In the 1960's, there was a glib slogan that went like this: if you're not part of the solution, you're part of the problem. Somehow, that's the thought inspired by the White House's latest batch of budget and economic proposals.
Except for the budget's size, which at $616 billion in fiscal 1981 is so large that the number seems increasingly meaningless, the theme is that there is no theme. For all the rhetoric -- deploring inflation, promoting savings and urging restrained spending -- the latest proposals do little to stem dependence on oil imports and promise significantly higher levels of taxes and spending.
The White House is mostly drifting, accommodating the constituencies -- mainly for sustained spending -- that seem nearest, most visible and most politically important. The budget is progressively less a tool used to promote needed economic growth and change, and increasingly one used to redivide and approtion a national wealth that is expanding at a slower and slower rate.
This goes to the heart of the President's intellectual and political failure. He still lacks, as he always has, an underlying vision of how government economic policy needs to be reoriented to encourage adjustment to long-term problems -- of diminished productivity growth, of a gradually aging population, of reduced worldwide economic power, of excessive demands for limited resources -- that underlie today's inflation and economic stress.
Having failed to devise policies that can be placed in a larger context of economic change -- and, thereby, command public opinion -- Carter has willingly allowed himself to become the prisoner of short-term political pressures. He has used this budget, trade policies and other government favors (the latest being the rescue of the Chrysler Corp.) in ways that ultimately create more problems than they solve.
What symbolizes the administration's political weakness is the absence of measures -- a stiff gasoline tax of 30 to 50 cents a gallon would be best -- to reduce oil demand. America's domestic economic policy -- and power -- are intimately linked, but, even in a time of "crisis," Carter cannot make an effective political connection.
A gasoline tax shouldn't be so difficult to sell. By reducing spending for foreign oil, a large tax -- whose proceeds would be used to cut the deficit or other federal taxes -- would keep purchasing power at home and promote growth just when the economy seems headed into a slump. By taking pressure off world oil markets, it would foster price stability, or less instability, and enhance America's diminished authority with its European and Japanese allies. It is a price increase that is anti-inflationary.
A skillful politician, a "leader," can demonstrate the virtues of superficially unpopular proposals; that's what "being Presidential" is all about. But Carter can't.
As for the rest of the budget, it now threatens to become topheavy in ways that do the economy more harm than good. Carter has now effectively abandoned his pledge to reduce government spending to 21 percent of output (gross national product) -- which itself is a full percentage point above the average for 1964-74 -- and projects spending above 22 percent of GNP until at least 1983.
A few percentage points of GNP may seem small, but, with the economy's output approaching $2.4 trillion, the amounts involved are roughly $25 billion to $50 billion in 1980 dollars. The danger is that the resulting high tax rates or deficits will simply blunt economic growth further, creating more demands for government assistance and yet a greater drag on the economy.
Congress and the White House find themselves in a dilemma of their own making. By consistently reducing defense spending as a proportion of the budget and GNP in the late 1960s and most of the 1970s, they financed large new programs without sharply increasing over-all levels of spending. Defense fell from two-fifths of the budget in 1965 to one-fourth in 1976.
New constituencies -- from railroad riders who received Amtrak subsidies to artists who receive grants from the National Endowment for the Arts -- arose, and old ones expanded their dependence on Washington. Federal assistance jumped from 17 percent of state and local spending in 1969 to 26 percent in 1977. The current bipartisan support for higher defense spending means that Congress and the White House must tell other constituencies to do with less or impose higher taxes or higher deficits.
Calling much spending "uncontrollable" usually signifies an unwillingness, not an inability, to control. Social security is the biggest "uncontrollable" program, accounting for $107 billion out of a $466 billion budget in fiscal 1979. Automatically increased for rises in the consumer price index, benefits will jump an estimated 13 percent in July after a 9.9 per cent increase last year: nearly a 25 per cent rise in a period when average wages have increased 15 to 18 percent. Nothing says that Congress could not reduce this large automatic benefit rise.
All constituencies are "deserving," but governing means making choices. Congress and the White House are simply making the wrong ones, they are sustaining high spending on the revenues flowing from automatic tax increases induced by inflation, augmented by revenues from the "windfall" oil tax.
Inflation kicks workers into higher brackets. Without a tax cut in 1980 or 1981, a family of four with $15,300 income in 1976 -- just about average -- that received annual wage increases of 7 to 8 percent in succeeding years would pay 19 percent of its 1981 income in taxes, against 16 percent in 1976. For a family with $22,000 income in 1976, the same calculation shows an increased tax bite from 18 to 24 percent.
It's difficult to be precise about the discouraging effect of higher tax rates on work and investment, but there's little doubt that there is some effect. On the other hand, using a bigger deficit to absorb higher spending simply transers the pressure to higher interest rates, which will squeeze out needed investment -- particularly housing -- and lay the groundwork for higher inflation. This is not policy, but evasion.