President Ford yesterday proposed a $12.1 billion tax cut for this calender year, and promised to follow it up with a budget proposal that his aides said would reduce federal spending by roughly the same amount.
Treasury Secretary William E. Simon, who first denied that the tax cut proposal was intended to stimulate the economy, conceded under questioning at a press conference that some net stimulus would result.
But he said that stimulus is not necessary because the economy is on the road to recovery, with the "politically unfortunate" pause of last fall at an end.
Other sources estimated that the Ford proposal would increase the federal deficit by an amount short of the total $12 billion tax cut. That would happen because the tax reduction, if approved by Congress and signed into law, would take effect early in 1977, while any budget cut would not take force until the beginning of the fiscal 1978 year nect Oct. 1.
The President's proposal would cut taxes by $13.6 billion in 1978 and $9 billion in 1979, more than would result from an extension of the Tax Reform Act of 1976.
Simon said that any "further stimulus" of the economy would be "unwise and undesirable." President-elect Jimmy Carter and his principal aides plan to put the finishing touches on a package of tax cuts and spending increases at a Plains, Ga., meeting this week.
The figure most frequently mentioned is $15 billion.
The question of the potential effect of the Ford proposal seems to be academic. It is virtually the same as one President Ford sent Congress in October, 1975, only to be rejected.
With the Democratic Party in control of both the White House and the Congress after Jan. 20, the government's fiscal program will be based on Carter's proposals.
Ford's tax proposals, carrying out a campaign commitment, in reality was a restatement for the record of his philosophy that the government has grown too big. His earlier plan, he said yesterday, "would have given the American people more freedom to spend their incomes as they choose, rather than as Washington chooses for them."
The President's proposals would cut personal taxes by about $9.8 billion - and corporate taxes by about $2.5 billion in 1977. The $12.3 billion total is offset by $200 million in miscellaneous increases for a net reduction of $12.1 billion.
Because the Social Security Trust Fund would be exhausted by the early 1980s, Ford repeated his earlier proposal to boost Social Security taxes to employers and employees.
The effect of the proposed rate increases combined with a larger taxable wage base, would be to raise Social Security taxes by $2 billion in calendar 1978, and by $8.2 billion in calendar 1979.
Other tax changes were suggested by Ford, including the gradual elimination of "double taxation" of corporate dividends and an option to local governments to issue taxable bonds, partially subsidized by the federal government. Local governments now can issue only tax-exempt bonds to finance their needs.
Simon claimed that there is "a healthy and balanced expansion" under way. the only reason President Ford is making a proposal to cut taxes, Simon said, is that "inflation is pushing (people) into higher tax brackets."
He refused to say that there would be a "dollar-for-dollar" reduction in expenditures in the fiscal 1978 budget, as Ford proposed earlier, "but we're trying to slow down the growth in federal spending so we can return decision-making power to the American people."
L. William Seidman, assistant to the President, went a step beyond Simon to say that the fiscal 1978 budget - due in less than two weeks - wouldbe reduced "approximately" as much as the tax cut and that the fiscal impact would therefore be neutral.
Congress' response to President Ford's original proposal was to adopt its own mixture of tax cuts, with no dollar-for-dollar expenditure reductions as demanded by the President. Although Ford threatened to veto the congressional action, he subsequently approved it, and extended the cuts again in 1976.
The President said that his proposals would concentrate relief in the "middle-income" brackets, around $15,000 for a family of four. His message to Congress declared that it was "high time" to do this, because the 1975 and 1976 tax reduction acts had benefited lower-income taxpayers primarily.
His proposal would provide a $227 tax cut in 1977 to a married couple with two children and a wage income of $15,000, the President said.
But the tax saving, in all brackets would be dinished in later years by a growing Social Security tax burden under the Ford proposal. The maximum Social Security tax would jump from $965.25 this year (5.85 per cent of $16,500) to $1,623.45 in 1982 (6.3 per cent of $23,700):
The principal changes in the personal income tax structure would be an increase in the personal exemption from $750 to $1,000 and a reduction in the marginal tax rates in lower-income brackets. The existing $35 per per son exemption and the alternative 2 per cent creidt (up to $9,000 of taxable income) would be eliminated. The income ceiling below which single persons would not pay federal taxes (the low income allowance) would be increased from $1,700 to $1,800, and for joint returns, it would be raised from $2,100 to $2,400.
On the corporate side, the changes would include a reduction from 48 to 46 per cent in the maximum rate; an extension of the larger corporate sur-tax exemption in the Tax Reform Act of 1976, which expires at the end of this year; a permanent 10 per cent investment credit (it reverts to 7 per cent at the end of 1980), and special depreciation privileges for business investment in high unemployment areas.