An article yesterday quoted White House sources as saying that Charles L. Schultze, chairman of the Council of Economic Advisers had opposed President Carter's decision to trim the size of his tax cut proposal. Actually, Schultze, during last week's deliberations, urged Carter to take the action he did.
President Carter, bowing to pressure from Congress and the Federal Reserve Board, agreed yesterday to trim the size of his $25 billion tax-reduction package to $19.4 billion and postpone its effective date three months to next Jan. 1.
Although the White House said the switch reflected recent changes in economic conditions, Carter essentially acceded to what the lawmakers were likely to do even if he had stood by his earlier plan.
There also were indications the move was intended as a gesture to the Federal Reserve Board, which has been threatening to raise interest rates futher if the White House did not act. Administration officials feared that might hurt the recovery.
The announcement came 3 1/2 months after Carter first proposed the tax cut, and just 18 days after the president vowed at a press conference he would not even consider trimming or delaying the tax-reduction proposal.
The effect of the cutback and postponement of the tax cut will be to pare the size of the overall tax reduction to $15 billion for fiscal 1979, compared to the $25 billion Carter requested. Fiscal 1979 begins Oct. 1.
The action marked the fourth time since his election that Carter has announced a major alteration of his economic policy. A year ago, the president withdrew a proposal for a $50-a-person tax rebate in the face of political opposition.
The decision to trim the tax-cut package was made at a meeting of top policymakers Thursday. Carter reviewed the details that afternoon with the chairmen of the House and Senate budget committees.
White House officials said the issue came up abruptly at a meeting of the top-level Economic Policy Group steering committee at the urging of Treasury Secretary W. Michael Blumenthal and budget director James T. McIntyre.
Blumenthal and McIntyre had been pressing Carter for weeks to trim the size of the tax cut as an anti-inflation measure. Charles L. Schultze, chairman of the Council of Economic Advisers, is said to have opposed the move.
Congressional sources said the $15 billion figure would include the cost of any rollback of Social Security taxes the Congress might decide to enact. The House Ways and Means Committee approved a $6 billion to $8 billion rollback on Thursday.
A House-Senate conference committee formally ratified Carter's request for a cutback yesterday as part of its work on the fiscal 1979 congressional budget resolution, which sets spending and tax targets for Congress to follow.
Although the figures still are unclear because of unresolved differences involving spending levels, the changes in the tax-cut package would reduce the federal budget deficit for fiscal 1979 to about $53 billion - $4 billion less than before.
In announcing the president's decision, the White House said in a statement the switch reflected "wide recognition that economic and financial conditions had changed substantially" since Carter proposed his tax plan last January.
"Under these circumstances," it said, "there was a general belief that a smaller budget deficit in fiscal 1979 would be highly desirable" and "would also contribute . . . to reducing the deficit in fiscal 1980."
In an unusual move, the White House said Carter discussed his decision with G. William Miller, the chairman of the Federal Reserve Board, and that Miller had praised it as likely to bring a "better balance" of policies.
The statement was interpreted as at least tacit acknowledgement that the Fed now will feel it can slow its upward push of interest rates. Miller has been urging Carter to trim his tax plan, hinting he would ease monetary policy in return.
It was the first time in recent memory that the Fed has been so closely involved in a change of policy by the administration. Traditionally, the board makes a point of maintaining its independence by remaining aloof from White House planning.
White House officials said the president's decision stemmed primaiily from recent changes in economic conditions - specifically the fact that unemployment was improving faster than expected, while inflation was worsening.
At a briefing for reporters, Schultze said the economy's performance had changed since late 1977, when Carter planned his tax-cut program, and "we would be idiots if we did not take this into account."
He also denied that the president's decision marked any kind of political flip-flop. "It is not the $50 rebate all over again," Schultze told reporters. "This is the nearest thing I have everseen to a fully joint decision."
Schulze contended Carter dismissed suggestions of a change during his April 25 press conference because officials were not sure then that the economy would rebound this sharply, and "it would have been irresponsible" to propose a cutback.
At the same time, the presidential economist refused to rule out the possibility that Carter might trim his tax plan even further if the economy changed again. All he would say was that "this is the right level" for now.
For all the administration's explanations, officials placed the greatest emphasis on two reasons for the President's decision:
To provide a symbolic gesture that would assuage pressures from Congress and the business community, both of which have been urging Carter to trim or delay the tax cut, as an anti-inflation measure, and
To satisfy the Federal Reserve Board, in hopes of persuading the central bank it no longer needs to raise interest rates to combat inflation. Miller has said the Fed might ease a bit if the White House joined the fight.
Schultze conceded under questioning yesterday that trimming back the tax cut actually would have only a scant impact on consumer prices, which have been rising primarily because of soaring farm prices.
Rather, he said, the effect would be "broader" and "more subtle." He cited "an increasing feeling that the entire economy would be healthier with amore-relaxed fiscal policy and monetary policy."
For all the Thursday conferences, at least one high official - Secretary of Commerce Juanita Kreps - appeared not to have been consulted about the president's actions.
Kreps said in remarks prepared for a bankers' convention in Prinehurst, N.C., she disagreed with the cutback decision. "This is no time to waffle on a major tax cut and the recovery were "compatible objectives."