Deficit Ahead?

The federal budget will probably run a deficit in fiscal 1962, despite the Eisenhower Administration's projection of a $1.5 billion surplus. So last week predicted Douglas Dillon, who, as Treasury Secretary in the Kennedy Administration, can be expected to have a major role in the nation's economic policy. Appearing before the Senate Finance Committee for hearings on his confirmation, Dillon said that he expects the budget deficit because of a decrease in tax revenues, "particularly in the area of corporate profits." He also gave his views on several economic problems, on others skillfully declined to commit himself before the Kennedy Administration's policies are more firmly fixed. Items:

P: TAX REFORM. "I would rather have lower rates and fewer loopholes. If action is to be taken, it is a propitious time now, rather than waiting a year or so." But he has "no present intention" of recommending a cut to curb the business downturn, since it would increase the budget deficit. Dillon hopes to submit at least a partial program for reform by April 1, but feels that long-range tax reforms would be better in a year of surplus. He expects to take a "detailed look" at the 4% exemption on dividend income, expense-account loopholes, depletion allowances.

P: BALANCE OF PAYMENTS. As one answer to the problem, Dillon sees "no reason" for continuing the special tax incentives that the Government has used to encourage industry to go abroad to Europe, thinks that any change should retain them for firms investing only in underdeveloped or developing countries. To help exports grow, he favors continued pressure against restrictions imposed on dollar imports.

P: PUBLIC WORKS. They "do not seem to me to be very appropriate counteractions for a recession," because "they will take a long time to take effect and will do so when the recession is over." Instead of massive public-works spending, he views with favor smaller, more local public works in hard-hit areas.

P: ECONOMIC GROWTH. "There, is no contradiction between sound fiscal policy and rapid economic growth," so the U.S. can have more rapid industrial growth without inflation. But it is "difficult" to be specific about a growth rate except to say that it should be "enough to absorb the growth of the labor force, at a level of relatively full employment."

P: BUDGET BALANCE. It is "highly important," but should not be rigid in any one single year.

P: DEBT MANAGEMENT. He will go before the Senate Finance Committee "in the near future" to request a new raising of the debt ceiling. The way to give the Treasury maximum flexibility for refinancing the long-term debt "may be" to remove the 4 1/4% interest-rate ceiling on long-term bonds. The Federal Reserve's shift from its "bills only" policy to "bills usually policy" last fall was "a step in the right direction"; Dillon also tactfully backed the Federal's policies by remarking that "no one policy is the preferable policy all the time."

P: INTEREST RATES. The Fed was right in using its tools to restrict credit during incipient inflation, loosen it later. Dillon thus failed to back up a Kennedy campaign charge that the Fed pinched off the boom with high interest rates.

How many of Dillon's views will become guidelines of the Kennedy Administration remains to be seen. But Dillon's willingness to answer questions, and his unfailing tact and politeness, not only impressed the Senators but also showed that the precise policies of the Kennedy Administration are still open to discussion. Said Tennessee's Senator Albert Gore: "I must confess I did not approve of your selection. But you may not be as bad a fellow as I thought you were."

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