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Lifting Debate. While that adds up to a very respectable rate of gain, it is not great enough to please Washington's economists. They are determined to jack it up by making further use of their new fiscal tools, and much of what they have in mind is directed at the consumer. The consumer has already had all the help that he is going to get from last year's tax cut (corporate tax rates will go down another two points to 48% this year, but the withholding tax rate for individuals will stay at 14%). Some people, in fact, will be surprised to find on April 15 that the Government has not withheld enough from their paychecks to cover their total tax bill—and they will owe the Government some money. President Johnson plans to give the consumer more buying incentive with a midyear excise taxes cut of between $1.5 billion to $3 billion; this should stimulate spending for goods as varied as nail polish and mink coats. If the economy needs further help later, he hopes to push through some additional "temporary" cuts in income taxes.
The economists fairly well agree that U.S. business will need some further lift, but they are debating how and when to apply it. The argument: Should the additional stimulus come from higher Government spending, or lower consumer taxes—or both? One school of economists, led by M.I.T.'s Paul Samuelson, argues for greatly increased federal spending; another, conservative school insists that the budget should be cut and tax saving applied to reducing the deficit. Most Government economists call for a mix of spending and tax cutting, with the emphasis on the cuts. They expect business to spurt during 1965's first quarter, and they do not want to give it an artificial lift too soon. They point out that if President Johnson were to recommend federal spending much beyond $100 billion in the new budget that comes out this month, he would risk both overstimulating the nation's economy and losing his hard-won support from conservatives in the business community.
Steel Key. The policymakers will wait a few months before deciding how much more cutting or spending to do. What they are really waiting for is one key event: the steel labor talks. The Administration is worried about a steel strike or general price rise—or both—after the current contracts run out on May 1. Businessmen are also worried, have begun to build up a heavy stockpile well beyond normal supply. Such stockpiling will give the economy an unnatural lift early in the year, and an unnatural letdown afterward. The letdown will be worse if there is a strike; each one of the last three major steel strikes has led to a recession within a year.
An inflationary settlement could be almost as dangerous. Washington is convinced that an extravagant rise in steel wages, to be paid for by further rises in steel prices, would quickly spread inflationary fires throughout the economy. Last week the steel companies raised prices by $6 a ton on 5% of their products; the steel union immediately announced that the boosts should put manufacturers in a better position to kick up wages and benefits. President Johnson implored both sides to be "considerate" of the public.