Calls for Tax Cuts and Money Ease

In the minds of President Ford and his hard-line economic advisers, Public Enemy No. 1 is still inflation--not recession. That will be clear from the federal budget cuts that the Administration is expected to urge on Congress this week. Amid evidence of an economy sliding swiftly into deep recession and forecasts that unemployment will top 7 1/2% next year, Ford is still likely to ask for cuts of $4 billion to $5 billion, mostly in defense spending and social-welfare programs.

When he moved into the White House, Ford promised to get control of federal spending, which he regards as the principal engine of inflation. Although he originally talked about holding spending in fiscal 1975 to less than $300 billion, his own proposals for helping the unemployed, and such items as a further $1.5 billion increase (to about $33 billion) in interest on the mounting national debt, have since raised the budget target to somewhat more than $303 billion. The rapid deterioration of the economy since August has not at all shaken Ford's determination to cut the budget. Until prices break, he is most reluctant to switch from a policy of inflation-fighting reduction to a policy of recession-fighting stimulation--but pressure is building to do just that.

Says Paul McCracken, a top Republican economist who advises Ford: "Paradoxical as it may seem, the cause of longer-run price stability makes some easing of policies urgent now." McCracken believes that "if we do not get some easing now, the recession will be unnecessarily deep, and we would court the risk of a belated, massive swing to ease later that would set us off on another inflationary spiral by 1976 or 1977." McCracken still wants "a stern budget line," but he also wants a substantial easing of monetary policy.

Try Harder. Other politicians and economists are clamoring for a loosening up of fiscal as well as monetary policy. Says Harvard's Otto Eckstein, a member of TIME'S Board of Economists: "By early 1975, the recession is likely to be sufficiently severe that the moment for modest personal income tax reduction will be appropriate."

With the cost of living apt to rise another 8% next year, no one is urging a massive easing of either fiscal or monetary policy. But the Administration has been quietly pressing Federal Reserve Board Chairman Arthur Burns to try harder to increase the money supply. In the last two weeks, the money supply has moved upward again after nearly five months of no growth. Housing is usually last to benefit from an easing of credit conditions, but Burns is predicting that credit will relax enough so that large amounts of mortgage money will be available by next spring. Yet the Federal Reserve has no intention of breaching its 5% to 6% long-term target for expansion of the money supply.

What might make Ford agree to a tax cut? First, his political advisers might simply persuade him to override the objections of Treasury Secretary William Simon and Chief Presidential Economist Alan Greenspan, the two of whom an insider describes as "the hardest of the hardliners" on budget control. Second, there could be signs that the economy might not bottom out in the first half of next year, or if it does, that a recovery would be weak and slow.

That could happen if there is a contraction in business investment spending, which is one of the remaining strong props under the economy. If capital spending should fall, the Administration would have to move quickly toward fiscal stimulus, probably through tax cuts.

Whatever Ford decides, the new Congress will undoubtedly pass something like the tax bill that was reported out of the House Ways and Means Committee last week. The bill provides for some tax cuts for lower-and middle-income taxpayers, with part of the revenue loss to be offset by higher levies on the oil industry. One big question: Will Congress cut taxes without voting Ford the authority, which he says he does not want, to impose at least limited wage and price controls? Probably not. He is likely to get that authority --and he may well have to use it.

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