Advocate & Judge

Much in the manner of Charles de Gaulle listening to Britain's latest bid for Common Market membership, Congressman Wilbur Mills's Ways and Means Committee last week heard again the Johnson Administration's arguments for a 10% income tax surcharge. The answer, predictably, was no.

The exercise had a this-is-a-recording tone, but the White House sent in the first economics team anyway: Treasury Secretary Henry Fowler, Budget Director Charles Schultze, Federal Reserve Chairman William McChesney Martin and Chairman Gardner Ackley of the Council of Economic Advisers. For two days, the witnesses piled statistic on projection to prove essentially two points: that without the tax increase inflation will grow ever more serious, and that the added revenue is sought not to finance new spending programs but to hold the federal deficit to a manageable figure.

Record Quarter. Ackley said that during the last two months of 1967 the economy had spurted ahead all too quickly. The rise in wholesale industrial prices, which was less than 1% in the first half of last year, went up to 2.5% in the second half, while the rate of consumer-price increase rose from 2.3% to 3.8%. Figures released later showed the consumer price index up 3.1% for 1967, the second highest annual increase in ten years. Unavoidable injections of extra dollars into the economy, such as higher federal pay scales and social security benefits, are virtually certain to boost consumer spending this year. Ackley predicted that the increase in the gross national product would set a new record in the current quarter, exceeding the $18.5 billion advance in the last quarter of 1965. And as domestic inflation worsens, it becomes ever more difficult to reduce the U.S. deficit in international payments and to relieve pressure on the dollar abroad.

Schultze sought to show that the budget of $186.1 billion proposed for the fiscal year beginning July 1 (see box) was as tight as Lyndon Johnson claimed; that the $10.4 billion increase over this year results from military needs and extra expenditures required by law. It was here that Democrat Mills, with the full support of Ranking Republican John Byrnes, made his stand.

Austerity Psychology. "Let's get that pencil of yours a little sharper," Mills told Schultze. "I'm the attorney for the taxpayer in this case." The attorney in this case is also the court of last resort for the tax bill.

Mills did indicate sympathetic consideration for certain minor parts of the Administration's revenue requests --an acceleration of corporate tax payments and retention of telephone and automobile levies that were scheduled to decrease April 1--but even with these, the projected budget deficit for fiscal 1969 could be about $18 billion instead of the $8 billion targeted by the White House. After indicating these possible concessions, Mills announced that his committee would turn to other business when it reconvenes next week. He gave no hint whether or when the tax surcharge would be reconsidered. However, if mobilizing of military reserves becomes large-scale, its extra cost and the austerity psychology evoked could well build up pressure on Mills and the House generally to reverse field.

This file is automatically generated by a robot program, so reader's discretion is required.