Invitation to Inflation

January 28, 1963

President Kennedy’s State of the Union Message was a tour de force. It covered almost every conceivable project or dream. But it said not a word about the most urgent problem now facing the country—that of paralyzing strikes. We must assume either that the President does not consider the subject important, or that he is perfectly satisfied to give any labor union, big or little, power to silence a city’s newspapers, to halt its transportation, to immobilize the country’s shipping, or to shut down any industry whatever, until that union’s demands, no matter how unreasonable, are met.

Mr. Kennedy’s emphasis was on a tax cut of the huge amount of $13.5 billion, phased over three years. But this is not to be accompanied by any corresponding reduction in expenditures. On the contrary, these are to be increased. A strange recommendation in the face of an already officially predicted deficit of $8.8 billion in the current fiscal year. The President is frankly planning another deficit, even a series of deficits. His only restriction is that they are to be “manageable” and “temporary.”

BROKEN PROMISES

But what assurance can we have that they will be either? What is considered “manageable”? How long is “temporary”? We have been living on such promises now for 30 years. They have never been kept. I cited the sad record in a Newsweek column of Nov. 21, 1953. It began with Roosevelt’s pledge of March 10, 1933: “I give you assurance that . . . within a year the income of the government will be sufficient to cover the expenditures of the government.” (The budget was never balanced in any of the twelve years that FDR was in office.) It came down to Eisenhower’s pledge of Feb. 2, 1953: “The first order of business is the elimination of the annual deficit.” (There was a deficit for fiscal 1953, 1954, and 1955.)

The net outcome has been 27 deficits in the last 33 years As I concluded my column of ten years ago: “Each President began with pious promises of a budget balance, but there were always reasons why this could be done only in some indefinite future, and not now. Meanwhile the national debt keeps mounting and the purchasing power of the dollar keeps shrinking.”

Is there any reason to suppose that the even vaguer promises of Mr. Kennedy are more likely to be kept? It is not found in his own record. Secretary of the Treasury Dillon said on Oct. 17, 1961: “Let me repeat so there will be mistake. The President intends to submit to Congress next January a balanced budget for fiscal 1963.” Mr. Kennedy did indeed, as promised, submit a budget in January 1962 ostensibly balanced for fiscal 1963, but now admits that there will be a deficit of $8.8 billion.

CRUEL DECEPTION

Nor does the present program of rising expenditures and huge tax cuts give any reason to hope for a budget balance within the foreseeable future. The tax cuts are not of a kind likely to stimulate increased revenues or maximum economic growth, but merely increased inflation.

And if the tax cut lets loose this inflation, it will be a cruel deception of the American people. Taxpayers will not be left with more purchasing power. It will be eaten up in higher prices. Inflation is itself a tax. If evenly spread, it would be equivalent to a flat-rate income tax and flat-rate capital levy without exemptions. But it is never evenly spread. It falls on the industrious and thrifty. It is escaped by nimble speculators.

It is true, as the President declares, that our Federal taxes are now oppressive and “too heavy a drag” on production and growth. But when such enormous sums must be raised, there is no magic reform that can make them unburdensome. The only cure is to slash our exorbitant expenditures. This would not be difficult. Our defense expenditures for the fiscal year 1964 are budgeted at $55.4 billion. This means that non-defense expenditures, including social security, farm-price support, and foreign aid, exceed $67 billion. All Congress needs is courage and a carving knife.