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Against that background, new perspective is given to the acrimonious stalemate between the Administration and Congress over President Johnson's midyear decision to raise his unfulfilled demand for a 6% surcharge to a demand for 10%. The President and his aides, basing their case on a debatable vision of future trouble, argued that only by raising taxes could the soaring federal deficit be shaved enough to avoid inflation. Arkansas Democrat Wilbur Mills, chairman of the House Ways and Means Committee, insisted that the kind of trouble he saw—cost-push inflation from rising wages and prices—might only be aggravated by higher taxes. Besides, he argued, the economy was not nearly so strong as the Administration maintained.
The chances for a tax increase in 1967 finally died when Mills pressed Federal Reserve Board Chairman William Mc-Chesney Martin at a late November hearing. "Your line of questioning," remarked Martin, "indicates clearly that the economy is not too boomy at the moment." Snorted Mills: "Not too booming? It is just not booming at all!" Conceded Martin: "All right, it is not booming." With that, and the prospect that recent spending cuts will begin to shrink the huge federal deficit, many economists see considerably less reason than hitherto for a tax increase in election-year 1968. And a growing number of people in the fiscal area of the Government no longer argue that a rise is necessary to avoid disaster.
In triumph and trouble alike, 1967 stitched the national economies of the free world ever closer together. Half a dozen countries—Britain, Canada, France, Belgium, The Netherlands and Austria—developed an economic malaise akin to that of the U.S.: industrial stagnation and rising unemployment coupled with inflationary tendencies. Reason: wages and government spending rose despite economic slowdowns. Germany stopped its spiral of wages and prices, but at the cost of a severe recession that pulled down the pace of business throughout most of the Common Market. Only Italy, which underwent a deflationary purge three years ago, showed strong economic gains without much wage and price strain.