid that
ignores the incentive gain of what happens when this amount
of money or any amount of money is pumped into the private
sector and into business creating all of the capital
formation which is so terribly needed, as you have heard
me say quite often, and I believe it has very definitely
a net positive effect.
Al, do you want to add to that?
MR. GREENSPAN: We have taken the specific proposals
on a quarter-by-quarter basis and got some of them through
by various numbers of techniques including the regular macro-
econometric types of procedures.
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Statistically, what we get is slightly larger deficits
in the next two to three quarters of 1976 calendar year
and then somewhat lesser thereafter.
eved ob SW The amounts involved are not large and, in any
event, I would. scarcely describe the effects as being
-smolearly affecting the economy one way or the other. This
particular program has not been tructive for the purposes
of affecting the short-run economic recovery in the usual
classic sense of the word. The major problem which it has
attempted to confront is something which anybody who has
looked at the extraordinarily burgeoning effect of the rise
of Federal expenditures as you get into fiscal 1977, 1978,
1979 -- what you begin to basically recognize is that at some
point some basic decision must be made.
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Either we are going to decide to continuously increase
the size of Government and ultimately increase taxes in the
whole control of the Federal Government of the economy as a
whole, or we decide that is the way in which we do not wish to
go. The essential thrust of this program I would describe,
while certainly having short-term effects, as any program
must, was not constructed in that light and its basic thrust
is longer term.
It's short-term economic effects, as the Secretary
has just said, are roughly neutral. The reason I say roughly
is the fact that some people are going to evaluate part of
it as positive and part of it as negative and I think others
will do precisely the reverse. There is no major impact
so far as I can see from anybody's evaluation.
Q Mr. Greenspan, could you, if you have these
numbers, tell us what the net effect would be for the
first, second and third quarters in terms of adding to
expendable income? I guess we don't have to do anything
on the Government spending side since there will not be any
reductions during those first three quarters.
Secondly, isn't that in fact the stimulus?
MR. GREENSPAN: Well, the problem that you have
got is that at this particular point it is not clear to what
extent you in fact create stimulus from increasing deficits.
Let me suggest to you that we have the conventional wisdom
which always says that the greater the deficit, the greater
the stimulus, the greater the level of employment. That is
true only in the very restricted confines of our econometric
models which, of necessity, is a very extraordinary abstraction
from reality.
We have found, as you are no doubt well aware, that
these models have not captured many of the
things that
have gone on in our economy in recent years and most speci-
fically in the financial area.
- 14 -
As best we try, and we tried extraordinarily hard,
to capture these very subtle financial impacts as they affect
the levels of production and employment. To the extent that
we have failed to do that, it is clear that what we have done
is underestimated the negative impacts of the so-called
expansionary policies on interest rates, on inflation and,
therefore, on real growth.
So what I am suggesting is that while we do have these
various sorts of figures which you discuss, I would not,
by any means, describe simply the fact that we do have some-
what higher deficits in fiscal year 1976, specifically the first
three calendar quarters, as being ipso facto stimulus.
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MR. LYNN: If I might just add one thing to that,
if I can, when you look at the figures we have here with
regard to fiscal year 1976 expenditures, we are making
some guesses, some estimates as to where Congress is moving.
With the kind of restraint I talked about a little
bit earlier, that amount of expenditures for fiscal year
1976 could be kept lower than that, and I would hope also get
the difference I cite lower than the number we show there.
Q
Just one more question. We are going to have
$21 billion of $28 billion tax cut effective by October 1
so you have a net increase of money in the spending stream
of $21 billion. You are not having any reduction in spending
during that same period so, in effect, don't we have a $21
billion stimulus for the first three quarters? That is the
question I have.
MR. GREENSPAN: No, I am not sure those numbers
are correct.
Q
Excuse me. I think to answer that question we have
to be given the numbers. This table that adds up to $27.20,
$.7 billion you talk not in terms of the comparison
with 1974, but in terms of present law. Can we have those
numbers, just that little five or six item breakdown on
page two here?
SECRETARY SIMON: We can get those numbers for you.
The reason that we didn't do it on the figures that you
wish is because the 1975 tax laws are temporary law.
Q
Just a second.
Mr. Greenspan, is it reasonable or even rational
to compare what you are proposing for the year ahead with
two years ago in terms of assessing the economic impact?
Can we really balance a two-year change on the tax side
with a one-year change on the spending side, and you are
trying to say they are the same thing?
MR. GREENSPAN: No, no. Let me tell you what the
comparisons are. We have ongoing forecasts of the economy
and what we tend to do is to reflect various different
options that are involved in them. The latest forecasts
that we have set up are not reflective of obviously 1972
or 1974, but essentially what has been going on within the
tax structure as it stands now.
What we have done is superimposed upon them,
starting off with expenditure expectations of no actions of
any sort and running our best estimates that we can, we came
up, as I indicated several weeks ago, with a real growth
rate approximating 7 percent to mid-1975 to mid-1976.
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16
-
What I am suggesting to you is this: We have
reinstituted new estimates based on this program, and it
does not significantly alter those numbers.
Q Okay. I wondered, however, if we can't have
a figure to compare existing 1975 law to see what these tax
changes really are.
MR. GREENSPAN: I agree with you. I think that
is correct and those data should be made available shortly.
Q
Now, the second question on the same subject
of these numbers, differently. I assume that everything, Mr.
Simon, that you have told us about the percentage tax
increases by tax bracket eliminates, leaves out of consider-
ation the fact that you are asking that the work bonus,
the earned income credit, be eliminated, and you are now
calling it an expenditure.
Therefore, this thing which is for the low income
is nowhere in any of these figures, percentage change or
otherwise, that you have given us, is that correct?
SECRETARY SIMON: The earned income credit is not
in the President's tax proposals, that is correct.
Q
Or in any of these comparison numbers?
SECRETARY SIMON: That is correct.
Q
Including the tables that show by income
bracket and so forth?
SECRETARY SIMON: That is correct.
Q Mr. Simon, as I see this, the tax reductions
that are in effect may begin at the first part of the
calendar year, but the spending reductions do not go into
effect until the third quarter, and so your proposition is
to cut taxes for the first three quarters for no spending
and then what happens in November of 1976 is that there is
an election.
Now, was that taken into consideration in
deciding on the timing?
SECRETARY SIMON: It most certainly was not taken
into consideration. The consideration was that we wanted
a determination by the Congress that fiscal 1977 budget
expenditures would be held to $395 billion, which from
today's estimates mean that the proposed cut in the future
would be equivalent to the amount of the tax cut that the
President is proposing today, and it had nothing to do
with the election in November 1976.
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17
Q
Did you seriously discuss any of these
proposals with Congressional leaders before making them
public?
SECRETARY SIMON: The President is discussing
these right at this very moment with Congressional leaders.
Q
But since your Administration, as I under-
stand it, has a minority in both Houses of Congress and
since this will require legislative action, it seems to
me that you could be accused here of presenting a political
ploy to the Democratic Congress.
SECRETARY SIMON: I would assume that you can always
be accused of presenting a political ploy to Congress, but
that does not concern us. We believe that this proposal
makes good long run sense to the American people, that they
begin to reverse this trend that has been going on in
Government, especially in the last ten years.
If they want to attach certain slogans to it,
some people, well, so be it. That was not the intent of the
proposal.
Q
The long-term effect you say is this
reduction of Federal spending.
SECRETARY SIMON: The growth in Federal spending.
Q
The short-term effect is to increase the
Federal deficit and increase the Treasury' borrowing on
the market, I believe was the question. Correct me if I
am wrong.
Why is that a good idea now, and why don't they
have all the dire consequences that you have been warning
about for many months?
SECRETARY SIMON: The near term effect is slightly
raising the President's ceiling that he put on at $60
billion. That is a fact. The point is that for the longer
run considerations they outweigh these shorter run consider-
ations, and I think that if this program were enacted in
this fashion, the expectations of the marketplace would be
that the Federal Government is finally getting their
spending under control and we begin to work away at the
important inflationary expectations that are so deeply
ingrained, plus the loss of confidence the American
people obviously had based on every policy that is taken
in the ability of Government to manage their economy and,
more importantly, to get their spending and inflation
under control.
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DERALD FORD LIBRARY
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I think on the whole the positives far outweigh
the negatives of a short-term, as I say, slight increase
in the deficit.
Q
How much will the deficit go up?
MR. LYNN: It depends on an awful lot of
factors. As you have heard me testify on the Hill, we have
a good deal of uncertainties right now, ranging all the way
from just trying to get a good handle on estimating entitle-
ment. programs, whether we are talking about food stamps or
supplemental unemployment benefits and so on.
Quite apart from that, we have to engage in a
guessing game as to what Congress will do from here on out by
way of the kind of salami tactics that we have had up to
now, where we propose "X" and Congress always feels disposed
to add "X plus Y" to the particular program.
My hope would be that Congress, in the spirit of
this proposal, will now make a genuine effort to go along
with the proposals that are still before the Congress that
the President has made. I would think, to give you a rough
estimate, that we would be able to have a deficit somewhere
in the middle 60's before we are done.
We had to look at the reality that if Congress
does not show that kind of restraint and looking at the
total estimating that is involved, you can have a deficit
of about $70 billion. But, I have to urge you once again
this early in the fiscal year -- and also given all of the
uncertainties with respect to the estimate -- you can't
give a positive single figure at this point and feel con-
fident that it is so.
Q
Just this itself, how much would this add
to the deficit?
Q
What year?
MR. LYNN: What are you talking about? Fiscal
1976?
Q
Fiscal
1976.
MR. LYNN: The effect of this proposal by way
of receipts lost over and above, let's say, the magnified
extension is what? Do we have that? It is what? Five?
Q
All by itself?
MR. LYNN: All by itself.
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Q It is 11.
MR. LYNN: It is 11 by itself for what, on a
full year basis?
Q It is 28.
MR. LYNN: The 28 again, in answer to Miss Shanahan's
question, the 28 is from the 1972-1974 kind of package,
so what I was giving you was a figure of the net additional
amount if you were to assume things continued the way Miss
Shanahan talked about it.
Q
What is that total figure from 1975 to 1976?
These tax cuts are what?
MR. LYNN: Say that again.
Q
From present law --
MR. LYNN: From present law?
Q
From present law the total tax cut herein
proposed is $11 billion, is that right?
MR. LYNN: About 11, that is right. On an
annualized basis?
Q
No.
MR. LYNN: On an annualized basis?
Q
She asked how much the increase is from 1975.
SECRETARY SIMON: Break it down. First we had
the rebates in there, and they are out, so we forgot these.
Right? Then, we take the individual reductions, which
were $12 billion in 1974 and now they are $20.6, so we are
up $8 billion for the individuals, 1975 over 1976. Then
the business cuts.
In 1976, the investment tax credit does not
expire until January 1977, so the impact is not felt
until fiscal 1977. So, leave out the 2 percent reduction.
Q
Leave that out?
SECRETARY SIMON: Yes, the 2 percent reduction in
corporate tax rates, the impact is on there, so that is
roughly it.
Q
Let's get clear. This proposal is that you
are proposing tax law changes which would reduce taxes in
1976 by $11 billion compared to tax liabilities under
present law?
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MR. LYNN: You are talking about calendar year
1976?
Q Yes.
MR. LYNN: See, that is where our confusion was
coming. I was talking fiscal year. You are talking
calendar year. As far as receipts, it lost about $11
billion.
Isn't that right, Bill?
Q
Where does that put you?
Q
In comparison with present law.
MR. LYNN: In comparison with present law?
Q That is not my question.
MR. LYNN: That answers one question. Let's take
another one. You go ahead.
Q
My question is, how much will be added to the
deficit by proposing by this tax proposal, and that is
assuming that the 1975 tax cut would have expired.
MR. LYNN: Totally?
Q Period.
MR. LYNN: I suppose the way you would estimate
that is, first, to take a half of a full year's effect.
The full effect of the tax package is roughly $28 billion,
right? So, you take a half year's effect of that, and I am
being very rough in that.
My real expert, Bill Macomber, please feel free to
correct me. Take roughly half of that and that would
be the additional receipts lost for the period. But, what
the economists also do is take a look at all of the factors
that enter into the economy, and what you think that kind
of tax cut will do by way of signals -- more importantly,
what the restraint provision you are trying to get for
1977 will do to the business community and to the
individuals and, therefore, some part of that receipts loss
will build into the deficit.
Q Sure you figured it out. I am just asking
for the figure. I know what the process is, but what is the
figure? Is it $11 billion?
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MR. LYNN: It would not be the total $11 billion
by any means.
Q
It is not the total $14 billion.
MR. LYNN: All right, the total $14 billion.
Q
What is it?
MR. LYNN: It would be something less than that.
Alan, would you care to comment on that?
MR. GREENSPAN: One of the problems he has got is
the fact that when taxes are received -- and I think that
unless you can go through a simulation of the specific
tax receipts differences, that is not a number you can get
that simply.
Do you have that?
Q
You cannot say how much this will add to the
deficit?
MR. GREENSPAN: No.
MR. LYNN: We have said that. We have said it in
the fact sheet.
What we said at the end of the fact sheet was that
taking into account the factors that we know of now, and
that includes putting in somewhat of a cushion for Congress-
ional reluctance in the future, as they have in the past,
to adopt the kinds of restraints that we have proposed, that
the deficit for fiscal year 1976 would be about $70 billion.
Q
Dropping the 40 to 44 in following fiscal
year?
MR. LYNN: Yes.
Q
Can we have the breakdown again of that
$11 billion on the 1975 comparison of the tax cut? In
calendar 1975, compared to the temporary 1975 law,
you said earlier, how do you break that down?
MR. LYNN: The way I got to that in my head was--
and again, Dale, the way we calculated it was--that if you
take the 1975 law, the way it is being applied now and
with withholding rates, as you have it now, the effect
on a full year basis on whether you take fiscal or other-
wise, but once it is in effect is about $17 billion -- $17
billion, $18 billion, somewhere in there.
So, therefore, if you look at your $28 billion,
that is what your differential is.
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- 22 -
Q
$17 billion revenue loss?
MR. LYNN: Yes, That is revenue loss again.
That does not necessarily mean your deficit loss.
Q
Can we get a breakdown of numbers parallel
to the 1972-1974 numbers?
SECRETARY SIMON: We can pass out what the 1975
tax act was in the old sheet that gives you the revenue
impacts on the 1975 tax act. You have the 1976 act here
proposed with the revenue impacts and a good many of the
business tax cuts are the same.
The investment tax credit, as I say, does not
expire until 1977. Your major difference is in your
individual tax cut. Of course, that is offset by the
rebate, which the $8 billion is off already.
Q
What you are saying now is the $28 billion
is made up of the $17 billion worth of cuts this year in
calendar 1976 and 11. Is that the 28? There was 17.
MR. LYNN: Try it again.
Q
The 28 is a combination of $17 billion worth
of tax revenue loss in this calendar year. What you are
proposing is 11 for calendar 1976, and that is how you
get your 28.
MR. LYNN: It is not quite that because you have
to distinguish between what the total amount of tax deduction
is locked into, not individual taxpayers or the like, and
that gets you to an annualized amount of about $14 billion,
I think it is. Is it 14? No, 12 plus. It is somewhere
between $12 billion and $13 billion.
If you assume the taxpayers continue to get the
same take-home pay, in other words you try to get an
annualized base so that they keep the same withholding
that they have now, you have to add another $4 billion plus
to that, and that is what gives you the $17 to $18 billion.
If you were to have taxes just continue now the
way our American taxpayers are paying them, with their take-
home pay as they get it every month, it would cost you on
an annual rate about $17 billion, somewhere between $17
and $18 billion. What this does is add about another $11
on top of that.
Q
Yes, but if we get to the end of 1976 --
MR. LYNN: Are you talking calendar?
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Q
Calendar.
MR. LYNN: Okay, I just wanted to know.
Q
If we ever get to the end of calendar year
1976 --
MR. LYNN: I hope we do.
Q
Then what you will be saying is that $11
billion will be lopped off in 1976, isn't that right?
MR. LYNN: In one way, I see what you are saying.
If you were to assume that the temporary tax cut were
there forever, if that is the way you looked at it, and
we looked upon it as a new ball game that we have to decide
now what is the best tax policy for the United States
effective January 1 -- but if you looked at it your way,
you are absolutely right.
It was decided in the old law to add at the rate
of $17 billion a year and under this new change you are
adding another $11 billion a year. We prefer not to look
at it that way. We prefer to look at it overall as to what
does this mean by way of a tax program that makes sense for
this country for a longer term direction.
One thing I will urge you to look at is that in
the President's statement--and it should have been
reflected in the fact sheet, and I am sorry it is not there,
it should be there -- the President says that this ceiling
is the first step moving toward a balanced budget within
three years.
Now we think the net effect of all of these
actions that the President is proposing will be to, one,
get a much healthier economy; two, return some freedom
of our taxpayers to spend the money they are earning that
they have rapidly been losing over many years in the past.
MR. NESSEN: There is a Cabinet meeting that these
three gentlemen need to go to. It started a couple minutes
ago, so we probably should knock this off.
Q
Does this program mean you will initiate no
new programs next year?
MR. LYNN: Yes, no new spending.
THE PRESS: Thank you.
END
(AT 6:24 P.M. EDT)
EMBARGOED FOR RELEASE
OCTOBER 6, 1975
UNTIL 8:00 P.M. EDT
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
THE PRESIDENT'S PROPOSAL FOR TAX CUTS AND FEDERAL SPENDING RESTRAINT
President Ford is proposing that permanent large tax cuts be made
possible for American taxpayers by Congress joining with him in
limiting the growth of federal expenditures. The tax reductions
proposed by the President total about $28 billion compared to 1974
law. This proposal is linked to the adoption by the Congress now
of a spending ceiling of $395 billion for FY 1977. This represents
a reduction of about $28 billion from projected levels for that
year unless action to limit federal spending is taken.
The proposed tax cuts are divided approximately 75 percent for
individuals and 25 percent for business. A family of four earning
$14,000 a year would receive a reduction in their tax liability
of $412 or 27 percent.
I. SUMMARY OF THE TAX CUT PROPOSAL
A. The individual tax reductions will be accomplished by:
$8 billion in cuts to replace the temporary 1975
tax reductions.
$4 billion in additional cuts required to keep
personal withholding rates constant. (The 1975
cut was reflected in withholding over an eight-
month period and, therefore, a $4 billion extra
cut is provided to keep withholding constant.)
$8.7 billion in further tax relief distributed
throughout all income ranges.
B. The business tax reductions will continue the tax
relief for small business provided by the 1975 Act, will
make permanent the higher investment credit rate of 10 per-
cent as an incentive for investment in equipment needed to
increase productivity and to provide new jobs, will reduce
the marginal rate on business income as a first step toward
eliminating the existing tax bias against capital formation,
and will provide special relief to utilities needed to reduce
dependence on foreign energy sources.
(OVER)
2
C. The recommended changes in the individual and business
income tax structure, and their costs, as compared to 1974
law, are as follows:
Individual Tax Cuts
Increase personal exemption from $750
$10.1 billion
to $1,000.
Replace $1,300 low income allowance
$ 4.0 billion
and $2,000 maximum standard deduction
with flat amount standard deduction
of $2,500 for married couples ($1,800
for a single person)
Reduce tax rates
$ 6.6 billion
TOTAL INDIVIDUAL TAX CUTS
$20.7 billion
Business Tax Cuts
Extension of 1975 corporate rate
$ 1.7 billion
and surtax exemption changes
Permanent extension of investment
$ 2.5 billion
credit increase (from 7-10; 4-10
for utilities)
2% corporate rate reduction (48-46%)
$ 2.2 billion
Utilities tax relief previously
$ 0.6 billion
proposed (see Annex C)
TOTAL BUSINESS TAX CUTS
$ 7.0 billion
TOTAL TAX CUTS
$27.7 billion
The effects on individual taxpayers of the President's tax
proposals are shown in the following tables:
3
Tax Liabilities for Family with 2 Dependents,
Filing Joint with Itemized Deductions of
16 Percent of Adjusted Gross Income
(If standard deduction exceeds itemized
deduction, family uses standard deduction.)
Adjusted
Tax Liability
Reduction from
gross
1972-74
:
1975
:
Proposed
1972-74
: 1975
income
law
:
law
: 1976 law
law
: law
$ 5,000
98
0
0
98
0
7,000
402
186
60
342
126
10,000
886
709
485
401
224
15,000
1,732
1,612
1,325
407
287
20,000
2,710
2,590
2,280
430
310
25,000
3,820
3,700
3,370
450
330
30,000
5,084
4,964
4,648
436
316
40,000
8,114
7,994
7,664
450
330
50,000
11,690
11,570
11,180
510
390
Office of the Secretary of the Treasury
Office of Tax Analysis
Tax Liabilities for Single Person with Itemized
Deductions of 16 Percent of Adjusted Gross Income
(If standard deduction exceeds itemized deduction,
individual uses standard deduction.)
Adjusted
Tax Liability
Reduction from
gross
1972-74
:
1975
: Proposed
1972-74
:
1975
income
law
:
law
: 1976 law
law
:
law
$ 5,000
$
490
$
404
$
307
$ 183
$ 97
7,000
889
796
641
248
155
10,000
1,506
1,476
1,227
279
249
15,000
2,589
2,559
2,307
282
252
20,000
3,847
3.817
3,553
294
264
25,000
5,325
5,295
5,015
310
280
30,000
6,970
6,940
6,655
315
285
40,000
10,715
10,685
10,375
340
310
50,000
15,078
15,048
14,725
353
323
Office of the Secretary of the Treasury
Office of Tax Analysis
#
#
4
E
II. FULLER DESCRIPTION OF PROPOSED TAX CUTS
A. Individual Tax Cuts
The proposed permanent restructuring would replace the
temporary mandard deduction and the $30 per taxpayer
exemption credit provided by the 1975 Act. The changes
assure that withholding will not be increased and
that, in fact, there will be further tax reductions for
the great majority of taxpayers. As compared to 1974 law,
the President's proposal would:
Increase the personal exemption from $750 to $1,000.
Replace the present minimum standard deduction (low
income allowance) of $1,300 and maximum standard
deduction of $2,000 by a single standard deduction in
a flat amount of $1,800 for a single taxpayer and
TBS
$2,500 for a married couple ($1,250 for married person
filing separately). This compares with the average
OIE
standard deduction claimed in 1974 of $1,625 by married
couples and $1,400 by single persons. (The 1975 Act
DEE made temporary changes in the standard deduction, which
are described in Annex D.)
DIE
Provide rate reductions as shown in the tax rate
DEE
schedules attached at Annexes A & B.
B. Business Tax Cuts
000.11
000.02
The President also proposes to:
to
to
-- Reduce the maximum corporate tax rate from 48 percent
to 46 percent.
Continue the 1975 Act increase in the surtax exemption
(which determines the amount taxable at rates below
48 percent) from $25,000 to $50,000 of taxable income.
-- Continue the 1975 Act reduction in the rate on the
first $25,000 of taxable income from 22 percent to 20
percent (the second $25,000 of taxable income will be
WBI
:
taxable at a 22 percent rate, with the balance of
income taxed at a 46 percent rate).
--- Make permanent the 1975 Act increase in the investment
&
credit from 7 percent (4 percent in the case of public
utilities) to 10 percent.
221
--
Enact a six-point program to provide tax relief to
ers
electric utilities and to reduce dependency on foreign
energy sources (see Annex C for full description).
sas
SBS
TOE.S
222.5
982.5
000.21
more
pas
pes
822,8
T18.E
TH8sE
000,0S
08S
OIE
210.2
258.8
000,29
285
CIE
220.8
one.a
oTe.a
000.0E
OIE
OHE
EYE.OI
288.01
CIT.O1
000.00
ESE
828
CST,HI
880.21
850.21
000.02
to to
sisvisnA 10
5
III. BACKGROUND ON FEDERAL SPENDING
A. Unless action is taken to restrain federal outlays in FY
1977, spending can be expected to increase by around $53
billion in a single year. Budget outlays are approaching
$370 billion in FY 1976. Without specific legislative action
to limit spending, outlays in FY 1977 will reach $423 billion
or more. The main elements of an increase of $53 billion
are as follows:
(Billions)
Interest on the public debt will rise as
the size of the debt grows. If current
interest rates are maintained, the in-
crease will approach
$9
Civilian and military salaries increase
automatically unless the President and
Congress agree on an alternative plan.
Would add more than
+6
Retirement benefits for retired federal
military and civilian personnel also rise
automatically with the cost-of-living
+3
Social security and railroad retirement
payments increase automatically based
upon the cost-of-living index
+12
Medicare and Medicaid payments rise as
costs increase and the number of eligible
recipients go up
+5
Public assistance, food stamps,
housing subsidies and related
programs are tied to the formulae set
in law or in existing contracts
+2
Major construction of wastewater treat-
ment plants now underway will add nearly
+2
Essential procurement and research and
development of military hardware and
maintenance of necessary military
facilities will add over
+3
Increases for energy research and develop-
ment and transportation programs and
inclusion of Export-Import Bank in budget.
+4
Other likely net changes including effect
of Congressional inaction on budget reduc-
tion proposals heretofore proposed by the
President and the effect of probable
Congressional initiatives
+7
TOTAL
53
6
B. Decisions have not yet been made on which programs will
be restrained or curtailed.
-- Specific decisions will be made in the budget
review process leading up to the President's
January Budget Message to Congress.
- All departments and agencies will be called upon
to moderate program growth, expenditures, and
Federal personnel levels.
C. The President has called upon Congress to join with
him in making the tax reductions possible by placing a
limit of $395 billion on FY 1977 expenditures now.
--- A $395 billion ceiling is $25 billion above the
currently estimated spending level this fiscal
year and $28 billion below the level now pro-
jected for FY 1977.
D. Based upon current estimates that FY 1976 spending
may approach $370 billion, the FY 1976 budget deficit
would be about $70 billion. With the President's
proposals, the FY 1977 deficit is estimated in the
range of $40-44 billion.
# # # # #
EMBARGOED FOR RELEASE
OCTOBER 6, 1975
UNTIL 8:00 P.M. EDT
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
THE PRESIDENT'S PROPOSAL FOR TAX CUTS AND FEDERAL SPENDING RESTRAINT
President Ford is proposing that permanent large tax cuts be made
possible for American taxpayers by Congress joining with him in
limiting the growth of federal expenditures. The tax reductions
proposed by the President total about $28 billion compared to 1974
law. This proposal is linked to the adoption by the Congress now
of a spending ceiling of $395 billion for FY 1977. This represents
a reduction of about $28 billion from projected levels for that
year unless action to limit federal spending is taken.
The proposed tax cuts are divided approximately 75 percent for
individuals and 25 percent for business. A family of four earning
$14,000 a year would receive a reduction in their tax liability
of $412 or 27 percent.
I. SUMMARY OF THE TAX CUT PROPOSAL
A. The individual tax reductions will be accomplished by:
$8 billion in cuts to replace the temporary 1975
tax reductions.
$4 billion in additional cuts required to keep
personal withholding rates constant. (The 1975
cut was reflected in withholding over an eight-
month period and, therefore, a $4 billion extra
cut is provided to keep withholding constant.)
$8.7 billion in further tax relief distributed
throughout all income ranges.
B. The business tax reductions will continue the tax
relief for small business provided by the 1975 Act, will
make permanent the higher investment credit rate of 10 per-
cent as an incentive for investment in equipment needed to
increase productivity and to provide new jobs, will reduce
the marginal rate on business income as a first step toward
eliminating the existing tax bias against capital formation,
and will provide special relief to utilities needed to reduce
dependence on foreign energy sources.
2
C. The recommended changes in the individual and business
income tax structure, and their costs, as compared to 1974
law, are as follows:
Individual Tax Cuts
Increase personal exemption from $750
$10.1 billion
to $1,000.
Replace $1,300 low income allowance
$ 4.0 billion
and $2,000 maximum standard deduction
with flat amount standard deduction
of $2,500 for married couples ($1,800
for a single person)
Reduce tax rates
$ 6.6 billion
TOTAL INDIVIDUAL TAX CUTS
$20.7 billion
Business Tax Cuts
Extension of 1975 corporate rate
$ 1.7 billion
and surtax exemption changes
Permanent extension of investment
$ 2.5 billion
credit increase (from 7-10; 4-10
for utilities)
2% corporate rate reduction (48-46%)
$ 2.2 billion
Utilities tax relief previously
$ 0.6 billion
proposed (see Annex C)
TOTAL BUSINESS TAX CUTS
$ 7.0 billion
TOTAL TAX CUTS
$27.7 billion
The effects on individual taxpayers of the President's tax
proposals are shown in the following tables:
3
Tax Liabilities for Family with 2 Dependents,
Filing Joint with Itemized Deductions of
16 Percent of Adjusted Gross Income
(If standard deduction exceeds itemized
deduction, family uses standard deduction.)
Adjusted
Tax Liability
Reduction from
gross
1972-74
: 1975
:
Proposed
1972-74
: 1975
income
law
:
law
:
1976 law
law
: law
$ 5,000
98
0
0
98
0
7,000
402
186
60
342
126
10,000
886
709
485
401
224
15,000
1,732
1,612
1,325
407
287
20,000
2,710
2,590
2,280
430
310
25,000
3,820
3,700
3,370
450
330
30,000
5,084
4,964
4,648
436
316
40,000
8,114
7,994
7,664
450
330
50,000
11,690
11,570
11,180
510
390
Office of the Secretary of the Treasury
Office of Tax Analysis
Tax Liabilities for Single Person with Itemized
Deductions of 16 Percent of Adjusted Gross Income
(If standard deduction exceeds itemized deduction,
individual uses standard deduction.)
Adjusted
Tax Liability
Reduction from
gross
1972-74
:
1975
: Proposed
1972-74
:
1975
income
law
:
law
: 1976 law
law
:
law
$ 5,000
$
490
$
404
$
307
$ 183
$ 97
7,000
889
796
641
248
155
10,000
1,506
1,476
1,227
279
249
15,000
2,589
2,559
2,307
282
252
20,000
3,847
3.817
3,553
294
264
25,000
5,325
5,295
5,015
310
280
30,000
6,970
6,940
6,655
315
285
40,000
10,715
10,685
10,375
340
310
50,000
15,078
15,048
14,725
353
323
Office of the Secretary of the Treasury
Office of Tax Analysis
# #
4
II. FULLER DESCRIPTION OF PROPOSED TAX CUTS
A. Individual Tax Cuts
The proposed permanent restructuring would replace the
temporary increased standard deduction and the $30 per taxpayer
exemption credit provided by the 1975 Act. The changes
assure that withholding will not be increased and
that, in fact, there will be further tax reductions for
the great majority of taxpayers. As compared to 1974 law,
the President's proposal would:
-- Increase the personal exemption from $750 to $1,000.
-- Replace the present minimum standard deduction (low
income allowance) of $1,300 and maximum standard
deduction of $2,000 by a single standard deduction in
a flat amount of $1,800 for a single taxpayer and
$2,500 for a married couple ($1,250 for married person
filing separately). This compares with the average
standard deduction claimed in 1974 of $1,625 by married
couples and $1,400 by single persons. (The 1975 Act
made temporary changes in the standard deduction, which
are described in Annex D.)
-- Provide rate reductions as shown in the tax rate
schedules attached at Annexes A & B.
B. Business Tax Cuts
The President also proposes to:
-- Reduce the maximum corporate tax rate from 48 percent
to 46 percent.
-- Continue the 1975 Act increase in the surtax exemption
(which determines the amount taxable at rates below
48 percent) from $25,000 to $50,000 of taxable income.
-- Continue the 1975 Act reduction in the rate on the
first $25,000 of taxable income from 22 percent to 20
percent (the second $25,000 of taxable income will be
taxable at a 22 percent rate, with the balance of
income taxed at a 46 percent rate).
-- Make permanent the 1975 Act increase in the investment
credit from 7 percent (4 percent in the case of public
utilities) to 10 percent.
-- Enact a six-point program to provide tax relief to electric
utilities and to reduce dependency on foreign energy
sources (see Annex C for full description).
more
5
III. BACKGROUND ON FEDERAL SPENDING
A. Unless action is taken to restrain federal outlays in FY
1977, spending can be expected to increase by around $53
billion in a single year. Budget outlays are approaching
$370 billion in FY 1976. Without specific legislative action
to limit spending, outlays in FY 1977 will reach $423 billion
or more. The main elements of an increase of $53 billion
are as follows:
(Billions)
Interest on the public debt will rise as
the size of the debt grows. If current
interest rates are maintained, the in-
crease will approach
9
Civilian and military salaries increase
automatically unless the President and
Congress agree on an alternative plan.
Would add more than
+6
Retirement benefits for retired federal
military and civilian personnel also rise
automatically with the cost-of-living
+3
Social security and railroad retirement
payments increase automatically based
upon the cost-of-living index
+12
Medicare and Medicaid payments rise as
costs increase and the number of eligible
recipients go up
+5
Public assistance, food stamps,
housing subsidies and related
programs are tied to the formulae set
in law or in existing contracts
+2
Major construction of wastewater treat-
ment plants now underway will add nearly
+2
Essential procurement and research and
development of military hardware and
maintenance of necessary military
facilities will add over
+3
Increases for energy research and develop-
ment and transportation programs and
inclusion of Export-Import Bank in budget.
+4
Other likely net changes including effect
of Congressional inaction on budget reduc-
tion proposals heretofore proposed by the
President and the effect of probable
Congressional initiatives
+7
TOTAL
53
6
B. Decisions have not yet been made on which programs will
be restrained or curtailed.
-- Specific decisions will be made in the budget
review process leading up to the President's
January Budget Message to Congress.
- All departments and agencies will be called upon
to moderate program growth, expenditures, and
Federal personnel levels.
C. The President has called upon Congress to join with
him in making the tax reductions possible by placing a
limit of $395 billion on FY 1977 expenditures now.
--- A $395 billion ceiling is $25 billion above the
currently estimated spending level this fiscal
year and $28 billion below the level now pro-
jected for FY 1977.
D. Based upon current estimates that FY 1976 spending
may approach $370 billion, the FY 1976 budget deficit
would be about $70 billion. With the President's
proposals, the FY 1977 deficit is estimated in the
range of $40-44 billion.
# # # # #
ANNEX A (*)
Tax Rate Schedule for President's
October 6, 1975 Tax Reduction Proposals
(Married Taxpayers Filing Jointly)
Taxable income
: Present rates :Proposed rates
bracket
:
(percent)
:
(percent)
$
0
$1,000
14
12
1,000
2,000
15
14
2,000
3,000
16
15
3,000
4,000
17
15
4,000
6,000
19
16
6,000
8,000
19
17
8,000
10,000
22
21
10,000
12,000
22
22
12,000
16,000
25
25
16,000
20,000
28
29
20,000
24,000
32
34
24,000
28,000
36
28,000
32,000
39
M
a
32,000
36,000
42
36,000
40,000
45
40,000
44,000
48
44,000
52,000
50
52,000
64,000
53
64,000
76,000
55
present
76,000
88,000
58
88,000
100,000
60
100,000
120,000
62
120,000
140,000
64
as
140,000
160,000
66
160,000
180,000
68
180,000
200,000
69
200,000
--
70
Same
Office of the Secretary of the Treasury
October 6, 1975
Office of Tax Analysis
NOTE: While some rates are increased in the higher brackets,
taxpayers with income taxed in those brackets will
benefit from rate reductions in the lower brackets and
the increase in the personal exemption so that on balance
the tax cut proposals will reduce taxes even for those
affected by the increased rates.
(*) ANNEXES PREPARED BY TREASURY DEPARTMENT
OFFICE OF TAX POLICY
ANNEX B
Tax Rate Schedule for President's
October 6, 1975 Tax Reduction Proposals
(Single Taxpayers)
Taxable income
: Present rates Proposed rates
bracket
:
(percent)
:
(percent)
$
0
$ 500
14
12
500
1,000
15
13
1,000
1,500
16
15
1,500
2,000
17
15
2,000
3,000
19
16
3,000
4,000
19
17
4,000
5,000
21
18
5,000
6,000
21
19
6,000
8,000
24
21
8,000
10,000
25
24
10,000
12,000
27
27
12,000
14,000
29
29
14,000
16,000
31
31
16,000
18,000
34
18,000
20,000
36
20,000
22,000
38
22,000
26,000
40
26,000
32,000
45
32,000
38,000
50
38,000
44,000
55
44,000
50,000
60
50,000
60,000
62
60,000
70,000
64
70,000
80,000
66
80,000
90,000
68
Same as present law
90,000
100,000
69
100,000
--
70
Office of the Secretary of the Treasury
October 6, 1975
Office of Tax Analysis
NOTE: While some rates are increased in the higher brackets,
taxpayers with income taxed in those brackets will
benefit from rate reductions in the lower brackets
and the increase in the personal exemption so that on
balance the tax cut proposals will reduce taxes even
for those affected by the increased rates.
ANNEX C
SIX-POINT UTILITIES PACKAGE
Increase the investment tax credit permanently to 12
percent on all electric utility property except generat-
ing facilities fueled by petroleum products. No change
of the percent-of-tax limitation is involved. The
increase in the credit is allowable only if construction
work in progress is included in the utility's rate base
and the benefit of the increase is "normalized" for
ratemaking purposes. "Normalized" in this sense
means reflecting the tax benefit for ratemaking purposes
pro rata over the life of the asset which generates the
benefit instead of recognizing the entire tax benefit
in the year the utility's taxes are actually reduced.
In the absence of normalization, the entire tax benefit
would flow through immediately in the form of reduced
utility rates for consumers, and no real economic benefit
would result for the utility.
-- Give electric utilities full, immediate investment tax
credit on progress payments for construction of
property that takes two years or more to build, except
generating facilities fueled by petroleum products,
without regard to the five-year phase-in required by
the Tax Reduction Act of 1975. This new provision
applies only if the regulatory agency includes con-
struction work in progress in the utility's rate base
for ratemaking purposes.
-- Extend to January 1, 1981, the period during which
pollution control facilities installed in a pre-1969
plant or facility may qualify for rapid five-year
straight-line amortization in lieu of normal depre-
ciation and the investment credit.
-- Permit rapid five-year amortization of the costs of
either converting a generating facility fueled by petroleum
products into a facility not fueled by petroleum products or
replacing a petroleum-fueled facility with one not fueled
by petroleum. This amortization is in lieu of normal
- 2 -
depreciation and the investment credit, and is available
only if (i) its benefits are "normalized" for ratemaking
purposes, and (ii) construction work in progress is included
in the utility's rate base for ratemaking purposes.
-- Permit a utility to elect to begin depreciation, during the
construction period, of accumulated construction progress
expenditures, generally the same expenditures as those which
qualify for the investment credit construction progress
payments under the Tax Reduction Act of 1975. Any deprecia-
tion taken during the construction period will reduce the
depreciation deductions available after the property is completed.
This early depreciation will be available only if the ratemaking
commission includes construction work in progress in
the utility's rate base and "normalizes" the tax benefits
for ratemaking purposes. Construction of generating
facilities which will be fueled by petroleum products will
not qualify for such depreciation.
-- Permit a shareholder of a regulated public electric utility
to postpone tax on dividends paid by the utility on its common
stock by electing to take additional common stock of the
utility in lieu of cash dividends. The receipt of the stock
dividend will not be taxed. The amount of the dividend
will be taxed as ordinary income when the shareholder sells
the dividend stock and the amount of capital gain realized
on the sale will be decreased (or the amount of capital loss
increased) accordingly. Dividend stock is deemed sold before
other stock.
FY 1976 COST = $600 million
Annex D
MAJOR 1975 INDIVIDUAL TAX REDUCTIONS
The Tax Reduction Act of 1975 contains three temporary
general individual tax cut provisions affecting most taxpayers. The
first was the temporary one-shot rebate of a portion of 1974 tax liabili-
ties, which was implemented through special rebate checks or larger
refund checks last spring (cost: $8. 1 billion). Two other temporary
structural changes enacted in 1975 may be summarized as follows:
Standard deduction liberalization
-- minimum standard deduction (low income allowance)
increased from $1,300 per return ($650 for married
persons filing separately) to $1, 900 for a joint return
or surviving spouse, $1,600 for single persons, and
$950 for married persons filing separately,
-- maximum standard deduction increased from 15 percent
of AGI (with a maximum of $2,000 or $1,000 for a
married person filing separately) to 16 percent of AGI
(with a maximum of $2,600 for a joint return or surviving
spouse, $2,300 for a single person, and $1, 300 for
married persons filing separately,
-- effective for one year (generally 1975 calendar year)
COST: $2.5 billion
Personal exemption tax credit
-- new $30 per exemption tax credit (except blind and aged
exemptions) in addition to present law personal exemptions
-- effective for one year (generally 1975 calendar year)
1
COST: $5.3 billion
The approximate $8 billion of tax reductions effected by the
standard deduction liberalization and the personal exemption tax cut
were reflected in withholding tax reduction over a eight-month period.
Thus, the amount of tax cuts necessary to annualize the 1975 Act with-
holding tax reductions over a 12-month period would be approximately
$12 billion.
ANNEX E
Income Distribution of President's Tax Reduction Proposal
at 1975 Levels of Income
(billions of dollars)
Adjusted gross
:
Tax liability
:
Proposed
:
Tax
:
Percentage
:
Percentage
income class
:
based on
:
1976 tax
:
reduction
: distribution of
:
reduction in
:
1972-74 law
:
liability
:
: tax reduction : tax liability 1/
$
0 - $5,000
2.0
0.8
1.2
5.8
61.3
5,000 - 10,000
14.1
9.1
5.0
24.2
35.3
10,000 - 15,000
23.1
17.6
5.5
26.6
23.8
15,000 - 20,000
23.7
19.5
4.2
20.3
17.7
20,000 - 30,000
28.0
24.7
3.3
15.9
11.7
30,000 - 50,000
16.9
15.9
1.0
4.8
5.8
50,000 - 100,000
12.1
11.7
0.4
1.8
3.2
100,000 +
9.4
9.3
0.1
0.5
0.8
TOTAL
129.4
108.7
20.7
100.0
15.9
Office of the Secretary of the Treasury
October 6, 1975
Office of Tax Analysis
1/ Based on unrounded liability figures.
NOTE: Detail may not add to totals due to rounding.
ANNEX F
Maximum Levels of Tax-free Earned Income for 1976
Under the President's Tax Reduction Proposal
(rounded to nearest $10)
:
Maximum tax-free earned income 1/
:
Poverty income levels 2/
Filing status
:
1975
:
1976
:
1975
:
1976
Single
no dependents
2,560
2,800
2,790
2,970
Married, joint return
no dependents
3,830
4,500
3,610
3,850
: dependent
4,790
5,500
4,300
4,570
2 dependents
5,760
6,500
5,500
5,850
3 dependents
6,720
7,500
6,490
6,900
4 dependents
7,670
8,500
7,300
7,770
Single, over 55,
no dependents
3,310
3,800
2,580
2,750
Married, joint return,
both over 65
no dependents
5,330
6,500
3,260
3,460
Office of the Secretary of the Treasury
October 6, 1975
Office of Tax Analysis
½ For taxpayers not eligible for the earned income credit.
2/ Unforlying Consumer Price Index: for 1975, 161.2; for 1976, 171.5.
FOR IMMEDIATE RELEASE
OCTOBER 6, 1975
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
REMARKS OF THE PRESIDENT
ON HIS RECOMMENDATIONS
FOR REDUCTIONS IN TAXES AND SPENDING
THE OVAL OFFICE
8:00 P.M. EDT
Good evening. I have asked for this opportunity
to talk with you tonight because it is important that all of
us begin facing up to a fundamental decision about our
Nation's future.
For several years America has been approaching
a crossroads in our history. Today we are there.
To put it simply, we must decide whether we shall
continue in the direction of recent years the path toward bigger
Government, higher taxes and higher inflation or whether we
shall now take a new direction bringing to a halt the momen-
tous growth of Government, restoring our prosperity and
allowing each of you a greater voice in your own future.
Tonight I will set forth two proposals that,
taken together, as they must be, represent the answer I believe
we must choose.
First, I propose that we make a substantial and
permanent reduction in our Federal taxes, and, second, I
propose that we make a substantial reduction in the growth of
Federal spending.
Let me emphasize at the outset that these proposals
must be tied together in one package. It would be dangerous
and irresponsible to adopt one without the other. I will
not accept that as an answer for our future.
I want these proposals acted upon together by the
Congress. Together they represent one central and fundamental
decision that America belongs to you, the people, and not to
the Government.
MORE
Page 2
Each of you knows from experience about your
economic problems of recent months, you know what it means to
pay more and more of your income just to feed and clothe
your family, to get to work, and to maintain a decent
home. You know the fear that strikes the human heart when
a friend or a member of your family is laid off work and you
know the anxiety that comes when these forces seem beyond
your control.
None of us wants to repeat the experiences of the
past year. We want steady prices, we want steady jobs and,
above all, we want a chance to get ahead again, to know that our
destiny lies in our own hands and not in Washington or some
other far away place.
Fortunately, there are encouraging signs that we
have weathered the worst of this economic storm. The recovery
that began this spring is now gathering momentum. If we act
wisely, it will continue on an upward path with more jobs
and more stable prices.
Yet we should not be deceived. All of us must
recognize that just beneath the surface there are still
deep-seated problems in our economy problems that have
been building up over the years and will not quickly or
easily disappear.
We must attack the underlying causes of our economic
problems. We must get at the roots of our difficulties.
We must find answers that serve us not only this year but
for the years to come.
The President and the Congress working together
have the power to help. I know that because in Washington
much of America's vitality and prosperity have been drained
away. It is here that one big spending program after another
has been piled on the Federal pyramid taking a larger share of
your personal income and creating record budget deficits and
inflation. Here a massive, often too zealous bureaucracy has
been erected that has become too involved in trying to run
too much of your daily life.
Over the years these excesses have played a major
role in driving up prices, driving up interest rates and
holding down jobs. We do not have to look far for our
underlying problems.
Much of our inflation should bear a label "Made
in Washington, D.C."
As we emerge from this recession, we face the basic
choice: Shall we continue these patterns in Washington or
shall we set off in a new direction? We cannot do both.
We cannot go down both roads at the same time. We must choose.
MORE
Page 3
Tonight, I propose permanent tax reductions totaling
$28 billion-- the biggest single tax cut in our history.
Earlier this year the Congress passed, and I signed, a temporary
tax cut covering calendar year 1975. That temporary law will
expire at the end of this year and, unless we act now, your
taxes will go up again in January. I am proposing that we
sweep away that temporary law and replace it, effective
January 1, with a permanent Federal income tax cut that will
be both larger and more equitable.
Three quarters of this permanent reduction will be
for individual taxpayers and the chief benefits will be
concentrated where they belong, among working people. The
industrious working men and women of this country are the
backbone of America. We cannot continuously ask them to
bear an unfair tax burden. I propose that we lighten the tax
load for them and for all other Americans in three ways:
by raising everyone's personal tax exemption from $750 to $1000;
by making the standard deduction for single taxpayers a flat
$1800 and for every married couple $2500, and by lowering our
basic personal income tax rates.
Together these measures will not only decrease
everyone's taxes but they will aslo help to make up for the
ravages of inflation. They will simplify the tax returns for
millions of Americans. The total package represents a substantial
reduction below the rates that will otherwise take effect
this January. Under my proposal, a typical family of four
earning a total of $14,000 a year would get a permanent tax
cut of $412 a year, a 27 percent reduction.
The other quarter of the tax reduction will be
directed at business in a way that creates more jobs. If
companies and plants are to regain their footing and to
hire more employees in the future, they must have greater
incentives for investment. In order to create jobs, and good jobs,
this country must build new plants and new equipment and
we must have a growing economy. The tax cuts that I propose,
including a permanent increase in the investment tax credit and
a two percent reduction in the corporate tax rate, are
specifically designed to increase employment. We must recog-
nize that cutting taxes is only half the answer.
If we cut only taxes but do not cut the growth
of Government spending, budget deficits will continue to
climb, the Federal Government will continue to borrow too much
money from the private sector. We will have more inflation,
and ultimately we will have more unemployment.
Substantial cuts in your taxes must be tied to
substantial cuts in the growth of Government spending.
Anyone who has followed the upward leap in Federal spending
can only shake his head in astonishment.
MORE
Page 4
Back in 1962, the Federal budget for the first time
in our history ran over $100 billion. In only eight years
the budget doubled in size. In the coming fiscal year unless
we act it will double again to over $400 billion.
One of the reasons for this horrendous spending
growth is that much of the increase in each year's budget
is required by programs already on the statute books. Many
of these increased programs were first enacted years ago,
and while individually they might have appeared manageable
then, today -- taken together -- they are out of control. They
are like a freight train whose lights were first seen far off
in the night. That train has been coming closer and closer
and now it is roaring down upon us. If we don't slow it down,
Federal spending next year could easily jump to more than
$420 billion without a single new Federal program.
Therefore, I propose that we halt this alarming
growth by holding spending in the coming year to $395 billion.
That means a cut of $28 billion below what we will spend
if we just stand still and let the train run over us.
More importantly, it means almost a dollar-for-dollar
cut in taxes and spending. For every dollar that we return to
the American taxpayer, we must also cut our projected spending
by the same amount. If we allow politics as usual to prevail
in the Congress, there will be a temptation to overwhelmingly
approve the tax cuts and do nothing on the spending cuts.
That must not happen.
I will go forward with the tax cuts that I am
proposing only if there is a clear, affirmative decision by
your representatives in the House and the Senate that they
will hold spending next year to $395 billion. I will not
hesitate to veto any legislation passed by the Congress
which violates the spirit of that understanding.
I want these actions to be a first step, and they
are a crucial step, toward balancing the Federal budget
within three years.
In January, I will propose to the Congress that many
of our current spending programs be revised, consolidated
and held below their projected levels. When I do, you will
hear loud protests from one group after another contending that
Washington should keep up an endless flow of subsidies. But
we have to face hard reality: our financial resources are
limited. We must learn to live within our means.
MORE
Page 5
Spending discipline by the Federal Government must
be applied across the board. It cannot be isolated to one
area such as social programs nor can we completely insulate
any area such as defense. All must be restrained. I believe
that your Congressmen should stop trying so hard to find new
programs that spend your money and get to work figuring out
how to make the Government work better for you. They should
get rid of the programs that don't work in order to make room
for those that do.And, in the process, can begin cutting
back the swollen Federal bureaucracy.
I want to work with the Congress and with you,
the people, to insure that those who deserve the help of our
Nation continue receiving that help. The elderly, the poor
and the men and women who have borne our Nation's arms.
Also, I will not permit reductions in our military budget
that would jeopardize our national security. We must
maintain a strong economy and a strong national defense.
Sometimes when fancy new spending programs reach
this desk, promising something for almost nothing
and carrying appealing labels, I wonder who the supporters
think they're kidding. From my visits with the American
people, I find many of them believe that what the Government
puts in your front pocket, it slips out of your back pocket
through taxes and inflation. They are figuring out that they
are not getting their money's worth from their taxes. They
believe that the politics of Federal spending has become too
much of a shell game. And I must say that I agree with them.
America's greatness was not built by taxing people
to their limits but by letting our people exercise their freedom
and their ingenuity to their limits. Freedom and prosperity
go hand in hand. The proof is there to see around the world.
Only by releasing the full energies of our people -- only
by getting the Government off your back and out of your pocket --
will we achieve our goals of stable prices and more jobs.
I deeply believe that our Nation must not continue
down the road we have been traveling. Down that road lies the
wreckage of many great nations of the past. Let us choose
instead the other road, the road that we know to be tested,
the road that will work.
As your President, I cannot take this journey alone.
I need the help of you, the American people, to persuade
your Congressmen and your Senators that you want the growth
in Government spending cut so that your taxes can be cut now.
I need the help of the farmer in Iowa, the housewife in
California, the retired couple in Florida, the small business-
man in New Jersey, the student in Texas -- all of you. This
must be a national effort. America should not belong to the
Government, but to the people. You can serve the Nation by
helping us make the right choice for the future.
Thank you, and good evening.
END
(AT 8:20 P.M. EDT)
EMBARGOED FOR RELEASE
OCTOBER 6, 1975
UNTIL 8:00 P.M. EDT
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
THE PRESIDENT'S PROPOSAL FOR TAX CUTS AND FEDERAL SPENDING RESTRAINT
President Ford is proposing that permanent large tax cuts be made
possible for American taxpayers by Congress joining with him in
limiting the growth of federal expenditures. The tax reductions
proposed by the President total about $28 billion compared to 1974
law. This proposal is linked to the adoption by the Congress now
of a spending ceiling of $395 billion for FY 1977. This represents
a reduction of about $28 billion from projected levels for that
year unless action to limit federal spending is taken.
The proposed tax cuts are divided approximately 75 percent for
individuals and 25 percent for business. A family of four earning
$14,000 a year would receive a reduction in their tax liability
of $412 or 27 percent.
I. SUMMARY OF THE TAX CUT PROPOSAL
A. The individual tax reductions will be accomplished by:
$8 billion in cuts to replace the temporary 1975
tax reductions.
$4 billion in additional cuts required to keep
personal withholding rates constant. (The 1975
cut was reflected in withholding over an eight-
month period and, therefore, a $4 billion extra
cut is provided to keep withholding constant.)
$8.7 billion in further tax relief distributed
throughout all income ranges.
B. The business tax reductions will continue the tax
relief for small business provided by the 1975 Act, will
make permanent the higher investment credit rate of 10 per-
cent as an incentive for investment in equipment needed to
increase productivity and to provide new jobs, will reduce
the marginal rate on business income as a first step toward
eliminating the existing tax bias against capital formation,
and will provide special relief to utilities needed to reduce
dependence on foreign energy sources.
2
C. The recommended changes in the individual and business
income tax structure, and their costs, as compared to 1974
law, are as follows:
Individual Tax Cuts
Increase personal exemption from $750
$10.1 billion
to $1,000.
Replace $1,300 low income allowance
$ 4.0 billion
and $2,000 maximum standard deduction
with flat amount standard deduction
of $2,500 for married couples ($1,800
for a single person)
Reduce tax rates
$ 6.6 billion
TOTAL INDIVIDUAL TAX CUTS
$20.7 billion
Business Tax Cuts
Extension of 1975 corporate rate
$ 1.7 billion
and surtax exemption changes
Permanent extension of investment
$ 2.5 billion
credit increase (from 7-10; 4-10
for utilities)
2% corporate rate reduction (48-46%)
$ 2.2 billion
Utilities tax relief previously
$ 0.6 billion
proposed (see Annex C)
TOTAL BUSINESS TAX CUTS
$ 7.0 billion
TOTAL TAX CUTS
$27.7 billion
The effects on individual taxpayers of the President's tax
proposals are shown in the following tables:
3
Tax Liabilities for Family with 2 Dependents,
Filing Joint with Itemized Deductions of
16 Percent of Adjusted Gross Income
(If standard deduction exceeds itemized
deduction, family uses standard deduction.)
Adjusted
Tax Liability
Reduction from
gross
1972-74
:
1975
:
Proposed
1972-74
: 1975
income
law
:
law
: 1976 law
law
: law
$ 5,000
98
0
0
98
0
7,000
402
186
60
342
126
10,000
886
709
485
401
224
15,000
1,732
1,612
1,325
407
287
20,000
2,710
2,590
2,280
430
310
25,000
3,820
3,700
3,370
450
330
30,000
5,084
4,964
4,648
436
316
40,000
8,114
7,994
7,664
450
330
50,000
11,690
11,570
11,180
510
390
Office of the Secretary of the Treasury
Office of Tax Analysis
Tax Liabilities for Single Person with Itemized
Deductions of 16 Percent of Adjusted Gross Income
(If standard deduction exceeds itemized deduction,
individual uses standard deduction.)
Adjusted
Tax Liability
Reduction from
gross
1972-74
:
1975
: Proposed
1972-74
:
1975
income
law
:
law
: 1976 law
law
:
law
$ 5,000
$
490
$
404
$
307
$ 183
$ 97
7,000
889
796
641
248
155
10,000
1,506
1,476
1,227
279
249
15,000
2,589
2,559
2,307
282
252
20,000
3,847
3.817
3,553
294
264
25,000
5,325
5,295
5,015
310
280
30,000
6,970
6,940
6,655
315
285
40,000
10,715
10,685
10,375
340
310
50,000
15,078
15,048
14,725
353
323
Office of the Secretary of the Treasury
Office of Tax Analysis
# #
4
II. FULLER DESCRIPTION OF PROPOSED TAX CUTS
A. Individual Tax Cuts
The proposed permanent restructuring would replace the
temporary increased standard deduction and the $30 per taxpayer
exemption credit provided by the 1975 Act. The changes
assure that withholding will not be increased and
that, in fact, there will be further tax reductions for
the great majority of taxpayers. As compared to 1974 law,
the President's proposal would:
-- Increase the personal exemption from $750 to $1,000.
-- Replace the present minimum standard deduction (low
income allowance) of $1,300 and maximum standard
deduction of $2,000 by a single standard deduction in
a flat amount of $1,800 for a single taxpayer and
$2,500 for a married couple ($1,250 for married person
filing separately). This compares with the average
standard deduction claimed in 1974 of $1,625 by married
couples and $1,400 by single persons. (The 1975 Act
made temporary changes in the standard deduction, which
are described in Annex D.)
-- Provide rate reductions as shown in the tax rate
schedules attached at Annexes A & B.
B. Business Tax Cuts
The President also proposes to:
-- Reduce the maximum corporate tax rate from 48 percent
to 46 percent.
-- Continue the 1975 Act increase in the surtax exemption
(which determines the amount taxable at rates below
48 percent) from $25,000 to $50,000 of taxable income.
-- Continue the 1975 Act reduction in the rate on the
first $25,000 of taxable income from 22 percent to 20
percent (the second $25,000 of taxable income will be
taxable at a 22 percent rate, with the balance of
income taxed at a 46 percent rate).
-- Make permanent the 1975 Act increase in the investment
credit from 7 percent (4 percent in the case of public
utilities) to 10 percent.
-- Enact a six-point program to provide tax relief to
electric utilities and to reduce dependency on foreign
energy sources (see Annex C for full description).
more
5
III. BACKGROUND ON FEDERAL SPENDING
A. Unless action is taken to restrain federal outlays in FY
1977, spending can be expected to increase by around $53
billion in a single year. Budget outlays are approaching
$370 billion in FY 1976. Without specific legislative action
to limit spending, outlays in FY 1977 will reach $423 billion
or more. The main elements of an increase of $53 billion
are as follows:
(Billions)
Interest on the public debt will rise as
the size of the debt grows. If current
interest rates are maintained, the in-
crease will approach
+9
Civilian and military salaries increase
automatically unless the President and
Congress agree on an alternative plan.
Would add more than
+6
Retirement benefits for retired federal
military and civilian personnel also rise
automatically with the cost-of-living
+3
Social security and railroad retirement
payments increase automatically based
upon the cost-of-living index
+12
Medicare and Medicaid payments rise as
costs increase and the number of eligible
recipients go up
+5
Public assistance, food stamps,
housing subsidies and related
programs are tied to the formulae set
in law or in existing contracts
+2
Major construction of wastewater treat-
ment plants now underway will add nearly
+2
Essential procurement and research and
development of military hardware and
maintenance of necessary military
facilities will add over
+3
Increases for energy research and develop-
ment and transportation programs and
inclusion of Export-Import Bank in budget.
+4
Other likely net changes including effect
of Congressional inaction on budget reduc-
tion proposals heretofore proposed by the
President and the effect of probable
Congressional initiatives
+7
TOTAL
53
6
B. Decisions have not yet been made on which programs will
be restrained or curtailed.
-- Specific decisions will be made in the budget
review process leading up to the President's
January Budget Message to Congress.
- All departments and agencies will be called upon
to moderate program growth, expenditures, and
Federal personnel levels.
C. The President has called upon Congress to join with
him in making the tax reductions possible by placing a
limit of $395 billion on FY 1977 expenditures now.
--- A $395 billion ceiling is $25 billion above the
currently estimated spending level this fiscal
year and $28 billion below the level now pro-
jected for FY 1977.
D. Based upon current estimates that FY 1976 spending
may approach $370 billion, the FY 1976 budget deficit
would be about $70 billion. With the President's
proposals, the FY 1977 deficit is estimated in the
range of $40-44 billion.
# # # # #
EMBARGOED FOR RELEASE
OCTOBER 6, 1975
UNTIL 8:01 P.M. EDT
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
WILLIAM E. SIMON
SECRETARY OF THE DEPARTMENT OF TREASURY
JAMES T. LYNN
DIRECTOR OF THE
OFFICE OF MANAGEMENT AND BUDGET
ALAN GREENSPAN
CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
AND
CHARLES WALKER
ASSISTANT SECRETARY OF THE TREASURY
ROOM 450
EXECUTIVE OFFICE BUILDING
5:44 P.M. EDT
MR. NESSEN: I don't know who the leader of this
group is.
SECRETARY SIMON: I will start.
You know the President has been working for several
weeks on questions relating to Federal taxes and spending.
Tonight, he has asked for television time, which Ron just
spoke to.
First, as you can see from the fact sheets, the
President is going to propose a substantial and permanent
reduction in Federal taxes, going far beyond the temporary
tax cut that expires at the end of this year. The total
cut will beapproximately $28 billion, approximately three-
quarters for individuals and one-quarter for business.
Secondly, he is going to propose a substantial
reduction in Federal spending, below those levels that are
projected for fiscal year 1977. Jim Lynn is going to
elaborate in a second, before your questions.
Federal spending will, in fiscal 1977, easily
surpass $420 billion unless affirmative action is taken, and
taken right now. The President is asking that the spending
be held in fiscal 1977 to $395 billion, a reduction of an
equivalent amount of $28 billion.
MORE
- 2 -
I want to emphasize how important it is that
everyone understand that these two proposals are regarded
as one package. The President is going to ask Congress
to act on them both now, and he is insisting that only if
Congress is willing to adopt a spending ceiling for fiscal
1977 will he go forward with these major taxcuts.
It would be dangerous and irresponsible to cut
taxes andnot cut the growth in Federal spending. That would
only leave us with huge deficits, higher interest rates and
more inflation and eventually more unemployment.
So, the two proposals are inextricably tied
together, and we are presenting them as one single package.
Together, they are designed to return more economic decision-
making to our private sector.
The President is going to address more fully
tonight why it is important to halt the trend toward big
Government in this country. In this session, I want to talk
more specifically about three particular advantages of this,
what we consider balanced fiscal package: the economic
advantages, the financial advantages and the psychological
advantages.
First of all, on the economic side, in the short-
term this package will provide us with a stronger foundation
to sustain the momentum of our current recovery. In the
long-term, the discipline imposed upon the growth in the
budget will reduce the inflationary pressure generated by
Federal spending.
There can be no question that curbing the
explosive growth is an essential weapon in the long-term
fight against inflation. Furthermore, by reducing taxes,
as well as spending, we will also encourage greater savings
and investment, a process that is imperative if we are to
create jobs and increase productivity and increase real
earnings in this country.
In short, it is going to provide a higher standard
of living for all of us.
Second, this program will improve conditions in the
financial markets. By tying spending cuts to tax cuts, the
President is insuring that during the next few years our budget
deficits will be progressively smaller and the Federal
Government will not soak up as much money through borrowing
in our private capital markets.
For all practical purposes, too many small- and
medium-sized businesses are crowded out of our capital
markets today. By reducing Federal borrewing, the Government
will reduce the upward pressure it places on interest
rates. Lenders are going to be more willing to lend long-
term and more private borrowers are going to gain access
to the credit markets.
MORE
- 3 -
Again, this process is essential for assuring
long-term economic growth. As the President will say
tonight, our ultimate objective is to bring the budget into
balance within three years.
Psychological: Finally we have to take into
account the public's perception of Government itself.
Clearly, public confidence in the Government's ability to
reduce inflation has been eroded by the last decade of huge
increases in Federal spending, along with the huge increases
in our budget deficits.
Over time, that process has built inflationary
expectations into all of our society. The President is
intent upon changing those expectations through this
porgram and further efforts in the future.
Let me re-emphasize the determination of the
President and the full Administration to stop the uncontrolled
growth of Government outlays and to return to the American
people more of the decision-making on how their incomes are
going to be spent.
Unless action is taken, Federal Government spending
can be expected to increase by approximately $53 billion in fiscal
1977. Outlays as a share of GNP will continue to rise.
Outlays in fiscal 1977 would reach $423 billion. Roughly,
four and a quarter times higher than outlays just 15 years
ago.
The President's program is designed to restrain
this growth and to reduce the share of GNP going into the
Federal Government. This plunging process is vital to the
economic and financial well being of our people.
I might add that in my recent testimony before
the Congress, I have been heartened by the desire expressed
by both budget committees to work with us in holding down
spending and holding down the attendant deficits.
We hope that the full Congress is now going to
join with us in adopting this very important package that
the President is submitting.
Now Jimmy would like to, I am sure, address the
expenditure side.
MR. LYNN: Bill, I think you have covered it
sufficiently for openers. I would, kind of reversing the
roles a little bit, draw your attention specifically to the
tables that are included in the fact sheet showing the
impact on the various families.
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What we have here is a situation where practically
dollar for dollar, if you compare the 1974 law before the 1975
temporary cuts were put in, of a dollar for dollar reduction
in the expenditures from where they would have gone without
restraing for a comparable amount of benefit on the side
of tax reductions.
I think at this point, unless Alan, you have some-
thing to add, why don't we let these ladies and gentlemen
ask their questions. That is the most important thing.
Q
On those very tables you mentioned, can
we have some figures below $5,000 of income, and why weren't
they supplied in the first place?
MR. WALKER: I think we have them not below $5,000
because of the non-change that is involved there.
Q
Not for single people. There are changes, some
of whom are tax exempt now, and I am wondering if they
would still be tax exempt under this proposal?
MR. WALKER: I can see that.
SECRETARY SIMON: I can show you that, Eileen,
because I have a table that shows you the new tax exempt
income for singles and marrieds.
Q
Mr. Secretary, you say these proposals of
tax and spending ceilings are linked. Are they going to
be linked in their presentation to the Hill, and is there
any way that this can be done through the statutory
provisions?
SECRETARY SIMON: What the President is going
to do is urge the Congress to adopt a spending ceiling
for fiscal year 1977 of $395 billion. At that point, he
would accept the tax reduction as outlined here on the
tax side.
Q
Is the President going to save $28 billion?
Q
Will it be something informal? You are not
going to propose a tax bill to Ways and Means that would
have a spending ceiling tied into it?
SECRETARY SIMON: The Ways and Means Committee
will be told the conditions under which we would accept
this type of a tax proposal, that is correct.
Q
Does that mean that if the Congress will not
vote your ceiling that the President will oppose and perhaps
veto tax cuts in the coming election year?
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SECRETARY SIMON: If the Congress rejected the
notion of putting a $395 billion spending limit on the
fiscal 1977 budget and sent down a tax bill here, in this
regard this President would veto it.
Q
Can I follow that? From a practical stand-
point, however, isn't it likely that we would act on
the tax cut this fall? They don't have to take up the
question of the ceiling until next year.
SECRETARY SIMON: I want Jimmy to talk to this,
too. We think they have got plenty of time in the three
months that are remaining. They have been working for
several months, the budget committees, on fiscal 1976.
They have the figures for 1977. We are going to be
delighted to work with them on processes.
MR. LYNN: I suppose they could do almost anything,
you are right. They could delay, but it seems to me the
delay will cost the taxpayers money. What our hope would be
is that they take action on both sides of this equation now
so that the taxes can take effect -- the cuts could take
effect -- as of January 1.
Q
The question did not suggest that they would
delay on voting the tax cut, but after all, they, just
within the last few weeks, set the ceiling on fiscal 1976,
didn't they? So, is it reasonable to expect them to set
a ceiling on fiscal 1977 this fall?
MR. LYNN: I most certainly think it is. First,
let me say I have been testifying before the Congress that
one of the things that have disturbed me so much is that
I see consideration of various programs before the Congress,
including consideration of extension of the tax cut without
any figures being explored with respect to what the effects
are in fiscal year 1977.
Just to give you an example, the President vetoed
the education bill. The effect of that override of his
veto is to add almost $1 billion to expenditures in fiscal
year 1977.
We don't see, frankly, how they can take action
with respect to the taxes without setting for themselves
now a target, as we have done.
Q
Mr. Lynn, you have got $53 billion worth of
expenditures detailed here. Are you now, or is the President
later, going to send up a list of specific cuts of the total
$28 billion, or are you leaving that all to the Congress?
MR. LYNN: Oh, no. Of course we will. We are
doing that in the budget process. What we are doing now is
our usual budget review that occurs this time of year. This
budget will be presented to the President, he will make his
changes in it, and all of those cuts will be expressly set
forth in his January budget for fiscal year 1977.
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Q
In order for Congress to take action now,
don't you have to provide a list of where you want the
$28 billion cut?
MR. LYNN: No, I don't think SO. My own feeling
about that is that Congress can adopt an overall ceiling
to show their concurrence with this approach of trying to
moderate the growth of Government and give the American
taxpayers a break without having their detailed make-up.
We have done enough work in the course of the last months
to see that it can be done. Now, very frankly, the
exact ways that it should be done should be to determine
in concert with the departments and agencies
They have a principal role here and we want to see
that they play those roles and will develop that budget
just like the budget committees will be working on details
of their budget when they see the President's budget.
All we are asking at this point is that they adopt
an overall ceiling, not the make-up of that ceiling.
Q
Mr. Lynn, as you know, many previous
Administrations have been frustrated by trying to impose
a firm ceiling on Congressional spending and I suppose one
reason for that is that many of these spending programs
are open-ended in their appropriations impact. How do you
specifically plan to deal with such problems where Congress
authorizes spending under a program and sets no ceiling
as long as people qualify?
MR. LYNN: You mean so-called entitlement programs
where anybody that qualifies can come in.
I think what it takes in that area is legislative
action. It takes affirmative legislative action. You are
absolutely right, that does not lie within the control of
the President. That is why he is calling on the Congress
to join him in this effort.
This cannot be done by the President acting alone,
it does require the cooperation of the Congress.
Q
Mr. Simon, glancing quickly at the figures
here, it does seem that the higher the income, the larger
the tax reduction, and it also seems that a special provision,
such low income allowance from the 1975 laws, is now being
eliminated. Is that the general thrust of this proposal
by the President?
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SECRETARY SIMON: In general. You have to go through
and take a look at the singles and the marrieds and how the
various dependents are affected. Basically, the maximum
benefit does not come at the maximum income. With the cut-
off the maximum benefit is approximately the $25,000 income
level and, naturally, there is some flow-throught effect from
(A) a combination of the 1975 tax reduction, plus the mag-
nification.
Now, let me explain to you what magnification is.
The 1975 tax reduction was for an 8-month period; that was
$8 billion for individuals. In order to annualize it for
a 12-month period we had to make it $12 million so that
is 50 percent larger. We then added, of course, the $8.6
billion more and provided this restructuring, removing, as
you said, Phil, that to simplify, just have a single
standard deduction.
Q
Mr. Simon, does this package have your full
support?
SECRETARY SIMON: Wait a minute. Alan wants to
add something to that.
MR. GREENSPAN: I think if you will take the
percentage changes in tax liability, they start the highest
at the lowest level and they proceed downward thereafter
throughout the whole tax schedule so that I would say the actual
percentage change in taxes is very small at the bottom end
of the scale.
SECRETARY SIMON: Let me give it to you in the
zero to $5,000 area, the percentage reduction in tax liability
is 61.3 percent.
Q
Compared to which year?
SECRETARY SIMON: That is with the tax reduction
proposals at 1975 levels of income, Eileen.
Q
But compared to 1975 law or --
SECRETARY SIMON: That is compared to the 1972-4
law before the 1975 change.
$5,000 to $10,000 the tax reduction in tax liability,
35 percent; 23 percent in the $10,000 to $15,000; 17.7 in
the $15,000 to $20,000; and 11.7 in the $20,000 to $30,000
so that you can see --
Q
Let's have that compared to the 1975 law.
Q
Are you talking about the dependents now or
single?
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SECRETARY SIMON: That is the income distribution
of the President's tax reduction proposal. That is overall.
Q
What was the last figure?
SECRETARY SIMON: 11.7 in the $20,000 to $30,000.
Q
Can we have those compared to present law;
that is, 1975 law?
MR. GREENSPAN: It will show the same.
Q
Let's have the numbers.
SECRETARY SIMON: We don't have the numbers
compared to the 1975 law. We have it magnified but that would
not show the same as the 1975 laws that exist today. We have
it magnified to the -- you know, adding the $4 billion, the
50 percent on and the percentages change at that point but
still heavily weighted and we only have it on the percentage
reduction -- no we don't have the specific one you say to
the existing 1975 tax law.
Q
Are all these cuts permanent or only some of them
permanent and some of them temporary?
SECRETARY SIMON: No, this is a permanent tax
reduction recommendation by the President.
Q
Mr. Secretary, what is the economic situation
that has caused you to decide not only to continue the 1975
tax reductions but to increase them substantially?
SECRETARY SIMON: When we talk about the
economic situation, what we are trying to do,as I say,
is control the explosive growth,as I said in my opening
comments, and in Federal spending.
Q
That is nine months after the start of the
calendar year.
SECRETARY SIMON: We are talking about fiscal
year 1977 as well and I, myself, have always personally
favored tax reductions to return the decision-making
back to the American people if at the same time we can
have a simultaneous reduction in expenditures, permanent
reduction.
Q
But the permanent reduction, as I understand
the program, does not apply to the months immediately ahead.
It only applies to fiscal 1977.
SECRETARY SIMON: No. Obviously the six months
immediately ahead for the half a year would be a continuation.
No, until July 1.
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Q
Don't you have a transition quarter?
SECRETARY SIMON: Well, the investment tax credit
of course is 1977.
Q
Doesn't fiscal 1977 start October 1?
MR. LYNN: October 1 of next year.
Q
So it is nine months.
Mr. Simon, could you tell us then what the
economic factors are that would make you decide to do this?
SECRETARY SIMON: Well, I tried to outline it__ that
there were economic and psychological and, of course,
financial market-related reasons why we should reduce this
growth in spending and reduce the deficit,as I said in my
opening remarks.
Q
Well, does the recovery seem inadequate?
SECRETARY SIMON: No, it most certainly does not.
As I believe Alan's last report, the third quarter growth
will be reported in the next couple of weeks and is going to
show strong real growth -- I think stronger than anyone had
originally predicted, and that real growth is projected.
The average real GNP growth through June 30, 1976,
we can say is still roughly 7 percent.
Q
Mr. Secretary, did I understand you correctly
earlier that you said the President would veto a tax cut
if it were not accompanied by the other?
SECRETARY SIMON: That is correct. If the Congress
sent down a tax reduction for a year or permanently in the
absence of adopting a spending ceiling for fiscal 1977 of
$395 billion, he would veto it.
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Q
Aren't you almost certainly getting into a
situation, given the way the whole tax thing has gone so far,
the way the whole energy thing goes, that you will get a
proposal from the Congress for a tax cut of at least as large
as yours, possibly larger, and heavily weighted to the bottom
of the scale, and you will get the other deferred completely
from consideration until some later date so you won't have
a yes or no and you will sit in this limbo and then the
President has to make a decision?
SECRETARY SIMON: I would certainly hope you are
wrong, and as I say, the President has made a decision as
far as what he would do, if indeed that happened, and a
tax bill came down. I think that (a) the way this tax
proposal has been structured, and (b) the need for a curb
in Federal spending is well recognized on Capitol Hill,
as it isin the Executive Branch of Government, so I am
optomistic that we are going to get some action on a
$395 billion spending ceiling.
Q
What form would the spending ceiling take?
Would it be a budget resolution to the procedures that
are now in place?
SECRETARY SIMON: Yes, it would be what, the
second current --
MR. LYNN: I would think they could do it any
number of ways. One way would be by a resolution of the
Congress. Another way would be in the preamble to the
tax legislation. I would not purport to tell or even
suggest the manner in which Congress can do it, but I am
certain there are a number of ways that they can do it.
Now, it is the matter of their will to do it if
they decide to do it. If a majority of both Houses decide
to do it, they will find a way to do it, and there are ways
available.
Q
The Budget Reform Act reserves jurisdiction
in the Senate and House budget committees. The Ways and
Means Committee does not have anything to do with spending.
MR. LYNN: Again, I would hope that what we will
see in the Congress is a coordination of those efforts. As
I have said, even in testimony I believe it was before the
House side that one of the things that bothered me was that
we were seeing a mark up with regard to a tax extension at
a time prior to even the mark up for fiscal year 1976 on
the budget side and on the second concurrent resolution.
I happen to feel you have got to look at 1977
numbers every bit as much as you have to look at 1976
numbers when you are deciding what the taxation structure
ought to be from here on out, and that decision is before
Congress because the old temporary cut runs out December 31.
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Q
Would you buy a sense of the Congress reso-
lution, or would it have to be binding law?
MR. LYNN: Look, after all, the budget resolution,
for example, is a sense of the Congress in the sense that
they are setting their preliminary target for the existing
year. I would suggest they can use the same procedure
that they have used for their budget resolution process,
if that is the way they care to do it, but we certainly
would not want to suggest that one way or another is
absolutely essential.
So long as that signal comes through strongly from
the Congress to the American people and to the President that
they are willing also to work to keep that $395 billion
ceiling, that will do the trick.
Q
Mr. Secretary, could I come back to Joe
Slevin's question?
Q
Mr. Secretary, the ceiling you are recommending
does not become effective until the fiscal year beginning
October 1, 1976. What effect, if any, do you suggest this
should have on appropriations matters before the Congress
for this fiscal year current and for the interim period
between July 1 and October 1? Wouldn't that require
some cutback so you have an estimate?
MR. LYNN: As you know, we already still have
before the Congress requests for reductions from what a
current services path would take you or even more from
the path Congress seems to be on on both the authorization
bill and appropriation bills. I would hope that at the same
time -- or I should say in keeping with their agreement to
also work with us on the $395 billion ceiling -- they would
start looking very hard and adopt the kind of proposals for
moderation for 1976 that we have proposed.
As you know, now that we are well into the fiscal
year, a number of those can't be recaptured for the period
of time that has already elapsed, but there is still plenty
of room for them to exercise budget restraint for the
rest of the year, and we would urge them to do SO.
Q
Secretary Lynn, getting back to Joe Slevin's
question about economic rationale for the program and can
either you or Mr. Greenspan elaborate on that; specifically,
is this program supposed to have a net fiscal stimulus?
Q
Question?
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- 12 -
SECRETARY SIMON: Is this program supposed to have
a net fiscal stimulus?
This program has, as I said, three parts to it:
One, to help sustain the current economic advance. I think
everyone is pretty generally agreed right now -- that private
as well as the Government forecasters -- that the economic
recovery is well underway and it is going to be strong and
indeed vigorous here in the early months of the recovery and
into the next year.
The questions that seem to be raised right now are
what indeed is the third quarter? Some are even questioning
the second quarter of the calendar year 1976.
Also, a program like this helps to lessen the strain
on the financial system by reducing the inflation itself
over the long-run and, more importantly, the inflationary
expectations as people begin to realize that we are getting
a handle on this budget deficit problem, that we are not going
to allow this explosive growth in Federal expenditures to
continue at the very larger percentages that they have, and,
finally, and just as importantly, to slow the secular Federal
Government inroads into the lives by returning the money
to the American people that is now being presently spent by
the Government.
Alan, would you like to add to that?
Q
Before you go, Mr. Secretary, on your point
that they helped to sustain the economic advance, how do you
help sustain the economic advance when you cut expenditures
by the same amount that you reduce taxes?
SECRETARY SIMON: Well, on a simple accounting
basis one might say that that has, as I say on a simple
accounting basis, a neutral effect but I am afraid that
ignores the incentive gain of what happens when this amount
of money or any amount of money is pumped into the private
sector and into business creating all of the capital
formation which is so terribly needed, as you have heard
me say quite often, and I believe it has very definitely
a net positive effect.
Al, do you want to add to that?
MR. GREENSPAN: We have taken the specific proposals
on a quarter-by-quarter basis and got some of them through
by various numbers of techniques including the regular macro-
econometric types of procedures.
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Statistically, what we get is slightly larger deficits
in the next two to three quarters of 1976 calendar year
and then somewhat lesser thereafter.
The amounts involved are not large and, in any
event, I would ecarcely describe the effects as being
clearly affecting the economy one way or the other. This
particular program has not been constructive for the purposes
of affecting the short-run economic recovery in the usual
classic sense of the word. The major problem which it has
attempted to confront is something which anybody who has
looked at the extraordinarily burgeoning effect of the rise
of Federal expenditures as you get into fiscal 1977, 1978,
1979 -- what you begin to basically recognize is that at some
point some basic decision must be made.
Either we are going to decide to continuously increase
the size of Government and ultimately increase taxes in the
whole control of the Federal Government of the economy as a
whole, or we decide that is the way in which we do not wish to
go. The essential thrust of this program I would describe,
while certainly having short-term effects, as any program
must, was not constructed in that light and its basic thrust
is longer term.
It's short-term economic effects, as the Secretary
has just said, are roughly neutral. The reason I say roughly
is the fact that some people are going to evaluate part of
it as positive and part of it as negative and I think others
will do precisely the reverse. There is no major impact
so far as I can see from anybody's evaluation.
Q
Mr. Greenspan, could you, if you have these
numbers, tell us what the net effect would be for the
first, second and third quarters in terms of adding to
expendable income? I guess we don't have to do anything
on the Government spending side since there will not be any
reductions during those first three quarters.
Secondly, isn't that in fact the stimulus?
MR. GREENSPAN: Well, the problem that you have
got is that at this particular point it is not clear to what
extent you in fact create stimulus from increasing deficits.
Let me suggest to you that we have the conventional wisdom
which always says that the greater the deficit, the greater
the stimulus, the greater the level of employment. That is
true only in the very restricted confines of our econometric
models which, of necessity, is a very extraordinary abstraction
from reality.
We have found, as you are no doubt well aware, that
these models have not captured many of the
things that
have gone on in our economy in recent years and most speci-
fically in the financial area.
- 14 -
As best we try, and we tried extraordinarily hard,
to capture these very subtle financial impacts as they affect
the levels of production and employment. To the extent that
we have failed to do that, it is clear that what we have done
is underestimated the negative impacts of the so-called
expansionary policies on interest rates, on inflation and,
therefore, on real growth.
So what I am suggesting is that while we do have these
various sorts of figures which you discuss, I would not,
by any means, describe simply the fact that we do have some-
what higher deficits in fiscal year 1976, specifically the first
three calendar quarters, as being ipso facto stimulus.
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MR. LYNN: If I might just add one thing to that,
if I can, when you look at the figures we have here with
regard to fiscal year 1976 expenditures, we are making
some guesses, some estimates as to where Congress is moving.
With the kind of restraint I talked about a little
bit earlier, that amount of expenditures for fiscal year
1976 could be kept lower than that, and I would hope also get
the difference I cite lower than the number we show there.
Q
Just one more question. We are going to have
$21 billion of $28 billion tax cut effective by October 1
so you have a net increase of money in the spending stream
of $21 billion. You are not having any reduction in spending
during that same period so, in effect, don't we have a $21
billion stimulus for the first three quarters? That is the
question I have.
MR. GREENSPAN: No, I am not sure those numbers
are correct.
Q
Excuse me. I think to answer that question we have
to be given the numbers. This table that adds up to $27.20,
$.7 billion you talk not in terms of the comparison
with 1974, but in terms of present law. Can we have those
numbers, just that little five or six item breakdown on
page two here?
SECRETARY SIMON: We can get those numbers for you.
The reason that we didn't do it on the figures that you
wish is because the 1975 tax laws are temporary law.
Q
Just a second.
Mr. Greenspan, is it reasonable or even rational
to compare what you are proposing for the year ahead with
two years ago in terms of assessing the economic impact?
Can we really balance a two-year change on the tax side
with a one-year change on the spending side, and you are
trying to say they are the same thing?
MR. GREENSPAN: No, no. Let me tell you what the
comparisons are. We have ongoing forecasts of the economy
and what we tend to do is to reflect various different
options that are involved in them. The latest forecasts
that we have set up are not reflective of obviously 1972
or 1974, but essentially what has been going on within the
tax structure as it stands now.
What we have done is superimposed upon them,
starting off with expenditure expectations of no actions of
any sort and running our best estimates that we can, we came
up, as I indicated several weeks ago, with a real growth
rate approximating 7 percent to mid-1975 to mid-1976.
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What I am suggesting to you is this: We have
reinstituted new estimates based on this program, and it
does not significantly alter those numbers.
Q Okay. I wondered, however, if we can't have
a figure to compare existing 1975 law to see what these tax
changes really are.
MR. GREENSPAN: I agree with you. I think that
is correct and those data should be made available shortly.
Q
Now, the second question on the same subject
of these numbers, differently. I assume that everything, Mr.
Simon, that you have told us about the percentage tax
increases by tax bracket eliminates, leaves out of consider-
ation the fact that you are asking that the work bonus,
the earned income credit, be eliminated, and you are now
calling it an expenditure.
Therefore, this thing which is for the low income
is nowhere in any of these figures, percentage change or
otherwise, that you have given us, is that correct?
SECRETARY SIMON: The earned income credit is not
in the President's tax proposals, that is correct.
Q
Or in any of these comparison numbers?
SECRETARY SIMON: Thatis correct.
Q
Including the tables that show by income
bracket and so forth?
SECRETARY SIMON: That is correct.
Q Mr. Simon, as I see this, the tax reductions
that are in effect may begin at the first part of the
calendar year, but the spending reductions do not go into
effect until the third quarter, and so your proposition is
to cut taxes for the first three quarters for no spending
and then what happens in November of 1976 is that there is
an election.
Now, was that taken into consideration in
deciding on the timing?
SECRETARY SIMON: It most certainly was not taken
into consideration. The consideration was that we wanted
a determination by the Congress that fiscal 1977 budget
expenditures would be held to $395 billion, which from
today's estimates mean that the proposed cut in the future
would be equivalent to the amount of the tax cut that the
President is proposing today, and it had nothing to do
with the election in November 1976.
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Q
Did you seriously discuss any of these
proposals with Congressional leaders before making them
public?
SECRETARY SIMON: The President is discussing
these right at this very moment with Congressional leaders.
Q
But since your Administration, as I under-
stand it, has a minority in both Houses of Congress and
since this will require legislative action, it seems to
me that you could be accused here of presenting a political
ploy to the Democratic Congress.
SECRETARY SIMON: I would assume that you can always
be accused of presenting a political ploy to Congress, but
that does not concern us. We believe that this proposal
makes good long run sense to the American people, that they
begin to reverse this trend that has been going on in
Government, especially in the last ten years.
If they want to attach certain slogans to it,
some people, well, so be it. That was not the intent of the
proposal.
Q
The long-term effect you say is this
reduction of Federal spending.
SECRETARY SIMON: The growth in Federal spending.
Q
The short-term effect is to increase the
Federal deficit and increase the Treasury's borrowing on
the market, I believe was the question. Correct me if I
am wrong.
Why is that a good idea now, and why don't they
have all the dire consequences that you have been warning
about for many months?
SECRETARY SIMON: The near term effect is slightly
raising the President's ceiling that he put on at $60
billion. That is a fact. The point is that for the longer
run considerations they outweigh these shorter run consider-
ations, and I think that if this program were enacted in
this fashion, the expectations of the marketplace would be
that the Federal Government is finally getting their
spending under control and we begin to work away at the
important inflationary expectations that are so deeply
ingrained, plus the loss of confidence the American
people obviously had based on every policy that is taken
in the ability of Government to manage their economy and,
more importantly, to get their spending and inflation
under control.
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I think on the whole the positives far outweigh
the negatives of a short-term, as I say, slight increase
in the deficit.
Q
How much will the deficit go up?
MR. LYNN: It depends on an awful lot of
factors. As you have heard me testify on the Hill, we have
a good deal of uncertainties right now, ranging all the way
from just trying to get a good handle on estimating entitle-
ment. programs, whether we are talking about food stamps or
supplemental unemployment benefits and so on.
Quite apart from that, we have to engage in a
guessing game as to what Congress will do from here on out by
way of the kind of salami tactics that we have had up to
now, where we propose "X" and Congress always feels disposed
to add "X plus Y" to the particular program.
My hope would be that Congress, in the spirit of
this proposal, will now make a genuine effort to go along
with the proposals that are still before the Congress that
the President has made. I would think, to give you a rough
estimate, that we would be able to have a deficit somewhere
in the middle 60's before we are done.
We had to look at the reality that if Congress
does not show that kind of restraint and looking at the
total estimating that is involved, you can have a deficit
of about $70 billion. But, I have to urge you once again
this early in the fiscal year -- and also given all of the
uncertainties with respect to the estimate -- you can't
give a positive single figure at this point and feel con-
fident that it is SO.
Q
Just this itself, how much would this add
to the deficit?
Q
What year?
MR. LYNN: What are you talking about? Fiscal
1976?
Q
Fiscal 1976.
MR. LYNN: The effect of this proposal by way
of receipts lost over and above, let's say, the magnified
extension is what? Do we have that? It is what? Five?
Q
All by itself?
MR. LYNN: All by itself.
MORE
- 19 -
Q
It is 11.
MR. LYNN: It is 11 by itself for what, on a
full year basis?
Q It is 28.
MR. LYNN: The 28 again, in answer to Miss Shanahan's
question, the 28 is from the 1972-1974 kind of package,
so what I was giving you was a figure of the net additional
amount if you were to assume things continued the way Miss
Shanahan talked about it.
Q
What is that total figure from 1975 to 1976?
These tax cuts are what?
MR. LYNN: Say that again.
Q
From present law --
MR. LYNN: From present law?
Q
From present law the total tax cut herein
proposed is $11 billion, is that right?
MR. LYNN: About 11, that is right. On an
annualized basis?
Q
No.
MR. LYNN: On an annualized basis?
Q
She asked how much the increase is from 1975.
SECRETARY SIMON: Break it down. First we had
the rebates in there, and they are out, so we forgot these.
Right? Then, we take the individual reductions, which
were $12 billion in 1974 and now they are $20.6, so we are
up $8 billion for the individuals, 1975 over 1976. Then
the business cuts.
In 1976, the investment tax credit does not
expire until January 1977, so the impact is not felt
until fiscal 1977. So, leave out the 2 percent reduction.
Q Leave that out?
SECRETARY SIMON: Yes, the 2 percent reduction in
corporate tax rates, the impact is on there, so that is
roughly it.
Q Let's get clear. This proposal is that you
are proposing tax law changes which would reduce taxes in
1976 by $11 billion compared to tax liabilities under
present law?
MORE
- 20 -
MR. LYNN: You are talking about calendar year
1976?
Q
Yes.
MR. LYNN: See, that is where our confusion was
coming. I was talking fiscal year. You are talking
calendar year. As far as receipts, it lost about $11
billion.
Isn't that right, Bill?
Q
Where does that put you?
Q
In comparison with present law.
MR. LYNN: In comparison with present law?
Q
That is not my question.
MR. LYNN: That answers one question. Let's take
another one. You go ahead,
Q
My question is, how much will be added to the
deficit by proposing by this tax proposal, and that is
assuming that the 1975 tax cut would have expired.
MR. LYNN: Totally?
Q Period.
MR. LYNN: I suppose the way you would estimate
that is, first, to take a half of a full year's effect.
The full effect of the tax package is roughly $28 billion,
right? So, you take a half year's effect of that, and I am
being very rough in that.
My real expert, Bill Macomber, please feel free to
correct me. Take roughly half of that and that would
be the additional receipts lost for the period. But, what
the economists also do is take a look at all of the factors
that enter into the economy, and what you think that kind
of tax cut will do by way of signals -- more importantly,
what the restraint provision you are trying to get for
1977 will do to the business community and to the
individuals and, therefore, some part of that receipts loss
will build into the deficit.
Q
Sure you figured it out. I am just asking
for the figure. I know what the process is, but what is the
figure? Is it $11 billion?
MORE
- 21 -
MR. LYNN: It would not be the total $11 billion
by any means.
Q
It is not the total $14 billion.
MR. LYNN: All right, the total $14 billion.
Q
What is it?
MR. LYNN: It would be something less than that.
Alan, would you care to comment on that?
MR. GREENSPAN: One of the problems he has got is
the fact that when taxes are received -- and I think that
unless you can go through a simulation of the specific
tax receipts differences, that is not a number you can get
that simply.
Do you have that?
Q
You cannot say how much this will add to the
deficit?
MR. GREENSPAN: No.
MR. LYNN: We have said that. We have said it in
the fact sheet.
What we said at the end of the fact sheet was that
taking into account the factors that we know of now, and
that includes putting in somewhat of a cushion for Congress-
ional reluctance in the future, as they have in the past,
to adopt the kinds of restraints that we have proposed, that
the deficit for fiscal year 1976 would be about $70 billion.
Q
Dropping the 40 to 44 in following fiscal
year?
MR. LYNN: Yes.
Q
Can we have the breakdown again of that
$11 billion on the 1975 comparison of the tax cut? In
calendar 1975, compared to the temporary 1975 law,
you said earlier, how do you break that down?
MR. LYNN: The way I got to that in my head was--
and again, Dale, the way we calculated it was--that if you
take the 1975 law, the way it is being applied now and
with withholding rates, as you have it now, the effect
on a full year basis on whether you take fiscal or other-
wise, but once it is in effect is about $17 billion -- $17
billion, $18 billion, somewhere in there.
So, therefore, if you look at your $28 billion,
that is what your differential is.
MORE
- 22 -
Q
$17 billion revenue loss?
MR. LYNN: Yes, That is revenue loss again.
That does not necessarily mean your deficit loss.
Q
Can we get a breakdown of numbers parallel
to the 1972-1974 numbers?
SECRETARY SIMON: We can pass out what the 1975
tax act was in the old sheet that gives you the revenue
impacts on the 1975 tax act. You have the 1976 act here
proposed with the revenue impacts and a good many of the
business tax cuts are the same.
The investment tax credit, as I say, does not
expire until 1977. Your major difference is in your
individual tax cut. Of course, that is offset by the
rebate, which the $8 billion is off already.
Q
What you are saying now is the $28 billion
is made up of the $17 billion worth of cuts this year in
calendar 1976 and 11. Is that the 28? There was 17.
MR. LYNN: Try it again.
Q
The 28 is a combination of $17 billion worth
of tax revenue loss in this calendar year. What you are
proposing is 11 for calendar 1976, and that is how you
get your 28.
MR. LYNN: It is not quite that because you have
to distinguish between what the total amount of tax deduction
is locked into, not individual taxpayers or the like, and
that gets you to an annualized amount of about $14 billion,
I think it is. Is it 14? No, 12 plus. It is somewhere
between $12 billion and $13 billion.
If you assume the taxpayers continue to get the
same take-home pay, in other words you try to get an
annualized base so that they keep the same withholding
that they have now, you have to add another $4 billion plus
to that, and that is what gives you the $17 to $18 billion.
If you were to have taxes just continue now the
way our American taxpayers are paying them, with their take-
home pay as they get it every month, it would cost you on
an annual rate about $17 billion, somewhere between $17
and $18 billion. What this does is add about another $11
on top of that.
Q
Yes, but if we get to the end of 1976 --
MR. LYNN: Are you talking calendar?
MORE
- 23 -
Q Calendar.
MR. LYNN: Okay, I just wanted to know.
Q
If we ever get to the end of calendar year
1976 --
MR. LYNN: I hope we do.
Q
Then what you will be saying is that $11
billion will be lopped off in 1976, isn't that right?
MR. LYNN: In one way, I see what you are saying.
If you were to assume that the temporary tax cut were
there forever, if that is the way you looked at it, and
we looked upon it as a new ball game that we have to decide
now what is the best tax policy for the United States
effective January 1 -- but if you looked at it your way,
you are absolutely right.
It was decided in the old law to add at the rate
of $17 billion a year and under this new change you are
adding another $11 billion a year. We prefer not to look
at it that way. We prefer to look at it overall as to what
does this mean by way of a tax program that makes sense for
this country for a longer term direction.
One thing I will urge you to look at is that in
the President's statement--and it should have been
reflected in the fact sheet, and I am sorry it is not there,
it should be there -- the President says that this ceiling
is the first step moving toward a balanced budget within
three years.
Now we think the net effect of all of these
actions that the President is proposing will be to, one,
get a much healthier economy; two, return some freedom
of our taxpayers to spend the money they are earning that
they have rapidly been losing over many years in the past.
MR. NESSEN: There is a Cabinet meeting that these
three gentlemen need to go to. It started a couple minutes
ago, so we probably should knock this off.
Q
Does this program mean you will initiate no
new programs next year?
MR. LYNN: Yes, no new spending.
THE PRESS: Thank you.
END
(AT 6:24 P.M. EDT)
EMBARGOED FOR RELEASE
OCTOBER 6, 1975
UNTIL 8:00 P.I. EDT
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
THE PRESIDENT'S PROPOSAL FOR TAX CUTS AND FEDERAL SPENDING RESTRAINT
President Ford is proposing that permanent large tax cuts be made
possible for American taxpayers by Congress joining with him in
limiting the growth of federal expenditures. The tax reductions
proposed by the President total about $28 billion compared to 1974
law. This proposal is linked to the adoption by the Congress now
of a spending ceiling of $395 billion for FY 1977. This represents
a reduction of about $28 billion from projected levels for that
year unless action to limit federal spending is taken.
The proposed tax cuts are divided approximately 75 percent for
individuals and 25 percent for business. A family of four earning
$14, a year would receive a reduction in their tax liability
of $412 or 27 percent.
I. SUMMARY OF THE TAX CUT PROPOSAL
A. The individual tax reductions will be accomplished by:
$8 billion in cuts to replace the temporary 1975
tax reductions.
$4 billion in additional cuts required to keep
personal withholding rates constant. (The 1975
cut was reflected in withholding over an eight-
month period and, therefore, a $4 billion extra
cut is provided to keep withholding constant.)
$8.7 billion in further tax relief distributed
throughout all income ranges.
B. The business tax reductions will continue the tax
relief for small business provided by the 1975 Act, will
make permanent the higher investment credit rate of 10 per-
cent as an incentive for investment in equipment needed to
increase productivity and to provide new jobs, will reduce
the marginal rate on business income as a first step toward
eliminating the existing tax bias against capital formation,
and will provide special relief to utilities needed to reduce
dependence on foreign energy sources.
(OVER)
2
C. The recommended changes in the individual and business
income tax structure, and their costs, as compared to 1974
law, are as follows:
Individual Tax Cuts
Increase personal exemption from $750
$10.1 billion
to $1,000.
Replace $1,300 low income allowance
$ 4.0 billion
and $2,000 maximum standard deduction
with flat amount standard deduction
of $2,500 for married couples ($1,800
for a single person)
Reduce tax rates
$ 6.6 billion
TOTAL INDIVIDUAL TAX CUTS
$20.7 billion
Business Tax Cuts
Extension of 1975 corporate rate
$ 1.7 billion
and surtax exemption changes
Permanent extension of investment
$ 2.5 billion
credit increase (from 7-10; 4-10
for utilities)
2% corporate rate reduction (48-46%)
$ 2.2 billion
Utilities tax relief previously
$ 0.6 billion
proposed (see Annex C)
TOTAL BUSINESS TAX CUTS
$ 7.0 billion
TOTAL TAX CUTS
$27.7 billion
The effects on individual taxpayers of the President's tax
proposals are shown in the following tables:
3
Tax Liabilities for Family with 2 Dependents,
Filing Joint with Itemized Deductions of
16 Percent of Adjusted Gross Income
(If standard deduction exceeds itemized
deduction, family uses standard deduction.)
Adjusted
Tax Liability
Reduction from
gross
1972-74
: 1975
:
Proposed
1972-74
:
1975
income
law
:
law
:
1976 law
law
: law
$ 5,000
98
0
0
98
0
7,000
402
186
60
342
126
10,000
886
709
485
401
224
15,000
1,732
1,612
1,325
407
287
20,000
2,710
2,590
2,280
430
310
25,000
3,820
3,700
3,370
450
330
30,000
5,084
4,964
4,648
436
316
40,000
8,114
7,994
7,664
450
330
50,000
11,690
11,570
11,180
510
390
Office of the Secretary of the Treasury
Office of Tax Analysis
Tax Liabilities for Single Person with Itemized
Deductions of 16 Percent of Adjusted Gross Income
(If standard deduction exceeds itemized deduction,
individual uses standard deduction.)
Adjusted
Tax Liability
Reduction from
gross
1972-74
:
1975
: Proposed
1972-74
:
1975
income
law
:
law
: 1976 law
law
:
law
$ 5,000
$
490
$
404
$
307
$ 183
$ 97
7,000
889
796
641
248
155
10,000
1,506
1,476
1,227
279
249
15,000
2,589
2,559
2,307
282
252
20,000
3,847
3.817
3,553
294
264
25,000
5,325
5,295
5,015
310
280
30,000
6,970
6,940
6,655
315
285
40,000
10,715
10,685
10,375
340
310
50,000
15,078
15,048
14,725
353
323
Office of the Secretary of the Treasury
Office of Tax Analysis
# #
4
II. FULLER DESCRIPTION OF PROPOSED TAX CUTS
A. Individual Tax Cuts
The proposed permanent restructuring would replace the
temporary increased standard deduction and the $30 per taxpayer
exemption credit provided by the 1975 Act. The changes
assure that withholding will not be increased and
that, in fact, there will be further tax reductions for
the great majority of taxpayers. As compared to 1974 law,
the President's proposal would:
-- Increase the personal exemption from $750 to $1,000.
-- Replace the present minimum standard deduction (low
income allowance) of $1,300 and maximum standard
deduction of $2,000 by a single standard deduction in
a flat amount of $1,800 for a single taxpayer and
$2,500 for a married couple ($1,250 for married person
filing separately). This compares with the average
standard deduction claimed in 1974 of $1,625 by married
couples and $1,400 by single persons. (The 1975 Act
made temporary changes in the standard deduction, which
are described in Annex D.)
-- Provide rate reductions as shown in the tax rate
schedules attached at Annexes A & B.
B. Business Tax Cuts
The President also proposes to:
-- Reduce the maximum corporate tax rate from 48 percent
to 46 percent.
-- Continue the 1975 Act increase in the surtax exemption
(which determines the amount taxable at rates below
48 percent) from $25,000 to $50,000 of taxable income.
-- Continue the 1975 Act reduction in the rate on the
first $25,000 of taxable income from 22 percent to 20
percent (the second $25,000 of taxable income will be
taxable at a 22 percent rate, with the balance of
income taxed at a 46 percent rate).
-- Make permanent the 1975 Act increase in the investment
credit from 7 percent (4 percent in the case of public
utilities) to 10 percent.
-- Enact a six-point program to provide tax relief to
electric utilities and to reduce dependency on foreign
energy sources (see Annex C for full description).
more
5
III. BACKGROUND ON FEDERAL SPENDING
A. Unless action is taken to restrain federal outlays in FY
1977, spending can be expected to increase by around $53
billion in a single year. Budget outlays are approaching
$370 billion in FY 1976. Without specific legislative action
to limit spending, outlays in FY 1977 will reach $423 billion
or more. The main elements of an increase of $53 billion
are as follows:
(Billions)
Interest on the public debt will rise as
the size of the debt grows. If current
interest rates are maintained, the in-
crease will approach
$9
Civilian and military salaries increase
automatically unless the President and
Congress agree on an alternative plan.
Would add more than
+6
Retirement benefits for retired federal
military and civilian personnel also rise
automatically with the cost-of-living
+3
Social security and railroad retirement
payments increase automatically based
upon the cost-of-living index
+12
Medicare and Medicaid payments rise as
costs increase and the number of eligible
recipients go up
+5
Public assistance, food stamps,
housing subsidies and related
programs are tied to the formulae set
in law or in existing contracts
+2
Major construction of wastewater treat-
ment plants now underway will add nearly
+2
Essential procurement and research and
development of military hardware and
maintenance of necessary military
facilities will add over
+3
Increases for energy research and develop-
ment and transportation programs and
inclusion of Export-Import Bank in budget.
+4
Other likely net changes including effect
of Congressional inaction on budget reduc-
tion proposals heretofore proposed by the
President and the effect of probable
Congressional initiatives
+7
TOTAL
53
6
B. Decisions have not yet been made on which programs will
be restrained or curtailed.
-- Specific decisions will be made in the budget
review process leading up to the President's
January Budget Message to Congress.
- All departments and agencies will be called upon
to moderate program growth, expenditures, and
Federal personnel levels.
C. The President has called upon Congress to join with
him in making the tax reductions possible by placing a
limit of $395 billion on FY 1977 expenditures now.
--- A $395 billion ceiling is $25 billion above the
currently estimated spending level this fiscal
year and $28 billion below the level now pro-
jected for FY 1977.
D. Based upon current estimates that FY 1976 spending
may approach $370 billion, the FY 1976 budget deficit
would be about $70 billion. With the President's
proposals, the FY 1977 deficit is estimated in the
range of $40-44 billion.
# # # # #