Remarks During a News Briefing on Federal Taxes and Spending.

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 identification 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 ¹--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.

¹ See Item 600

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.

Now with that, I will be glad to answer any questions.

Q. Mr. President, are you saying that you would 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 that 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.

Q. Mr. President, both you and Mr. Greenspan have said the program was not designed to have an economic effect in the short run; it was directed more to the long-run growth in spending. But does it not nevertheless have an economic effect in the short run? 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 on that matter, and he can probably better speak for himself. But it is his judgment, as I understand it, that the economic impact will be minimal in that 9-month period.

Q. Mr. President, do you find the predicates for the kind of action that 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, and Wilbur Mills said no. And finally, Wilbur came down--I am putting together things that come to mind--and Wilbur came down and finally agreed on the basis that there would be a spending limitation implemented at the same time in both cases.

Now, the Congress in 1967, in December, and in June in 1968 as I recall, did take action to tie the two together. If they could be done then, I see no reason why they can't be done at this time.

Q. Mr. President, that raises the question why you did not consult with the Congress this time, as Johnson and Mills consulted in 1967 and 1968, and why you just confronted them with a fait accompli in this tax and budget cut.

THE PRESIDENT. I think there is a little different situation, Pete [Peter Lisagor, Chicago Daily News], in that in 1967 and in 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.

Q. Mr. President, you said in response to Bart Rowen's [Hobart Rowen, Washington Post] question that you thought there would be, 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. And you have the further assumption that the Congress would sustain my veto?

Q. Yes.

THE PRESIDENT. Do you want to speak to that, Alan?

CHAIRMAN GREENSPAN. You mean override?

Q. No, I mean sustain--nothing would happen.

THE PRESIDENT. That was my assumption.

CHAIRMAN GREENSPAN. You mean talking about the withholding tax rates then rising close to $12 billion and the like. I will be glad to answer that in some detail, Mr. President, after you leave, and I was wondering whether if that would be acceptable, Joe [Joseph Kraft, Field Newspaper Syndicate], or do you want to go all through it now?

Q. 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?

CHAIRMAN GREENSPAN. Joe, I would say that 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 that I would argue the models that we now have built, unfortunately, abstract from reality in a manner which I think is distorting. And I think it is important for us to look at the real world as to what is happening and not merely automatically assume that the real world is consistent with the models that we build. It is not so.

Q. Mr. President, there has been some speculation as to how you reached the

$22 billion level of this transaction--

THE PRESIDENT. $28 billion.

Q. And there is no question--whether it is true, as alleged in the Wall Street Journal, that you decided it in a golf course conversation with Melvin 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 370 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.

Q. When do you plan to make the proposed budget reduction public, Mr. President? There are already reports that 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--oh, there is Jim over there.

DIRECTOR LYNN. What we have done, Peter, is, in typical OMB fashion, contacted each department with planning ceilings, which is 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 2 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 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 their own expertise to come up with the best and most equitable way of achieving the result we are after.

Q. Mr. President, do you think the American public, let alone Congress, would be willing to accept substantial reductions in major social programs?

THE PRESIDENT. First, Alan [Alan S. Emory, North American Newspaper Alliance], you have to understand 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.

Q. 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 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 preempt 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.

Q. 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.

Q. Mr. President, can I come back to the question of the economic impact of the program, because 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 9 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. Could 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 just 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, and what are the financial implications that 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 broadbased expansion if it were allowed to continue.

So, one can argue, as in the case of other countries who 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 short run it is not necessarily stimulative.

And certainly, if we begin to look, which economic policymakers should look, not at short-run considerations--we are always looking at what the immediate impact of our policies is 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.

Q. Bill, aren't you nevertheless going to have to borrow more money in the first 6 months of calendar 1976

SECRETARY SIMON. Sure. You have what I call a partial--a partial only, Bart-Hobsoh's choice, and let me explain why I say it is only 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 that we were threatened with during 1977, when the economy will be moving back to high economic activity, we believe.

And 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, that if the Congress is concerned about that, 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 be. tween now and January 1, which would have an impact on the spending in the first 6 months or 9 months of calendar year 1976.

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. And so, in effect, I will be seeking to put some lid on the second half of fiscal year 1976 spending.

DIRECTOR 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 it is, 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.

THE PRESIDENT. Yes, Holmes [Holmes Alexander, McNaught Syndicate].

Q. Sir, if, as you say, the American people are demanding that the Federal Government be reduced, won't Congress get that message during this vacation and other times and will 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.

Q. Mr. President, why do you think it is that the American people need this additional tax cut?

THE PRESIDENT. Why do I think?

Q. 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 the most are the ones who have moved into the middle-income group. And unless we do something to modify that, they are going to be hurt the most in the years ahead.

Q. 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 kinds of spending need to 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 the last 50 percent of the 5-year program to build an aircraft 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. And 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.

Yes, Mark [Marquis W. Childs, St. Louis Post-Dispatch].

Q. Mr. President, if the Congress reacts with the same kind of stalemate they have reacted on oil, 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, and 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.

Q. Mr. President, you used a billion dollar figure in your Detroit press conference, I think, on food stamps?

THE PRESIDENT. Right.

Q. You also spoke of medical payments. Do you have a rough ballpark figure on medical payment cuts?

DIRECTOR 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.

DIRECTOR LYNN. Let me just 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 that 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.

Q. It would require major changes in the law, though, would it not?

THE PRESIDENT. In many instances, yes, it would.

Q. Sir, Secretary Simon and others have mentioned from time to time that inflation depends on the kind of spending that you do, that certain kinds of spending cause inflation and some do not. Obviously, if you have a shortage of something and you spend the increase for production, that does not cause inflation, and if you spend for things that are in short supply, it 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.

CHAIRMAN GREENSPAN. First, let me say that the analyses that have been used to try to get these different impacts, tend to show that the differences are much less than a number of people had originally supposed. I think that the differences 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 amounts.

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.

Q. 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--well, in the first place, the American people, based on what the various Congressional leaders had indicated--they were going to get a tax reduction now, a kind of a tax reduction that I didn't think was the right one. And 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 the probability of the wrong kind of a tax reduction going into effect January 1. And it seems to me it was better to fight for what I really believe in at this time rather than to delay it until sometime in 1976.

Q. 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. And I think we have to stand firm on the combination that we have proposed. I haven't seen any indication on their part that they would do it. So, I think it is too speculative to really make any judgment.

Q. Mr. President, are you saying that there is no room for compromise anywhere on this issue, that it has got to be your program or no program?

THE PRESIDENT. We are all realistic enough to know that at some time you may have to. But our position is firm, and I think it is soundly based. And to indicate there is any major area of compromise, I think, just erodes our position, which is firm.

Q. 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 more 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. And with the prospect of a deficit for 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.

Q. Mr. President, you have said that the people would make an issue of this in 1976. Will you yield to the clamor of the public on this and take up the cudgels?

THE PRESIDENT. Well, I always respect the judgment of the American people, and if they want to make it an issue, I will respond.

Q. You won't resist it? [Laughter]

THE PRESIDENT. No.

Q. I am a little confused, Mr. President, as to where these fiscal guidelines leave your welfare reform. There have been many signs of the Administration's moving in that direction. Everything you can learn from HEW suggests that it would cost more to go the negative 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 to 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 a decision. There has been none made yet.

Q. Would you like to move in January on some kind of welfare program?

THE PRESIDENT. It will depend on what the hearings produce, Charlie [Charles L. Bartlett, Chicago Daily News].

Q. Mr. President, you spoke of frills at the DOD. Do you apply that also to the other departments and HEW?

THE PRESIDENT. Oh, sure. None will be immune, Holmes.

Q. 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 out of the 200.

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. And of course, fiscal readjustment or fiscal restructuring 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 very much.

REPORTER. Thank you, Mr. President.