Nixon's Surge of Election-Year Spending
"The budget is a superb deflator of rhetoric because it calls to account the open-ended promises heard so often in an election year."
THAT rather righteous statement in Richard Nixon's 1972 budget message may well be correct--as far as it goes. But as the President is well aware, the great gray mass of numbers and charts that is being sent to Congress this week has a rhetoric of its own that is difficult indeed to deflate. Plagued by a painful recession and a limping recovery during the first three years of his Administration, Nixon is determined to get the U.S. economy into the best possible shape by November or earlier. To do so, he has crafted a budget that will virtually mainline huge doses of Government spending into the economy over the next few months.
Until the current fiscal year ends on July 1, Nixon plans to pump about $1 billion a month more than originally planned into spending programs designed to put money into the pockets of millions of currently unhappy voters. Farmers will get increased crop subsidies; federal workers will receive the maximum pay increases possible under Phase II guidelines; there will be some new jobs for unemployed scientists and engineers. Such openhanded spending marks Nixon's conversion from unsuccessful policies of conservatism and gradualism to the activist, pump-priming Keynesian economic theory, which holds that big Government spending is one of the fastest ways to stimulate the economy. Said a top Nixon adviser: "The President looks on this as an investment in getting the economy moving."
Rocketing Debt. The budgetary stimulus comes at a time when various branches of Government are going all out to push the economy forward. Congress recently did its part by approving Nixon's program of tax reductions, including a 7% tax credit for capital investments and increases in personal income tax exemptions. In the past few weeks, the Federal Reserve Board has been aggressively pouring money into the banking system and pulling down interest rates. Ironically, Nixon's budget may force interest rates up because enormous federal borrowing will be needed to finance a shockingly high deficit.
The deficit will hit $38.8 billion in fiscal 1972, by far the largest shortfall since World War II. While federal spending will reach a record $236.6 billion, revenues will total only $197.8 billion. By the time Nixon begins campaigning for re-election this summer, the overall federal debt will have skyrocketed by some $70 billion (to $456 billion) during his term of office.
Nixon originally estimated this year's deficit at $11.6 billion; as recently as last September he said that it could be held at $28 billion. Its sharp rise will reflect the infusions of federal funds that Nixon has decided since then are necessary before July, plus the fact that the Government has revised steadily downward its estimates of the 1971 gross national product, thus cutting the amount of expected tax receipts. The preliminary G.N.P. total: $1,047 billion, or fully $18 billion less than the Administration's celebrated prediction a year ago of $1,065 billion.*
The huge deficit spending will be an embarrassment to Nixon when he campaigns before conservative constituents, and Democrats are already forming plans to make the most of it. Speaking to a Chamber of Commerce meeting in Washington last week, Treasury Secretary John Connally offered an early answer to the expected attack. "No one likes a deficit of $35 or $40 billion," he said, but some 5,000,000 Americans are unemployed. The "political world," he argued, dictated the huge deficit, and he told his businessmen's audience: "You should be applauding it." At least one top Nixon adviser was somewhat less sanguine. "My God," he said, "what's going to happen the next time I go out to address the Orange County Women's Republican Club?"
The tactic of Nixon and Budget
Chief George Shultz is to pull into fiscal 1972 spending that was scheduled for fiscal 1973, reports TIME Correspondent Lawrence Malkin. Then they plan to adhere to a much tighter budget in fiscal '73. That will mean a severe fiscal squeeze in federal programs beginning next July and undoubtedly worsening after the election. Even so, Nixon projects the deficit for fiscal 1973 at a high $25.5 billion. The continued deficit is largely unavoidable because tax cuts since World War II have gnawed away at the Government's revenues, while built-in increases in veterans' benefits, social security and other welfare payments have forced expenses up. These contending forces are rapidly plunging the nation into a fiscal crisis. The U.S. is running short of money.
A summary of additions to the budget in fiscal '72 and plans for fiscal '73:
WELFARE: In the current fiscal year, state governments will get about $1 billion in federal welfare funds that had not been expected until July 1, mostly for Aid to Dependent Children. With many state treasuries down to alltime lows, these funds are certain to be spent with haste. For fiscal 1973, the Department of Health, Education and Welfare will displace the Pentagon as the largest Government spender. Much of its $7 billion increase will go for Social Security rises.
DEFENSE: For the rest of this fiscal year, Pentagon spending will be considerably speeded up, with much of the increase going for materiel planned for later delivery. Next year, though Viet Nam spending will continue to decline, much of the long-awaited "peace dividend" will remain firmly in the hands of the Pentagon. Its budget will show a $900 million increase (to $75.9 billion) in fiscal 1973. To prepare for the all-volunteer army that Nixon has promised by mid-1973, some of the dividend will be used to raise the pay of armed-forces careerists.
AGRICULTURE: Farm price supports in the current year will leap $1.8 billion over original estimates to a total of $4.4 billion, then will decline slightly in 1973 as acreage is taken out of production. Retail food prices will remain high, and farmers' incomes will also rise, helping calm the farm belt revolt that threatens to deny Nixon some of his traditional support.
TECHNOLOGY: In his State of the Union message Nixon proudly described a new program in which the Government will cooperate with private industry in developing a series of ultrahigh-technology projects to "improve our everyday lives." These include new mass transit systems and fire-fighting techniques employing helicopters. Unfortunately, Nixon had more new ideas than new funds: the Government will spend only a modest $700 million on new civilian research programs in 1973, with another $800 million going to military research.
The President is rightly determined that his budget provide generous fuel supplies for an economy that finally seems to be producing more heat. There is more growth and less inflation than in a long time. The fourth-quarter G.N.P. in 1971 rose at the exceptionally brisk annual rate of 6.1%. Herbert Stein, chairman of the Council of Economic Advisers, strongly urged the President to keep a heavy foot on the gas pedal for the next six months, and the deficit be damned. Nixon clearly agreed.
The trouble is that the President is just as determined to ease up drastically after that period, producing what economists call a "stop-go"--or in this case, go-stop--fiscal program. In a fragile economy like the present one, every jolt caused by new stops or starts is an added risk. Nixon might have been better advised, election year or not, to even out new expenditures and spread them over a longer period. Indeed he may yet be forced to do just that. The sheer red tape of federal bookkeeping, check writing and the like may make it virtually impossible to push spending as high and as fast as Nixon wants. In that case Candidate Nixon could claim that he was able to "hold down" the final deficit for this expensive year.
*The reduced G.N.P. estimate for 1971 automatically trims the total that it is expected to reach this year. The Administration's new prediction: $1,145 billion, a gain of $98 billion.
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