President Carter's energy proposals would add about one percent to the inflation level next year if they were enacted by Congress, the director of the Congressional Budget Office testified yesterday.
Alice Rivlin told the House Budget Committee that the stimulus measures contained in Carter's economic package - primarily a $25 billion tax cut would not do much to increase inflation next year. But if the wide range of energy conservation taxes the President wants are passed, inflation could be as high as 7.3 percent in 1979.
President Carter estimates it will be 6.2 percent next year.
Committee Chairman Robert N. Giaimo (D-Conn.) said he was leaning toward supporting a much smaller tax cut than the one proposed by President Carter, but one that would take effect July 1 rather than Oct. 1, as the president proposed.
Giaimo noted a Congressional Budget Office study that showed a $15 billion tax cut that takes effect on July 1 would have the same effect on unemployment at the end of this year as a $25 billion tax cut coupled with a $6 billion spending increase that takes place on Oct. 1.
"Isn't it better policy to go slow in stimulus at this time . . . and wait and see three or four months down the road' if the economy needs further prodding to keep producing jobs? Giaimo asked Rivlin.
Rivlin replied that the picture at the present was "uncertain," and that both the administration and the Congressional Budget Office expect a strong first six months of 1978, but dangers of a slower second half.
How much danger the economy is in will be "clearer, although not crystal clear, in the summer," Rivlin told Giaimo.
Giaimo said that he was disturbed by the size of the federal deficit President Carter proposed - $61 billion in fiscal 1979, which starts Oct. 1, compared with a projected $62 billion this year.
Giaimo said that by holding off on a big tax cut, Congress might be able to reduce the size of the deficit.
In later testimony Henry Kaufman, partner and chief economist of the investment banking firm Salomon Brothers, said that the continued large credit needs of the government "will add to inflationary pressures, raise interest rates sharply and ration credit among borrowers. Federal borrowings for this period (1978 and 1979) should not be regarded as appropriate and prudent."
Kaufman warned that even if monetary policy is "liberal," big federal borrowings needed to finance the deficits will lead to tighter and "more difficult financial markets, and the ultimate disruption of economic growth."
Administration officials, such as Chairman of the Council of Economic Advisers Charles L. Schultze, have argued that a big federl deficit is needed to offset the large, $30 billion of surpluses being run by state and local governments as well as the drain on domestic purchasing power caused by the big balance of payments deficits.
While administration officials see the deficits as necessary to producing growth, Kaufman said events "this year will probably produce conditions that next year will either curb or terminate the business recovery that began in 1975."
He told committee members that long-term bond rates, now about 8.4 percent, could rise to 8.75 percent by the end of this year and that short-term commercial paper rates could rise to 8 percent from the current 6.5 percent.
Rudolph Oswald, director of research for the AFL-CIO, said the president's proposed budget does not provide enough stimulus to keep the economy moving and criticized the president's reliance on tax cuts rather increasing spending on job-creating programs.
Oswald said the AFL-CIO feels that tax cuts for low- and middle-income persons are appropriate to offset higher Social Security taxes, higher energy costs and inflation. But the tax cuts merely nullify other tax increase, Oswald said, who added that futher stimulus is needed.
The labor organization also opposed cutting business taxes $6 billion, as the president proposed, saying business tax cuts will do little to stimulate investment but would "divert needed federal funds from programs that would bolster demand directly."