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Seattle Rotary Club Meeting, Seattle, WA, November 29, 1967
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The original documents are located in Box D23, folder "Seattle Rotary Club Meeting,
Seattle, WA, November 29, 1967" of the Ford Congressional Papers: Press Secretary and
Speech File 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. The Council 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States of America his copyrights in all of his unpublished writings in National Archives collections.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.
Distribution : Full + 20 Mr Ford
Halleries - 5:00 p.m. 11/28/67
mail - 10:00 a.m 11/29/67
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR WEDNESDAY PMs RELEASE--
November 29, 1967
Excerpts from a Speech by Rep. Gerald R. Ford, R-Mich., at a Seattle Rotary Club
Meeting at Noon, Wednesday, Nov. 29, at Seattle, Wash.
It is time again to take a good hard look at the state of the American
economy, the federal government's fiscal situation and President Johnson's
proposed 10 per cent income tax surcharge.
Fortunately, the Federal Reserve Board action of Nov. 20 raising the basic
U.S. interest rate from 4 to 4½ per cent gives us a breathing spell--an opportunity
to examine carefully all the factors that should enter into a congressional
decision on the proposed tax increase.
First of all, there is good reason to question whether British devaluation
of the pound and the follow-on decision by the Federal Reserve Board to raise
U.S. interest rates make a tax increase inevitable. On the contrary, the
opposite may be true.
But before we move toward any conclusions, let us first consider why the
United States is in a fiscal crisis, in what direction we are tending, and
what the alternate courses of action may be.
Quite simply, we are where we are because the federal government has been
spending far more money than it has been taking in.
In the years 1960 through 1967 we have experienced eight consecutive federal
deficits. Now there are those who say federal spending is completely out of
control. I say it's time we took charge.
What has happened in the federal government since 1960? While the population
of the country grew 10 per cent, federal civilian employment rose 25 per cent,
the cost of federal civilian payrolls climbed 75 per cent, and total federal
spending shot up by 80 per cent.
Is this because of the Vietnam War? While defense spending rose by 68 per
cent during the Sixties, nondefense spending mounted by 97 per cent--from $48.6
billion in fiscal 1960 to an estimated $95.6 billion this fiscal year.
In late 1965 it became apparent that the relative price stability we had
been enjoying was crumbling. The Federal Reserve Board urged the President to
impose fiscal restraints but the President refused to take the lead. Gardner
Ackley, chairman of the President's Council of Economic Advisers, urged the
GERALD FORD LIBRARY
(more)
Digitized from Box D23 of the Ford Congressional Papers: Press Secretary and Speech File at the Gerald R. Ford Presidential Library
-2-
President to ask Congress for a tax increase. The President decided otherwise.
The ensuing events can be summed up quickly. The President continued to
pursue a guns and butter policy. This stimulated an already-overheated economy.
Republicans pleaded for the establishment of spending priorities. I and others
called for deep cuts in nondefense spending. These pleas were ignored.
The Federal Reserve Board raised the basic interest rate. Money became
very tight and interest rates soared to their highest levels in 40 years. The
President finally acted in the fall of 1966--far too late, in my opinion--by
asking Congress to suspend the investment tax credit. In January I urged that
the investment tax credit be restored since the economy had turned sluggish. The
tax credit finally was restored, retroactive in most cases to March 9.
On Sept. 6, 1966, President Johnson made this promise: "I am going to cut
all federal expenditures to the fullest extent consistent with the well-being of
our people."
What actually happened? Federal spending increased by $6 billion on an
annual basis during the last three months of 1966. In the first three months of
1967, federal spending jumped $8 billion more.
In January, 1966, President Johnson predicted a $1.8 billion deficit for
fiscal year 1967. When the fiscal year ended, the government was $9.7 billion
in the red.
Last January the President forecast an $8.1 billion deficit for fiscal year
1968 but continued to insist on a guns-and-butter policy while the cost of the
Vietnam War moved toward the $26 billion-a-year level. He would ask Congress to
approve a 6 per cent income tax surcharge, he said.
Months passed, tremors shook the economy and the President withheld any
solid tax proposals.
On August 3 the President sent his tax message to Congress. The tax increase
proposal had not been before the Congress since January. It came to the Congress
in August. And it was not six per cent but 10 per cent. The President promised
to cut federal spending this fiscal year by $2 billion if Congress would give him
his $7.4 billion tax increase.
This promised $2 billion reduction was just that--a promise. Also, it was
just a token reduction, and members of Congress on both sides of the aisle
recognized it as such.
In a speech before the National Press Club last Sept. 21, Treasury Secretary
Henry H. Fowler commented:
(more)
-3-
"The President in his Tax Message of August 3, 1967, pledged to the country
and to the Congress that he will make every possible expenditure reduction--
civilian and military--in the Budget submitted last January, short of jeopardizing
the nation's security and well-being."
On October 3 the House Ways and Means Committee laid aside the President's
proposal for a 10 per cent surtax with the understanding it would be taken up
again once the President and the Congress could agree on significant reductions
in spending.
On the weekend before Thanksgiving Fowler got in touch with House Ways and
Means Chairman Wilbur Mills and said he had a package offer to make on cutting
spending and raising taxes.
Hearings on that proposal were to open today before the Ways and Means
Committee.
The package deal calls for roughly $1 of spending reduction for every dollar
of tax increase--or something like $4 billion in spending cuts and a $4 billion
tax boost.
Isn't it odd that the President in August said he could cut only $2 billion
without "jeopardizing the nation's security and well-being" and now pledges to
cut twice that much.
In my view, federal spending can be cut at least $5 billion this fiscal year
without any dire effects, and this would be preferable to any tax increase or to
a spending cut-tax boost package. This is what we have been trying to do all
this year.
What are the arguments in behalf of a tax increase? In his August 3 Tax
Message the President predicted a $28 billion deficit without it and forecast
sharply spiraling inflation. Since then--at his Nov. 1 press conference--he has
talked of a $30 to $35 billion deficit. Reportedly one of his aides has said the
$35 billion figure should be disregarded
that the President was simply carried
away.
In thinking through the tax increase, we should ask ourselves what impact it
would have on the health of the economy and how effective it would be in fighting
inflation.
At the moment the economy is hardly bubbling over. It is best described as
soggy. A strong upturn in business widely forecast for the last half of this
year has failed to materialize. Corporate profits are down 3.6 per cent for the
first nine months of 1967 as compared with the like period in 1966. Twenty-three
(more)
-4-
industry groups reported reduced earnings in the third quarter--three more than in
the second--as cost-price pressures squeezed profits. There was a 1 per cent
advance in aggregate net profit for the third quarter but this was due to an
outstanding performance by a handful of industrial giants.
Meantime the unemployment rate has been climbing. It stood at 3.8 per cent
in August, moved up to 4.1 per cent in September and rose to 4.3 per cent in
October.
What is happening is that new entrants into the labor force are going into
the ranks of the jobless.
We had inflation in 1966, with a consumer price rise of 3.3 per cent, and
we are having inflation now. The present rate of consumer price increase is about
4 per cent on an annual basis.
But where the 1966 inflation was primarily of the demand-pull variety--too
much money chasing too few goods--the 1967 brand of price increase is mostly the
cost-pull kind. Wage-earners are catching up with 1966 inflation with new
contracts that are forcing employers to consider product price increases.
The increase in the basic U.S. interest rate ordered by the Federal Reserve
Board to keep short-term investment dollars from flowing to England in pursuit
of 8 per cent interest is certain to have a dampening effect on the American
economy. It will affect all areas of the economy where sales are made on borrowed
money--houses, autos and major appliances.
A tax increase piled on top of the interest rate rise would further depress
the economy. It would take some of the steam out of inflationary forces but it
also would reduce job opportunities as the economy proceeded to shrink.
How successful would a tax increase be in fighting inflation? Consumers,
who now are saving dollars at a record rate, might simply save less and spend
just as much as at present. This blow at inflation thus would be nullified. If
the 1967-68 inflation is basically a cost-push inflation, then imposing an added
tax on business would aggravate the profit pinch and increase the pressure for
cost-push price increases.
But for every dollar that the Federal government does not spend, a dollar
will be taken out of the economy and inflationary pressures will be eased.
Some economists testified at the earlier Ways and Means hearings that a
dollar cut from federal spending has nearly twice as much impact on inflation
as a dollar increase in taxes. Ways and Means Chairman Mills recently expressed
the view that spending cuts are more effective than a tax increase in dealing
(more)
-5-
with inflation.
There is doubt that a tax increase could halt inflation. But there is
no doubt it would add to unemployment by reducing economic growth and the
creation of new jobs. It would hit hardest at teenagers, Negroes and others
who are seeking work.
What about high interest rates and the credit crunch? Should we raise taxes
in the hope of holding down interest rates?
The interest rate increases already triggered by the Federal Reserve Board
remove the credit crunch as a compelling reason for a tax increase. The interest
rise already in motion will reduce the demand for new houses, new industrial
construction, automobiles and other consumer durable goods. This in turn will
relieve the pressure on the money market and likely forestall further increases
in interest rates.
Is there a need for fiscal responsibility in Washington? Most emphatically,
yes.
Let us ease off on the tremendous outpouring of public funds which is
pushing the federal deficit toward the $30 billion mark this fiscal year.
Let us move forcefully to bring federal spending under control and to put our
fiscal house in order in the next fiscal year.
Let us create a special commission to examine all federal programs on
behalf of the Congress and the Executive Branch and mark some programs for pruning.
As Federal Reserve Chairman William McChesney Martin recently told the
American Petroleum Institute in Chicago, "We have been trying to do too much too
fast and must establish some priorities."
Let us demonstrate that we are, indeed, capable of ordering our Nation's
fiscal affairs so that the dollar will emerge as the bulwark of the world
financial community and of all our citizens.
###
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR WEDNESDAY PMs RELEASE--
November 29, 1967
Excerpts from a Speech by Rep. Gerald R. Ford, R-Mich., at a Seattle Rotary Club
Meeting at Noon, Wednesday, Nov. 29, at Seattle, Wash.
It is time again to take a good hard look at the state of the American
economy, the federal government's fiscal situation and President Johnson's
proposed 10 per cent income tax surcharge.
Fortunately, the Federal Reserve Board action of Nov. 20 raising the basic
U.S. interest rate from 4 to 4½ per cent gives us a breathing spell--an opportunity
to examine carefully all the factors that should enter into a congressional
decision on the proposed tax increase.
First of all, there is good reason to question whether British devaluation
of the pound and the follow-on decision by the Federal Reserve Board to raise
U.S. interest rates make a tax increase inevitable. On the contrary, the
opposite may be true.
But before we move toward any conclusions, let us first consider why the
United States is in a fiscal crisis, in what direction we are tending, and
what the alternate courses of action may be.
Quite simply, we are where we are because the federal government has been
spending far more money than it has been taking in.
In the years 1960 through 1967 we have experienced eight consecutive federal
deficits. Now there are those who say federal spending is completely out of
control. I say it's time we took charge.
What has happened in the federal government since 1960? While the population
of the country grew 10 per cent, federal civilian employment rose 25 per cent,
the cost of federal civilian payrolls climbed 75 per cent, and total federal
spending shot up by 80 per cent.
Is this because of the Vietnam War? While defense spending rose by 68 per
cent during the Sixties, nondefense spending mounted by 97 per cent--from $48.6
billion in fiscal 1960 to an estimated $95.6 billion this fiscal year.
In late 1965 it became apparent that the relative price stability we had
been enjoying was crumbling. The Federal Reserve Board urged the President to
impose fiscal restraints but the President refused to take the lead. Gardner
Ackley, chairman of the President's Council of Economic Advisers, urged the
(more)
FORD LIBRARY
-2-
President to ask Congress for a tax increase. The President decided otherwise.
The ensuing events can be summed up quickly. The President continued to
pursue a guns and butter policy. This stimulated an already-overheated economy.
Republicans pleaded for the establishment of spending priorities. I and others
called for deep cuts in nondefense spending. These pleas were ignored.
The Federal Reserve Board raised the basic interest rate. Money became
very tight and interest rates soared to their highest levels in 40 years. The
President finally acted in the fall of 1966--far too late, in my opinion--by
asking Congress to suspend the investment tax credit. In January I urged that
the investment tax credit be restored since the economy had turned sluggish. The
tax credit finally was restored, retroactive in most cases to March 9.
On Sept. 6, 1966, President Johnson made this promise: "I am going to cut
all federal expenditures to the fullest extent consistent with the well-being of
our people."
What actually happened? Federal spending increased by $6 billion on an
annual basis during the last three months of 1966. In the first three months of
1967, federal spending jumped $8 billion more.
In January, 1966, President Johnson predicted a $1.8 billion deficit for
fiscal year 1967. When the fiscal year ended, the government was $9.7 billion
in the red.
Last January the President forecast an $8.1 billion deficit for fiscal year
1968 but continued to insist on a guns-and-butter policy while the cost of the
Vietnam War moved toward the $26 billion-a-year level. He would ask Congress to
approve a 6 per cent income tax surcharge, he said.
Months passed, tremors shook the economy and the President withheld any
solid tax proposals.
On August 3 the President sent his tax message to Congress. The tax increase
proposal had not been before the Congress since January. It came to the Congress
in August. And it was not six per cent but 10 per cent. The President promised
to cut federal spending this fiscal year by $2 billion if Congress would give him
his $7.4 billion tax increase.
This promised $2 billion reduction was just that--a promise. Also, it was
just a token reduction, and members of Congress on both sides of the aisle
recognized it as such.
In a speech before the National Press Club last Sept. 21, Treasury Secretary
Henry H. Fowler commented:
(more)
-3-
"The President in his Tax Message of August 3, 1967, pledged to the country
and to the Congress that he will make every possible expenditure reduction--
civilian and military--in the Budget submitted last January, short of jeopardizing
the nation's security and well-being."
On October 3 the House Ways and Means Committee laid aside the President's
proposal for a 10 per cent surtax with the understanding it would be taken up
again once the President and the Congress could agree on significant reductions
in spending.
On the weekend before Thanksgiving Fowler got in touch with House Ways and
Means Chairman Wilbur Mills and said he had a package offer to make on cutting
spending and raising taxes.
Hearings on that proposal were to open today before the Ways and Means
Committee.
The package deal calls for roughly $1 of spending reduction for every dollar
of tax increase--or something like $4 billion in spending cuts and a $4 billion
tax boost.
Isn't it odd that the President in August said he could cut only $2 billion
without "jeopardizing the nation's security and well-being" and now pledges to
cut twice that much.
In my view, federal spending can be cut at least $5 billion this fiscal year
without any dire effects, and this would be preferable to any tax increase or to
a spending cut-tax boost package. This is what we have been trying to do all
this year.
What are the arguments in behalf of a tax increase? In his August 3 Tax
Message the President predicted a $28 billion deficit without it and forecast
sharply spiraling inflation. Since then--at his Nov. 1 press conference--he has
talked of a $30 to $35 billion deficit. Reportedly one of his aides has said the
$35 billion figure should be disregarded
that the President was simply carried
away.
In thinking through the tax increase, we should ask ourselves what impact it
would have on the health of the economy and how effective it would be in fighting
inflation.
At the moment the economy is hardly bubbling over. It is best described as
soggy. A strong upturn in business widely forecast for the last half of this
year has failed to materialize. Corporate profits are down 3.6 per cent for the
first nine months of 1967 as compared with the like period in 1966. Twenty-three
(more)
-4-
industry groups reported reduced earnings in the third quarter--three more than in
the second--as cost-price pressures squeezed profits. There was a 1 per cent
advance in aggregate net profit for the third quarter but this was due to an
outstanding performance by a handful of industrial giants.
Meantime the unemployment rate has been climbing. It stood at 3.8 per cent
in August, moved up to 4.1 per cent in September and rose to 4.3 per cent in
October.
What is happening is that new entrants into the labor force are going into
the ranks of the jobless.
We had inflation in 1966, with a consumer price rise of 3.3 per cent, and
we are having inflation now. The present rate of consumer price increase is about
4 per cent on an annual basis.
But where the 1966 inflation was primarily of the demand-pull variety--too
much money chasing too few goods--the 1967 brand of price increase is mostly the
cost-pull kind. Wage-earners are catching up with 1966 inflation with new
contracts that are forcing employers to consider product price increases.
The increase in the basic U.S. interest rate ordered by the Federal Reserve
Board to keep short-term investment dollars from flowing to England in pursuit
of 8 per cent interest is certain to have a dampening effect on the American
economy. It will affect all areas of the economy where sales are made on borrowed
money--houses, autos and major appliances.
A tax increase piled on top of the interest rate rise would further depress
the economy. It would take some of the steam out of inflationary forces but it
also would reduce job opportunities as the economy proceeded to shrink.
How successful would a tax increase be in fighting inflation? Consumers,
who now are saving dollars at a record rate, might simply save less and spend
just as much as at present. This blow at inflation thus would be nullified. If
the 1967-68 - inflation is basically a cost-push inflation, then imposing an added
tax on business would aggravate the profit pinch and increase the pressure for
cost-push price increases.
But for every dollar that the Federal government does not spend, a dollar
will be taken out of the economy and inflationary pressures will be eased.
Some economists testified at the earlier Ways and Means hearings that a
dollar cut from federal spending has nearly twice as much impact on inflation
as a dollar increase in taxes. Ways and Means Chairman Mills recently expressed
the view that spending cuts are more effective than a tax increase in dealing
(more)
-5-
with inflation.
There is doubt that a tax increase could halt inflation. But there is
no doubt it would add to unemployment by reducing economic growth and the
creation of new jobs. It would hit hardest at teenagers, Negroes and others
who are seeking work.
What about high interest rates and the credit crunch? Should we raise taxes
in the hope of holding down interest rates?
The interest rate increases already triggered by the Federal Reserve Board
remove the credit crunch as a compelling reason for a tax increase. The interest
rise already in motion will reduce the demand for new houses, new industrial
construction, automobiles and other consumer durable goods. This in turn will
relieve the pressure on the money market and likely forestall further increases
in interest rates.
Is there a need for fiscal responsibility in Washington? Most emphatically,
yes.
Let us ease off on the tremendous outpouring of public funds which is
pushing the federal deficit toward the $30 billion mark this fiscal year.
Let us move forcefully to bring federal spending under control and to put our
fiscal house in order in the next fiscal year.
Let us create a special commission to examine all federal programs on
behalf of the Congress and the Executive Branch and mark some programs for pruning.
As Federal Reserve Chairman William McChesney Martin recently told the
American Petroleum Institute in Chicago, "We have been trying to do too much too
fast and must establish some priorities."
Let us demonstrate that we are, indeed, capable of ordering our Nation's
fiscal affairs so that the dollar will emerge as the bulwark of the world
financial community and of all our citizens.
###