Damn the Deficit

When President Kennedy announced back in January that he expected a modest budget surplus of about $500 million in 1962-63, the few faint cheers were drowned out by a storm of skepticism. The President's expectations were based on more ifs than Rudyard Kipling had in his famous poem: if the economy improved its pace, if Government spending did not rise, if Congress enacted higher postal rates when the Administration wanted them, if the farm bill was passed and had a chance to cut costs. It was if, if, if--and hardly any of the ifs turned out. As a result, the Bureau of the Budget last week announced that the U.S. will run up a 1962-63 deficit of $7.8 billion--and maybe more. It will be the nation's third consecutive deficit, and the second biggest in peacetime history--next only to Eisenhower's $12.4 billion deficit in 1959.

Not Alone. The Government spent $1.2 billion more than it expected to--on such matters as U.N. bonds, the Cuban crisis, and a speedup in the public works program. But that sum would hardly have been noticed if other expectations had worked out. The Government lost $5.3 billion in corporate taxes that it had counted on, about $1.8 billion in individual income taxes, and some $500 million in capital gains taxes, held down by the sagging stock market.

Those losses alone were far more than enough to account for the deficit--but they were not alone. The Government's 1962 tax bill to give greater investment credit to industry wound up costing $1 billion more than expected because Congress failed to pass revenue measures to offset it. The revision of depreciation allowances is now reckoned to cost the Treasury another $1 billion in 1962-63. Congress also failed to enact the higher postal rates on which the Administration counted to garner about $500 million in revenue, and its repudiation of the farm program meant bigger Government outlays for supports than anticipated. Result: while the Government will spend $93.7 billion, its receipts are estimated at only $85.9 billion.

"Inevitable" Rise. Hardly had the new-budget news been announced than the Administration started talking about tax-cut goodies to be handed out in 1963. Walter Heller, chairman of the President's Council of Economic Advisers, called for a tax reduction of $5 billion, including a 10% cut in corporation taxes but with the bulk of the cut going to individuals. Treasury Secretary Douglas Dillon followed up with the prediction of a "significant" cut in taxes, adding that since tax concessions already have been given to corporations, "by far the major part" of the new cuts should take place in individual tax rates.

Even former President Eisenhower, who opposed cutting taxes to stimulate a declining economy while he was in the White House, came out for an overall slash--but added as a condition that it should be accompanied by hold-fast orders on federal spending for the next two years. As it is, some powerful members of Congress, including Senators Harry Byrd and Robert Kerr, insist that a cut in Government spending must accompany any tax cut. That means that Kennedy's push for a tax cut, coming on top of a big deficit, is in for a hot debate in Congress. For one thing, a tax cut might add to the 1962-63 deficit before the slash really began to do its work. For another. Secretary Dillon firmly ruled out any cut in Government spending. Because of the cold war and space and defense expenditures, he said, a rise in federal expenditures is "inevitable."

There is, in fact, a strong argument for a tax cut as a way to spur the economy, which has not managed to get moving again under the Kennedy Administration. But in view of the deficit figures, the grandiose tax-cut figures being tossed around last week seemed unrealistic.

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