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Its arrival depends largely on the speed with which the federal tax cut is enacted —and the size of the reduction. Experts of all political colors are urging quick action by Congress. "The immediate requirement is for a tax cut," says Greenspan. "Let's get on with the tax cut," echoes James Lynn, director of the Office of Management and Budget. Adds Arthur Okun, a leading Democratic economist: "Speed is more important than size." To Murray Weidenbaum, a top Republican economist, the key question is "Do we go from slumpflation to stagflation? It is to avoid the latter possibility that some of us are pushing a tax cut even though we think the economy will go up without one." Weidenbaum favors a $25 billion reduction, the sooner the better.
As the tax proposals now stand in Congress, the House version calls for a $21.3 billion reduction, with individuals receiving $100 to $200 rebates on 1974 income taxes. The Senate last week was considering a $30 billion package, which would provide somewhat larger refunds. Both totals are well above President Ford's original $16 billion proposal, which he now realizes will be significantly enlarged.
The two houses have been racing against an Easter-recess deadline; the legislators do not want to miss their two-week holiday. The tax-cut plan has been complicated by inclusion in the House bill of an amendment to kill the oil-depletion allowance, a move that Senate conservatives oppose. The outlook, though, is for passage of a tax and a compromise reduction in the oil-depletion allowance within two weeks—even if Congress has to postpone part of its recess. Probable size of the tax cut: about $27 billion.
Such a massive stimulus could prod the economy back to positive growth as early as June, says Economist Otto Eckstein, the chief of Data Resources, Inc. But Greenspan, Treasury Secretary William Simon and other conservatives fear that overstimulation will aggravate inflation just when it seems to be coming under control. They would much prefer the smaller, $22 billion tax-cut proposal, which they figure would be enough to bring on recovery soon after midyear. One dissenter to the mildly optimistic forecast is Arthur Okun. He reckons that even with a tax cut, recovery could be six months off—and perhaps longer. Reason: the full effect of the big drop in employment and incomes has yet to show up in consumer spending, and Okun figures that retail sales will fall during the next several months. But even he says that autos and housing have hit bottom.