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Briefing by the President; William E. Simon, Secretary of the Department of the Treasury; Alan Greenspan, Chairman of the Council of Economic Advisers; and James T. Lynn, Director of the Office of Management and Budget, for 18 Newspaper Columnists [Ford Speech or Statement]
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Briefing by the President; William E. Simon, Secretary of the Department of the Treasury; Alan Greenspan, Chairman of the Council of Economic Advisers; and James T. Lynn, Director of the Office of Management and Budget, for 18 Newspaper Columnists [Ford Speech or Statement]
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Digitized from Box 17 of the White House Press Releases at the Gerald R. Ford Presidential Library
FOR IMMEDIATE RELEASE
OCTOBER 14, 1975
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
BRIEFING BY THE PRESIDENT
WILLIAM E. SIMON
SECRETARY OF THE DEPARTMENT OF THE TREASURY
ALAN GREENSPAN
CHAIRMAN OF THE COUNCIL OF ECONOMIC ADVISERS
AND
JAMES T. LYNN
DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET
FOR 18 NEWSPAPER COLUMNISTS
THE ROOSEVELT ROOM
10:30 A.M. EDT
THE PRESIDENT: I just thought that before Alan
and Bill had a chance to answer any questions, that I would
come in and indicate for a few minutes my strong personal
feeling and my personal identity with this approach that we
have taken, and to give you an opportunity, if you want it,
to answer some questions before either Bill or Alan respond
to any other information that you might want.
Let me put at rest, at the outset, that this was
not something that came out of thin air at the last minute.
The whole thought really began sometime early this year and
has been worked on over a period of several months in some
detail.
The thought of really pinning them together, of
course, was precipitated by the need to make a decision on
whether we would support, or not support, or make revisions
in the 1975 tax matter.
I, in a press conference -- I have forgotten where
it was -- Omaha gave the first indication that this was an
approach that we were actively considering, but the fact is
that approach had been worked on for some time.
Now, there were some, obviously, fine details that
had to be put together in the last 72 hours, when we got down
to some of the charts and rates and so forth. But, the
basic decision was made sometime before.
With that, I will be glad to answer any questions.
MORE
Page 2
QUESTION: Mr. President, are you saying that you
will veto any tax cut bill that comes in unless you have
this $28 billion reduction from the anticipated increase
in the 1977 budget?
THE PRESIDENT: In the speech I made, I said I
would not hesitate to do that. I have since indicated a
harder line. I think in all likelihood that would be the
net result.
QUESTION: Mr. President, both you and Mr. Green-
span have said the program was not designed to have an
economic effect in the short run; it was directed more to the
longrun in spending. But, doesn't it nevertheless have an
economic effect in the short run, and what do you anticipate
that would be?
THE PRESIDENT: I have to rely on Alan's analysis
and that of others who are far more expert than I in that
matter, and he can probably better speak for himself. It
is his judgment, as I understand it, that the economic
impact will be minimal in that nine-month period.
QUESTION: Mr. President, do you find the predicates
for the kind of action you are asking Congress to take now,
that you have cited in your press conference last Thursday,
and that Ron Nessen has cited for you-- I guess going back to
1967 1968-- do you find them really convincing?
THE PRESIDENT: As I recall the history of those,
President Johnson wanted some action by the Congress, a nd
Wilbur Mills said no. Finally, Wilbur came down in putting
together things that came to mind. Wilbur came down and
finally agreed on the basis that there would be a spending
limitation implemented at the same time in both instances.
The Congress, in 1967 in December, and in June
in 1968, as I recall, did take action to tie the two
together, as I recall. If they could be done, then I see
no reason why they can't be done at this time.
QUESTION: Mr. President, that raises the question
why you did not consult with Congress at this time, as
Johnson and Mills consulted with Congress in 1967 and 1968,
and why you just confronted them with a fait accompli in
this tax cut.
THE PRESIDENT: I think there is a little differen-
tiation. In 1967 and 1968, a: then Democratic President
had a substantial majority in both the House and the Senate.
In our case, we are confronted with just the opposite
situation, and we did do some consulting, or informing, I
should say, but there was, I think, a different factual
situation.
Page 3
QUESTION: Mr. President, you said in response to
Bart Rowan's question, that you thought -- or Mr. Greenspan
thought -- there would be a negligible impact on the economy.
Suppose the reverse happens? Suppose the Congress serves
up a tax bill, which you vetoed, but the Congress did
nothing about your bill? What would the economic impact
of that situation be?
THE PRESIDENT: You have the further assumption
that the Congress would sustain my veto?
QUESTION: Yes.
THE PRESIDENT: Do you want to speak to that,
Alan?
MR. GREENSPAN: Do you mean override?
QUESTION: No, I mean sustain. Nothing would
happen?
THE PRESIDENT: That was my assumption.
MR. GREENSPAN: Do you mean talking about the
withholding tax rates rising close to $12 billion? I
will be glad to answer that in some detail, Mr. President,
after you leave. I wonder if that is acceptable, gentlemen,
or do you want to go through it now?
QUESTION: Wouldn't it have a very substantial
impact of a negative kind, and doesn't it suggest you are
going down a death valley route?
MR. GREENSPAN: Joe, I would say the analysis,
which suggests a significant negative impact, requires that
you accept the rather questionable rules of thumb. which
we are now building into our standard econometric models,
from which that type of analysis emerges.
I think there is very serious question about the
validity of that approach in the sense I would argue the
models that we have now built, unfortunately, abstract
from reality in a manner which I think is distorting. I
think it is important for us to look at the real world as
to what is happening and not really automatically assume
that the real world is consistent with the models that we
build. That is not SO.
QUESTION: Mr. President, there has been some
speculation as to how you reached that $22 billion level
of this transaction --
MORE
Page 4
THE PRESIDENT: $28 billion.
QUESTION: The question is, whether it is true,
as alleged in the Wall Street Journal, that you decided
it in a golf course conversation with Mel Laird? (Laughter)
THE PRESIDENT: There is no validity to that
latter part, that it was decided on the golf course, no
truth whatsoever.
We were trying to find an area where we could
believably achieve reductions and at the same time give
the kind of tax relief which we believe is necessary, and
the net result was we came up with, I think it is, a 7
percent increase in the growth of Federal spending, which
takes us from 70 to 395 and, at the same time, gives us the
kind of distribution of tax reductions which I think are
long overdue to the middle-income people and, at the same
time, holds the people at the other end of the spectrum --
they are held harmless.
QUESTION: When do you plan to make the proposed
b udget reductions public, Mr. President? There are already
reports you are circulating a memorandum among the Cabinet
officers with the cuts in them.
THE PRESIDENT: Jim Lynn has gone to the departments,
and I can't give you precisely the -- there is Jim over
there.
MR. LYNN: What we have done, Peter, is in
typical OMB fashion, contacted each department with planning
ceilings, which is the regular budget process, and we have
also shared with them informally some of the alternatives
that were identified in this process that has been going
on well over two months with the President-- where it should
be examined as to the ways they could be used to achieve
this ceiling.
The one thing the President made clear to us in
the OMB and made clear to the Cabinet officers was that
these are merely suggested alternatives of some ways of
doing it. What we want is each department and agency to use
their own initiatives and own expertise to come up with the
best and most equitable way of achieving the result we are
after.
QUESTION: Mr. President, do you think the American
public, let along Congress, would be willing to accept
substantial reductions in major social programs?
MORE
Page 5
THE PRESIDENT: First, Allan, you have to under-
stand they are not necessarily substantial reductions.
As I said a few moments ago, it is about a 7 percent
increase in the growth of Federal expenditures. In actual
dollars, it is a $25 billion increase.
Now, there will have to be some tightening up.
There may have to be some caps, as we proposed in the 1976
budget. I think the American public is very disturbed
about the growth of Federal spending, very disturbed. I
think the mood of the Nation is that something has to be
done about it.
QUESTION: Mr. President, you said the other day
that you expected to propose a $1 billion cut in the present
level of about $6 billion for spending on the food stamps
in your new bill. Could you tell us how that would come
about?
THE PRESIDENT: That is going to be submitted to
the Congress the day they come back, and I don't think I
should pre-empt it in this gathering this morning. But, we
will have a legislative program that will go up to the
Congress the day they return from their recess.
QUESTION: Would this be by having possibly
tighter rules on eligibility? Is this the general idea?
THE PRESIDENT: There will be a number of significant
recommendations.
QUESTION: Mr. President, can I come back to the
question of the economic impact of the program? As you
know, one of the most persistent criticisms on Capitol Hill
is that the tax cuts will take effect at one time and the
spending cuts will take place at a point in time nine months
later.
The criticism is that you have the tax cuts
feeding into the economy, and that will stimulate the
economy, and therefore might be too inflationary. Can
we get some further guidance on how you respond to that?
THE PRESIDENT: I have been assured by Alan and
his associates that that will not take place. I don't have
the details.
SECRETARY SIMON: Can I say something in addition
to what Alan said before, which is a little sophisticated,
Joe, I agree with you. You get to a point, when we talk
about stimulus, whether or not a budget deficit of a
particular size in excess of that is indeed stimulative or
just the opposite.
MORE
Page 6
What are the financial implications you have heard
me speak of so often -- the crowding out, that indeed has
already occurred -- which is going to hurt as far as a
broad base expansion if it were allowed to continue.
One can't argue, as in the case of other countries
that have adopted stimulative measures in the past which
did nothing but exacerbate inflation and unemployment, that
indeed, at a certain level--which can't be quantified,
admittedly, this is a matter of one's judgment that in the
shortrun it is not necessarily stimulative.
Certainly, if you begin to look, which economic
policy makers should look, not at short run considerations-
we are always looking at the immediate impact of what our
policies are going to produce- what it is going to be
between now and the next election.
The purpose of this is once and for all, as the
President said, to get the control over the growth in
Federal spending to move toward a balanced budget, and it
is our only hope to move toward a balanced budget before
the end of this decade. We have to begin by controlling
the growth.
QUESTION: Bill, aren't you nevertheless going to
have to borrow more money in the first six months of the
calendar 1977?
SECRETARY SIMON: Sure. You have what I call
a partial -- a partial only, Bart -- Hobson's choice,
and let me explain why I say it is partial. I would
rather, knowing what my druthers are, finance an additional
$5 billion or $6 billion budget deficit during the first
period of 1976, calendar year 1976, during the period of
obvious economic slack, than I would the very large deficit
we were threatened with during 1977, when the economy will
be moving back to high economic activity, we believe.
This indeed, at that point, the sustained combined
deficits of many years, could then threaten to abort the
recovery prematurely.
THE PRESIDENT: I would add this, too, Bart. If
the Congress is concerned about this, there is no reason
why they can't cooperate in a number of the authorizations
and appropriation bills that they and I will be considering
between now and January 1, which will have an impact on
the spending in the first six months or nine months of
calendar year 1976.
MORE
Page 7
As a matter of fact, we are probably going to
have that struggle during that period of time anyhow, and our
emphasis will be, as it has been, to hold the line on some
of these spending proposals, whether it is an authorization,
appropriation, or substantive legislation.
So, in effect, I will be seeking to put some lid
on the second half of fiscal year 1976 spending.
MR. LYNN: If I might on that, Mr. President, on
even remaining actions from your original $17 billion
proposals you made in the January budget that affected
fiscal year 1975 and 1976, they still have time to take
action on, I think, better than $4 billion worth of
reductions on the growth of rescissions and deferrals.
I think the other side of the statement is
maybe they will look harder now at what I call the salami
tactics of adding a slice here and adding a slice there
in the regular appropriation and authorization process.
QUESTION: Sir, if, as you say, the American
people are demanding that the Federal Government be
reduced, won't Congress get that message during its
vacation and other times and help you out there?
THE PRESIDENT: I think it is very opportune that
they are home to get that message. We expect to get the
benefits of that because it is my distinct impression that
the American people are eager for this action, and I think
it will be reflected on the Congress when they return.
QUESTION: Mr. President, why do you think it is
the American people need this additional tax cut?
THE PRESIDENT: Why do I think?
QUESTION: Yes.
THE PRESIDENT: As we have had inflation, we have
had, because of our progressive tax rates, as people have
moved up the salary and wage levels, they have been hit by
the progressive rates that are in effect at the present
time.
I have read a number of articles that make this
point very vividly, and the ones who have been hurt most
are the ones who have moved into the middle-income group.
Unless we do something to modify that, they are going to
be hurt the most in the years ahead.
MORE
Page 8
QUESTION: Mr. President, coming back to the
point of economic impact, it makes quite a difference what
part of the budget, what kind of spending, you cut. Can
you give us in general terms any thoughts you might have on
what kind of spending needsto be cut at this point? It
makes a difference in impact, as I understand it, whether
you go after Social Security or military deployment or
building a dam somewhere.
THE PRESIDENT: It is true that certain programs
call for an immediate cash outlay and others have a
delayed impact. On a long+term military contract, the big
payout comes usually in the last 50 percent of the five-year
program to build an aireraft carrier, just as an example,
whereas some of these income supplement programs come out
of the Treasury immediately.
I wouldn't want, at this point, to identify them
until Jim's process gets concluded, but I have indicated --
and did in Detroit last Friday -- because we are in the
process of now drafting the legislation and the preparation
of the message in the area of food stamps.
Now, that is an immediate impact if the Congress
acts.
I also said in Detroit that we had to get some
better management out of the Defense Department and that
some of the frills, as I use the word, have to be eliminated
over there in the Pentagon. I repeat that.
I am not going to permit, to the extent that I
can, any serious, any erosion of our weapon capability,
but I think there are areas in the Defense Department where
better management can produce better results.
QUESTION: Mr. President, if the Congress reacts
with the same kind of stalemate it reacted on unemployment,
do you see this as an important issue that will carry into
the 1976 campaign?
THE PRESIDENT: I think the American people could
and would make an issue, if my premise is correct, that the
American people want a reduction in the growth of expenditures
at the Federal level. If the Congress doesn't act affirmatively,
I think the American people will make it an issue, which
means in 1976 it will be in the political arena.
QUESTION: Mr. President, you used a billion dollar
figure in your Detroit press conference, I think, on food
stamps?
THE PRESIDENT: Right.
MORE
Page 9
QUESTION: You also spoke of medical payments.
Do you have a rough ballpark figure on medical payment
cuts?
MR. LYNN:
I think that is very hard to do,
Mr. President, until we hear from HEW as to the whole
range of what they would propose to stay within their
ceiling.
THE PRESIDENT: We have had a tremendous growth
in medical payments by the Federal Government for the whole
range of services, but the precise amount I think will have
to wait until HEW comes back.
MR. LYNN: Let me add, if I might, on that, Mr.
President, when we look at the cost per unit of care, in
the course of recent years, particularly in the last year or
two, it bears absolutely no relationship to inflation or
any other indicator we can use. It looks like it is almost
uncontrolled, so just as a total issue, even apart from
this particular issue, when we get to the $395 billion,
it is an area HEW has to look at very carefully, and has
been looking at for some time.
This effort, of course, will bring that to a head.
QUESTION: It would require major changes in the
law, though, would it not?
THE PRESIDENT: In many instances, yes, it would.
QUESTION: Sir, Secretary Simon and others have
mentioned from time to time that inflation depends on the
kind of spending that you do. certain kinds of spending
cause inflation and some do not.
Obviously, if you have a shortage of something and
you spend and increase production, that does not cause
inflation and if you spend for things that are in short
supply, that does.
Has there been an analysis of that in your
proposal so that you take this into account?
THE PRESIDENT: I would defer that to Alan.
MR. GREENSPAN: First, let me say the analyses
that have been used, trying to get these different impacts,
tends to show the differences are much less than a number
of people have originally supposed. I think that the
difference between, say, certain types of capital projects,
and transfer payments, are there, unquestionably. But I
think it is more important to recognize that the differences
are really quite small, relative to the issue of the size
of the amounts.
MORE
Page 10
In other words, it is an issue of small moment
relative to the total size of the type of project in the
program which the President has announced.
QUESTION: Mr. President, why did you decide to
make the additional tax cut effective January 1 instead
of delaying it and tying it to the tax reductions at the
beginning of fiscal 1977, October 1?
THE PRESIDENT: That was a decision that I felt
was -- in the first place, the American people, based on
what the various Congressional leaders had indicated,
were going to get a tax reduction; now a kind of a
tax reduction that I didn't think was the right one.
Since I have strong views on what is a good and
fair and equitable tax reduction, I felt it was the proper
thing to join the issue at this time, rather than to have
theprobability of the wrong kind of a tax reduction going
into effect January 1.
It seems to me it was better to fight for what I
really believedin at this time rather than to delay it
until sometime in 1976.
QUESTION: Mr. President, following that, if
Congress were to extend the present reduction at the $12
billion level and say they are willing to talk about a
budget reduction of $12 billion, what would your reaction
to that be?
THE PRESIDENT: I don't think I ought to speculate
on that. I feel very strongly, as I have indicated, about
the kind of a tax reduction, and that is as crucial as the
spending reduction. I think we have to stand firm on the
combination that we have proposed.
I haven't seen any indication on their part they
would do it, so I think it is too speculative to really make
any judgments.
QUESTION: Mr. President, are you saying there is
no room for compromise anywhere on this issue, that it has
to be your program or no program?
THE PRESIDENT: We are all realistic enough to
know that sometime you may have to, but our position is
firm, and I think it is soundly based. To indicate that
there is any major area of compromise I think just erodes
our position, which is firm.
MORE
Page 11
QUESTION: Mr. President, do you fear that if
there is an extension on these tax cuts, as Senator Long
has indicated, without any reduction in the rate of
growth, that you will go back to more inflation, possibly
double-digit inflation?
THE PRESIDENT: If my recollection is accurate,
if we have a $12 billion tax reduction with no limitation
on spending, the deficit for fiscal 1977 will be $70
billion. With the prospects of a deficit of fiscal 1976
somewhere between $60 and $70 billion, you will have back
to back deficits that will total $140 billion. I think
that is an inevitable invitation to reigniting of inflation.
QUESTION: Mr. President, you have said the people
who make an issue of this in 1976, so will you yield to the
clamor of the public on this and take up the cudgels?
(Laughter)
THE PRESIDENT: I also respect the judgment of the
American people, and if they want to make it an issue, I
will respond.
QUESTION: You won't resist it? (Laughter)
THE PRESIDENT: No.
QUESTION: I am a little confused, Mr. President,
as to where these fiscal guidelines leave your welfare
reform. With many sides of the Administration moving in
that direction, everything you can learn from HEW, would
you suggest that maybe it would cost more to go the income
route?
THE PRESIDENT: The Vice President is having some
hearings which will cover this area, and they will include
the total spectrum of those who want to take the present
law and modify it to try and tighten it up to those who want
junk the present system and substitute another.
We are going to have a broad spectrum of witnesses,
and when the Vice President comes back with a consensus,
we will make the decision. There has been none made yet.
QUESTION: Would you like to move in January on
some kind of welfare program?
THE PRESIDENT: It will depend on what the hearings
produce, Charlie.
QUESTION: Mr. President, you spoke of frills at
the DOD. Do you tie that also to the other departments and
agencies?
MORE
Page 12
THE PRESIDENT: Yes, none will be immune, Holmes.
QUESTION: Mr. President, speaking of the Vice
President, could I ask a fiscally related question? (Laughter)
Are you and Mr. Rockefeller now taking different positions
on the possible need for some Federal assistance to New
York City?
THE PRESIDENT: I would say it is minimal. I
couldn't help but be disappointed in what I read this
morning, that the mayor's group -- or whatever they call
that group -- has come up with only a $50 million reduction
of the recommendations that they have to make to the
Governor's group, and the total that the Governor's group
requires is $200 million, and this is only $50 million out
of the $200 million.
I have no way of knowing what the reaction will be
of the Governor and his group, but I can't help but raise
the question that if the municipal people can't satisfy
the Governor's group, it certainly is an indication that
they would have a hard time satisfying the Congressional
requirements for fiscal responsibility.
Of course, fiscal readjustment or fiscal restructur-
ing or fiscal responsibility at the city level would be a
prerequisite, I would think, for any Congressional action.
MR. NESSEN: Mr. President, do you want to leave
Bill and Alan to finish?
THE PRESIDENT: Yes. Thank you all.
QUESTION: Thank you, Mr. President.
SECRETARY SIMON: It was interesting at one
point. You know the political issue and the clamor of the
people, Peter, as I said, and I think that is exactly what
this is, and I have felt so for a long time.
What I have read since the President made his
proposal is that it is
unrealistic, and that implies --
it is quite explicit -- that Congress or anybody who is
not going to come to grips with the growth in Federal
spending that has occurred, and indeed will continue unless
we come to grips with it.
I think the more important question to ask is
what happens if we don't control the growth in Federal
spending, and we see the continued growth in fiscal 1977
and many fiscal years beyond?
MORE
Page 13
I will suggest that we have seen a lot of other
great nations go to the brink of fiscal collapse as a
result of these type policies, and no one suggests that
after what we have done for many years -- as Jim Lynn has
often said -- our budget today actually has a life of its
own.
It increases each year, regardless of what we do,
because the number of beneficiaries increase, and so, in
that regard, it is, and of course the cost of living
escalators as well. It is not going to be easy to change
these habits. We don't suggest it is, there is no doubt
about that, but I think the most important thing -- and
this gets to the politics of it, if you will, regardless
of which side of this issue you happen to be on philosophically--
that is, we are at a crossroads in this country today.
You can continue down this path, with the conse-
quences we believe history only too clearly demonstrates, and
you can see this by looking at the wreckage of these nations
that have gone this route or go back to the route that
brought us this great prosperity we have always enjoyed.
Anybody who thinks it is an easy choice, because
it does require tough decisions, and a discipline that has
been absent in this country for some time --
QUESTION: Bill in that context, the President said
that his proposal would actually be a 7 percent budgetary
increase of $25 billion but, in fact, would not inflation
alone account for more than that. So that instead of caps
on programs, there are going to have to be widespread
reductions?
SECRETARY SIMON: Our inflation number is approxi-
mately the 7 percent, so it is not, as someone suggested, the
10 percent.
QUESTION: Even that will allow for no real growth?
SECRETARY SIMON: As far as real growth is
concerned, that again would depend on what areas you are
cutting back. You couldn't, just overall.
Alan?
MR. GREENSPAN: That is only one year. Remember,
you have had significant real growth occurring in a period
when the economy's real growth has been negative. I think
to postulate that the real growth of Federal expenditures
must be positive, or a large positive every year, will
give you an automatic ratcheting effect which inevitably
will create, on the average, a much larger proportion of
GNP going to the Federal budget.
MORE
Page 14
So, I think while it is certainly factually
true that what is being presented here is for this
particular period no real growth in Federal spending, I
think to take that out of the context of recent years is
to give a false picture of what the actual pattern of
Federal spending has been.
QUESTION: Before we get away from history, do
you know any example of a country that has reversed this
kind of trend without a revolution? Has that ever happened?
SECRETARY SIMON: Without a revolution?
QUESTION: Yes.
QUESTION: Or with one. (Laughter)
SECRETARY SIMON: I had a partner some years ago,
Sidney Homer, who believed when chronic inflation took
hold that no nation in history has proven its ability
through the discipline that is required to reverse it.
We aren't there yet. That is the point, What
we are trying to do is reverse this before we get there
because the social, political and economic upheaval of
attempting to reverse when you have gone too far, as some
countries in this world. It is not up to the Secretary
of State to name countries. It wouldn't be proper -- the
Secretary of the Treasury. It wouldn't be proper for me to
be critical of any other country in the economic or
financial policies or positions they find themselves in
today. That is very clear.
QUESTION: Can I come back to that question?
In addition to the discipline issue, there is the issue of
equity. How are you going to spread around these cuts and
curtailments? I have the impression the present tax law
provides special protection for people with incomes under
$4,000 a year and up to $8,000.
My impression is that your proposals do not have
that same kind of protection.
SECRETARY SIMON: Let's talk about the earnings.
QUESTION: Is that equity?
SECRETARY SIMON: You are talking about the earned
income credit. Now, what we proposed, as far as the tax
changes are concerned, were consistent with the changes that
were made in the 1975 Tax Reduction Act, which was heavily
weighted toward the lower spectrum.
MORE
Page 15
As you well remember, we went for a $1,000 cap,
and the Congress loaded it all down below. The earned
income credit, as opposed to tax policy, Joe, is an
expenditure item, it is a transfer payment, and does not
appear in our tax proposals, nor does it appear in the Ways
and Means agenda of issues.
That came up last year in the Senate Finance
Committee during the last days of debate on that.
QUESTION: I don't think the question goes to the
issue of how you account. The question goes to this: Don't
people with earned incomes under $8,000 deserve special
protection?
SECRETARY SIMON: They have it.
QUESTION: Doesn't this bill not --
SECRETARY SIMON: Under our proposal, an income
under $5,00 is basically tax free, Joe.
MR. LYNN: Let me add to that, Joe, one of the
basic problems we in the Executive Branch, and people on
the Hill, see is we really do not have very good statistics
and we should get better statistics on what aggregate
income is at that level.
You have all seen Martha Griffith's studies on
one, two, three, four, five or 11 different kinds of programs
and what effect that is. I guess the first answer to your
question is there are a number of programs directed at
people at the poverty level or thereabouts and below.
What was done in the last tax bill was to
add one more of those. Very frankly, I have to say to you,
from what I can see as to how it was devised and with the
quickness it was devised, it was really not with a very
careful look at the totality of the various programs we have
for those people.
Our approach in this regard is that the problems
of people at those income levels must be addressed,
absolutely. The hearings that the President referred to
that the Vice President is holding around the country is
addressed at that problem; in other words, that is part
of the purpose of those hearings.
It seems to us the way to approach that question
is as a matter of what should be done for the poor and near
poor in this country, to help them with their lives. It
shouldn't be done piecemeal in this manner.
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I would suppose that in the Congress, on the
Senate side at least, they are going to come back up with
a proposal of some kind. I would urge if they are going
to do that, that, (a) I would prefer for that to be part
of an overall look at welfare reform and (b) if they
were to do something in that area, I would at least hope
what they are going to propose, without in any way signaling
how I would stand on a reaction to it, is something that
wouldn't pre-empt the overall look at the welfare, which
it seems to me this country has to take.
QUESTION: Mr. Secretary, you started by saying
the program had been attacked as being unrealistic, and
you think it is realistic. Yet, when a question is raised
as to the budget cuts and how they relate to last year's
spending, you fall back on the historical context of
years past when the budget growth has been high and the growth
of the economy has been negative.
But, isn't the perception that you are looking
for, what the President was talking about, is that the
people are going to think about this program this year
and aren't they going to see this year, at best, a holding
even or perhaps reductions? Isn't that what you have to
worry about?
SECRETARY SIMON: There again, you are going
back and making a judgment, and I happen to agree with the
President because the Congress did get the message when
they went home for the Easter recess, and they got the
message after the debate that was held in the first three months
of this calendar year in the Congress on budget deficits
that at that time numbers were being thrown around anywhere
from $80 billion to George Mahon's $150 billion.
The American people said "enough," and this
was illustrated by the way the Congressmen came back and
all of a sudden began to change their tune as far as their
rhetoric, anyway, on controlling Federal spending.
Admittedly, everybody says yes, we should cut
the Federal budget and then the minute they see where the
cuts are, you are goring somebody's ox and there is no
doubt about the fact that when we are slowing down the
growth in spending, which we are trying to do, you are
going to gore somebody's OX,
They are going to say to themselves, well, is
that the net benefit for me, and that depends on how we
are able to sell this about the long-range battle we have
got and the fight against inflation and everything else
you have heard me talk about.
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QUESTION: Isn't that the problem, though, Mr.
Secretary, that you deal in the abstraction of large
Federal spending and the Congress has to deal with
specific programs which gore a lot of people's ox, and in
the aggregate that is a lot more powerful pressure than
any argument you might make about what --
SECRETARY SIMON: It is, Peter. It has been in
the past. In & political sense, I would say that you are
correct. The question is whether the level of economic
literacy is indeed rising in this country as a result of
the debate of the past year. I would certainly hope SO,
Our educational efforts are going to be critically
important, but we don't deal with the abstract completely.
We do submit a budget. We have tried just about everything.
We went the impoundment route and lost in the courts. We
went the deferral and recession route and met that effort
so far with a ho-hum on the Hill.
The vetoes are working, to a large degree, but
that is an unsatisfactory method to attempt to gain control.
And while all this is going on, everything just continues
to grow in a near out of control way. But we are going to
submit specifics of $395 billion to the Congress, yes.
Whether they accept those specifics or decide to
accept others instead, Peter, that is the debate that
will ensue, and always does.
QUESTION: Mr. Secretary, you are speaking of the
economic literacy rising in this country. Yet, in effect,
you and Mr. Greenspan are asking the country to accept a
program that you claim will have entirely contrary results
from what you and Mr. Greenspan would have indicated it
would have had, or have indicated, for most of this year.
In other words, it will not be stimulative where
you have been telling the country a program of this sort
would be too stimulative, too inflationary and crowd people
out of the market, and the deficit would be dangerous and
so forth.
What changed your mind?
SECRETARY SIMON: No, this isn't a contradiction.
Back when we were talking of the economic stimulus that
would provide a tax reduction, I mentioned on many occasions --
and I never read it anywhere really, but I said it in
Congress every time I testified -- that fine, a tax reduction
net will have a supportive effect to the economic recovery
that is already underway.
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Everybody pooh-poohed that. They said that is not
true. If you look at what happened, the tax rebates were
given out in May and in June, and the statistics are going
to show as we look back on it that the economic recovery
was indeed underway.
As I said, Joe, what we are looking at is the longer
term aspect of this entire proposal and the long run benefits
of it as it relates to everything that I explained the other
day.
We can debate all day -- and I want Alan to talk
to that, too -- about how much deficit is required to
stimulate before it begins to become counterproductive, and
that is a matter of great judgment.
Alan?
MR. GREENSPAN: Actually, I think you have to
distinguish between the issues of short-term deficits and
longer term deficits. We, at this stage, don't really
know and I don't think anybody knows, as Bill pointed
out -- whether moving toward higher so-called fiscal
stimulus is actually productive or counterproductive, in
the sense that we are now in an area where it is very
difficult to make a judgment as to whether expansionary
policies are, in fact, counterproductive.
I wouldn't make a judgment, frankly, either way
because I don't think we have the evidence. But, I think
there is one important issue here which differentiates
a budget deficit expansion in general and one which is
created in this particular program.
Remember, there are two aspects to this. One, it
is true that as proposed there is a modest increase in
deficit for fiscal 1976. But, concurrently, there is a
significant decrease in the prospective deficit for fiscal
1977.
Now, the major problem we have with deficits at
this point is their impact upon the money markets; specifically,
interest rates and eventually on inflation, which tends
to be negative toward economic growth.
To the extent that the markets sense that while
there is a temporary bulge in financing requirements, but
a significant prospective long-term reduction, I think what
we would tend to find is that the effect on interest rates
will tend to be less because there is an anticipatory
element in the way our money markets behave.
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So, the prospective sharp curtailments in the
levy of Federal borrowing as we move to the end of 1976
and 1977 will tend to keep interest rates lower now than
they would be if a prospective were $70 billion this year,
$70 billion next year, $70 billion the year after. You
would get a tremendous anticipatory effect.
SECRETARY SIMON: What Alan is saying is that
markets always anticipate future events and to a degree
discounts those events. If people can look forward to
progressively lower budget deficits, with the balance
toward the end of this decade, that is a hell of a
different expectation and inflationary expectation than
looking forward to just a continuation of business as
usual and spending as usual.
QUESTION: Has that analysis ever been articulated
by this Administration before?
SECRETARY SIMON: Yes, I would say SO. I have
talked about inflationary expectations, Bart, on many
occasions as being a factor as far as the interest rates
that prevail, especially in the long-term and the premium
that investors demand during periods where they expect
inflation to stay at high levels or go even higher.
QUESTION: No, I mean the business of taking a
higher deficit in the short run to achieve a lower deficit
in the next fiscal year.
SECRETARY SIMON: I am sorry, I misunderstood you.
No, that is --
QUESTION: I don't recall you have ever said that
before.
SECRETARY SIMON: No, I was talking about the
expectation that you had --
QUESTION: Sir, I assume you would rather get
results than go down think being right, and it bothers me
that you admit in one occasion that this is political as
well as economic.
SECRETARY SIMON: No, let's clarify that. I
didn't say that.
QUESTION: Well, there is a political problem
involved. When you deal with Congress, you are involved
with a political problem.
SECRETARY SIMON: I will agree with that. (Laughter)
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QUESTION: Well, let's not get worried about
semantics. The point is, if Congress has specific
problems, as it does have problems in individual cases,
and you have the overall problem, are you not making a
serious mistake in not getting closer to Congress and
having more dealings with Congress and understanding that
there is a way to deal with both sides of the question?
It seems to me in general this Administration, and
a number, have stood off from Congress and Congress, in a
sense, stood off from this Administration. The problem
is not having each guy think he is right, but to get
together.
Why can't you get more together?
SECRETARY SIMON: I will tell you, I don't
know if you spend much time in Washington, but if I got
any closer to Congress, I would have to move up there.
I am up there constantly testifying and visits --
QUESTION: I am not talking about. that.
SECRETARY SIMON: -- and we work with the budget
committees and we intend to work with the budget committees
on the specifics of these issues as well. Why, there
has never been doubt that we thought that we could impose
our will upon the Congress of the United States. That is
impossible, obviously.
QUESTION: After your years in Washington --
I repeat my question -- you are not talking about the same
thing I am talking about. It is all very well to go up to
Congress and testify on the theory you are right, but we
are talking about getting in a room and saying to this
Congressman or this Senator what is your problem -- and
you know what his problem is -- and this is my problem.
How do we mesh the two together in an informal
way?
SECRETARY SIMON: That is exactly what we do.
QUESTION: Apparently, it has not happened. You
are not getting the results you are talking about, if you
are as right as you believe you are.
SECRETARY SIMON: Our President made this proposal
to the Congress three days before they went home.
QUESTION: No, I am talking about --
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QUESTION: Could we end the debate and get
back to the questions?
QUESTION: Jim, in this connection, there was
talk at the time of the Congressional budget committees'
reform of having a sort of consultation process as you
drew up the budget. Have you worked out any mechanisms
which might draw the committee chairman or somebody in
Congress into the process of reaching this figure?
MR. LYNN: Say the last part again. Have we what?
QUESTION: It was my understanding the way it
was to work was that the Congress would participate, at
least as observers, in the final deliberations on the
budget, so going into the final stages they would be sort
of part of the process and would have a voice in how it
all came out.
MR. LYNN: I think it still has to be seen,
Charlie, as to how close we get in that regard. We had
some initial steps taken that I think are very healthy.
For example, there is constant communication between the
staff of the Congressional Budget Office and the budget
committees, and my own staff, with regard to definitions,
techniques of estimating and so on, which was a first
step, and are we both dealing with the same numbers as we
put them together under existing programs.
I am being called to testify on October 21
before the Senate Budget Committee to testify again on how
are we arriving at the estimates that we have been talking
about here and also why have estimates floated around so much
over the past years, and I think all of that is healthy.
Now, it seems to me, as we developed our own
budget proposals, that there will be some give and take
with the Hill as to getting their ideas, but as to how
formal that will be, how detailed that will be, I think
that answer will come in the next month or month and a
half.
One of the things we have done this year, which
I think is extremely important, is we have been meeting
on a staff basis regularly -- I think it is about every
week -- between our staff and the new coalition staff,
getting their ideas as to how they see changes in programs,
what they see as to priorities of fundings and so forth, and
I think that has been very helpful.
Whether we will agree, I don't know, but I think
the communication is useful. My own personal predilections
are that I would love to be able to sit down with that
staff on the Hill, or those staffs, a nd work with them on
various kinds of alternatives.
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One of the problems, to put it frankly, is the
minute you start doing that, some news of it goes out
generally, fairly often, not the complete story, not
false by any means, but only that it is one of the
alternatives you are talking about, and you get a debate
coming on fractionated evidence, on only parts of the
evidence, rather than all of it.
I would hope there would be some way of surmounting
that kind of problem. Now, a good part of this will be
debated in the forums that Nelson Rockefeller is going to
be holding around the country. Those are going to be
public.
QUESTION: Those are going to be welfare?
MR. LYNN: Not just on that. They are on environment,
they are on the economy and so on, but certainly an important
ingredient of them is what to do with the social programs we
have, the relative priorities, and what to do with these
programs that we have for our poor people in this country.
QUESTION: Mr. Secretary, you are really working
under a deadline of about 60 days, don't you think_work
days between now and Christmas -- to get some kind of a tax
bill through both Houses of Congress?
SECRETARY SIMON: You know, one could say we are
working on an even stricter timetable than that because it
takes the Treasury Department about 45 days to adjust
withholding tables to reflect any tax changes that are made.
QUESTION: Don't you think there has to be some
kind of -- as a practical matter, realistic matter --
some kind of compromise on perhaps two bills, maybe on
the immediate bill to take care of renewing these tax
cuts in your bill next year?
SECRETARY SIMON: We recognize the shortages of
the time frame, and the mechanical problems involved in this.
That is why we said, "Look, let's not get to the specifics.
We will debate that together and try to handle that
together in the normal process, and let's just go ahead
and set a $395 billion spending ceiling now and then
proceed at the same time with" --
QUESTION: But you are insisting on the ceiling
before you even take up what might be a quickie bill?
SECRETARY SIMON: The specifics, that is correct.
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MR. LYNN: Let me, on that, if I might, make a
couple of points, one of which I have made to the Congress
when I testified, and that is that I have had a great
concern that Congress has been taking various kinds of
action and, indeed, has been taking various kinds of
inaction on the President's proposals for an expenditure
moderation this year without, in my judgment, any kind of
an adequate look as to where this is taking their fiscal
year 1977 figures.
I think this was true on the education bill. I
think it was true on other actions they have taken --
child nutrition. I could bring up a whole lot of these
deferrals and rescissions and, in many cases, the 1977
impact is far greater than the 1976 impact.
In education, the 1977 effect is $800 million
in outlays, whereas the 1976 impact is $350 million in
outlays. What I would ask is how can Congress even
consider whether to have any new proposal in place of a
temporary 1975 cut, whether to let it drop, whether to
do a simple extension or whether to do something more,
which is what we propose without looking at where the 1977
numbers are going and coming to at least some tentative
conclusions, whether they like that result.
So, whether or not they agree with us on $395
billion -- and I would sincerely hope they would, because
I think it is a good ceiling -- it seems to me in a
rational process of decision-making somebody up there has
to tote up rough numbers as to where they think they are
coming out in 1977.
That is true whether you adopt our economic views
of this situaton or whether you are somebody who is
totally in love with a computer and an econometric model
and think the more the stimulus, the better for fiscal
year 1977.
At least the American people, it seems to me,
deserve to know what kind of assumptions they are making
as to what they think is good for this country, both in
1977 and thereafter.
The second thing I wanted to say, Peter, was I
hear a lot of how you can get to totals without specifics.
Thatis precisely what Congress this year did in coming to
their budget resolutions.
In their budget resolutions, the House came up
with certain cuts on priorities among the functional
categories. The Senate came up with a different set of
priorities. They were fairly close, but they were different.
When they got to the conference report, they didn't
go into the specifics, and I don't blame them. I can under-
stand why they didn't, but all they did was come up with
total numbers.
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Page 24
Now, that is all we are asking that they do
this time. All we are asking them to come up with is that
expenditure total.
QUESTION: Would it have been more politically
believable if you had come up with a $401 billion ceiling
instead of a $395 billion one so you wouldn't have been
accused of trying arbitrarily, according to the accusers,
of keeping this under $400 billion?
MR. LYNN: I have made two points to that, Peter,
and one is that if you look at our midsession review and
you look at the forecast -- not forecast the extrapolations
out into fiscal 1977 and thereafter, based on the
President's proposals, I mean all of the moderation proposals
that he still had alive as of May 30 of this year -- when
you look at his other proposals in the area of energy and
so on, we showed for fiscal year 1977 an extrapolation base
is $497 billion.
What we are trying to do is not only affect where
we are going to be in fiscal year 1977, but for once in
many, many years set a path that gets us to a balanced
budget within three years. You know, I read Joe Peakman's
teachings, out of Brookings, when he says that on capital
formation one of the most important things you could do is
get to a balanced budget is in the outyears get to having
less involvement of the Federal Government in these
markets.
I agree with Joe in this regard, and what we are
trying to do is set a ceiling this year that sets a path for
us to get to that balanced budget in three years. But,
if you look at our midsession review, that figure was $397
billion. My own judgment, in this connection, was it
ought to be a little bit lower than that.
THE PRESS: Thank you, gentlemen.
END
(AT 11:32 A.M. EDT)