PERHAPS A RECESSION has already begun. Certainly it's time to start thinking about strategy to meet it. The probability of trouble ahead has been greatly increased by the rise in oil prices. As the last recession demonstrated more than adequately, a sudden rise in the price of imported oil has the same effect as a tax increase. It takes away the money that would be spent on other things and operates like a brake on the national economy. This braking effect is currently being compounded by the silent but steady increase in income taxes imposed by inflation, as cost-of-living raises move people into successively higher tax brackets.
The conventional response is, of course, to cut taxes. That's what Sen. Lloyd Bentsen (D.Tex.) and Rep. Clarence J. Brown (R-Ohio), the chairman and ranking Republican on the Joint Economic Committee, recommended this week. But for the first time since the Eisenhower years, the conventional response is running into substantial opposition both in the White House and in Congress where, as recently as last month's votes on the budget resolution, the prevailing opinion favors moving steadily toward balancing the budget in 1981.
The crucial decisions are likely to be taken in Congress later this summer. Throughout the Carter administration the general outlines of fiscal policy have usually been formed by Congress, and its next vote on the budget will be in mid-September, when it takes up the final resolution on fiscal 1980. A budget cut next year would make it impossible to balance the budget before the election. But a refusal to cut taxes does not gurantee a balanced budget. Far otherwise, in fact - for in a recession the tax receipts fall, the spending on welfare and unemployment compensation rises, and the deficit widens automatically.
The tax cut leads, inevitably, to the larger question of inflation. The increase in foreign oil prices, since the end of last year, will cost Americans collectively about $20 billion a year. That is a real loss of purchasing power. How is that loss going to be distributed? Americans have become very adept at passing this kind of cost on to each other, around and around through the society. The current rate of inflation is largely composed of the costs that all of us living here have so far avoided paying in any real sense. To cut taxes now would mean that the government was expanding its deficit to pay the increase in the oil bill, and postpone once again the painful process of coming to terms with it. The case for a tax cut will become self-evident only if the recession appears to loom before the country as intolerably severe and prolonged. The signs are not yet clear. But it is a judgment that Congress will have to make no later than the end of the summer.