The basic decision in Carter's budget goes for a tax cut designed to maintain the economic recovery. It goes against reductions of government spending supposed to curb inflation by balancing the budget more rapidly.
I applaud that decision. It seems to me the best major action taken by Carter in his presidency so far, and it is certainly not a choice a Republican President would have made.
Otherwise the budget is chiefly interesting as yet another expression of the Post-Imperial Presidency. The chief executive yields further ground to the private sector in determining the shape of the economy.
The basic direction of the budget is best established by the percentage of the gross national product going to federal activities. In the budget for last year, fiscal 1978, government outlays came to 22.6 per cent of the GNP.
In the budget for the coming year, fiscal 1979 which begins this October, the figure falls to 22 per cent. It is scheduled to drop steadily thereafter, going below 21 per cent in 1981 and below 20 per cent in 1983. Just in case anybody imagines that as a small number, let it be noted that 2 per cent of the $2 trillion GNP amounts to $40 billion. To that huge extent, therefore, Carter plans a diminishing federal role in American life.
Within that declining total, a further devolution of power comes in the form of the $25-billion tax cut. About $17 billion goes to individual taxpayers, chiefly in the lower income brackets. They will spend almost all of that money, and thus it will work to stimulate consumer demand that might otherwise be curtailed by steeper Social Security taxes and the higher income-tax bite that results from inflation.
Another $6 billion of the cut will go to business. The administration's hope is that the lighter tax load will build confidence and stimulate investment. If new investment rises about present estimates of 4 per cent for 1978 to 9 per cent this year and 7 per cent next year, then the present recovery can be expected to stay on course. If investment does not rise there will be a slowdown in business activity, and trouble. If investment really takes off, there will be inflation and more trouble. Thus the 1979 budget, temporarily at least, delivers over to the corporate boardrooms basic decisions on the levels of employment and inflation at which the economy will run.
To be sure, the President can intervene anew if matters go sour. He can, and probably will, ask for more cuts later if further stimulus is needed. He can curtail stimulus if inflation gets going.
But a President who chops and changes, as Carter did last week, gets a reputation for being weak and vacillating. To that bias against changing plans, there is added the special problem of inflation, which looks like being the most likely danger at the end of 1978. The best way to hold down inflation is by direct restraints on prices and wages. But boos from business and groans from labor have repeatedly caused the Carter administration to draw back from a serious program of price and wage restraint. Having backed down in inflation all across the line in the present budget, the President is hardly apt to turn suddenly and come on like a tiger.
Thus while fine for this year, the 1979 budget poses problems for those of us concerned about presidential power. It raises the danger that the authority now in the ebb may be needed later on to deal will truly acute troubles.