Speech

There should be no release of this document until 10:00 a.m., EST, Monday, January 28, 1980 EXECUTIVE OFFICE OF THE PRESIDENT Office of Management and Budget Washington, D. C. 20503 PRESS BRIEFING ON THE FISCAL 1981 BUDGET Saturday, January 26, 1980 MILTON REPORTING. INCORPORATED OFFICIAL REPORTERS 1601 Connecticut Ave.. N.W., Suite 302 Washington, D C. 20009 Phones: (202) 833*3598 833-3599 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 1 MR. LOVING: Ladies and gentlemen, I think we are 2 about ready to start. For those of you I have not met, I am 3 Rush Loving. I run Public Affairs at OMB. I want to remind 4 all of you this session is on the record. However, everything 5 discussed here today will be embargoed until 10:00 a.m., 6 Monday. For those of you who have not picked up your alloted 7 budgets, they will be available until 2:00 p.m., today in 8 room 2010, that is 2010 at the New Executive Office Building. 9 Now, once this session is over, we will be manning 10 telephones at OMB for the remainder of today until about 11 5:00 o'clock to answer any additional inquiries that any member 12 of the working press might have. Our numbers there, if you 13 want to take them down, will be 395-4747, 395-6180 and 395-4854 14 If any of you should have further questions while 15 you are writing tomorrow, you can find Whit Shoemaker at 16 656-4233 or you can get me at 243-6059. Now we have today 17 Mr. James T. McIntyre, Jr., Director of the Office of Managemen 18 and Budget, Mr. Charles L. Schultze, Chairman of the Council 19 of Economic Advisers, Mr. G. William Miller, Secretary of the 20 Treasury. 21 In addition, there is senior staff of the OMB. After 22 brief opening remarks by Messrs. McIntyre, Schultze and Miller, 23 they will take questions from the working press. 24 Jim. 25 MR. McINTYRE: Good morning and welcome, again, to Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 1 the annual press briefing on the President’s budget. 2 President Carter's 1981 budget proposal is prudent 3 and responsible. It provides for the Nation's need where real 4 need exists. But it also recognizes the economic realities 5 and provides an economic policy to reduce inflation. 6 The fiscal policy in the 1981 budget recognizes 7 that inflation remains our number one economic problem. If 8 we do not deal effectively with this problem, inflation will 9 inevitably reverse the substantial economic progress achieved 10 under this Administration. Our long-term goals of full 11 employment with price stability will be even more difficult to achieve. 12 13 The 1981 budget is, therefore, a restrictive budget. 14 The growth of budget outlays is held to the lowest 15 16 rate consistent with our national security and economic 17 security objectives and the most urgent domestic requirements. 18 Budget increases for less critical needs have been rejected, 19 and there are no tax cuts. This tight fiscal policy is, in my judgment, necessary to control inflation. After taking 20 into account inflation, there is virtually no growth in the 198 21 budget. In constant dollars, total outlays in 1981 are nearly 22 the same as in 1980. 23 24 The economic assumptions on which the 1981 budget is based reflect higher inflation than assumed previously, in larg 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 0 u h < □ Q. S9S3-33S )202( :ENOHP t , 1 part because of the recent OPEC price increases. The projections also forecast a mild recession in 1980 and a 2 modest recovery in 1981 with a rise in the unemployment rate. 3 We have been candid and realistic in these assumptic 4 which have driven up the estimated cost of social programs, 5 all noncontrollables and defense commitments. These economic 6 factors have also had a major effect on the 1980 budget. We 7 have had to revise our estimate of 1980 spending upward to 8 $564 billion. The 1980 deficit is now just under $40 billion 9 instead of the $33 billion that we had projected last October 10 Unfortunately, these present difficult economic 11 conditions do not permit a balanced 1981 budget. But this 12 budget makes substantial progress towards that goal. This 13 budget projects the lowest deficit since 1974. 14 As you can see from the chart behind me, we will 15 K have reduced the deficit by more than 75 percent since 1976. 16 Z □ h This deficit is more than $50 billion below what J 17 z it was when President Carter was campaigning for office. 18 The 1981 deficit is less than half the 1980 deficit. It 19 amounts to 2.6 percent of 1981 outlays, the second lowest 20 ratio in the last decade. 21 If, contrary to our expectations, the economy 22 were to perform well enough to maintain the unemployment rate 23 at its present level, we would not have a deficit of $15.8 24 billion. Instead, we would have a surplus of roughly an 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 1 equivalent amount. 2 Of the $52 billion increase in spending over 1980, 3 $37 billion was taken up by such noncontrollables as Social 4 Security, Medicare, Medicaid and interest on the debt. The 5 remaining $15 billion went for defense and energy. The rest 6 of the budget shows no net increase. 7 The defense budget is current and is appropriate 8 for the world situation. It reflects an increase of slightly 9 more than 3 percent in outlays in real terms, and, just as 10 importantly, a real increase of over 5 percent in budget 11 authority. Those increases are a continuation of the long- 12 range policy laid down by President Carter early in his 13 Administration. He is determined that America's defense 14 be strengthened. Similarly, we have increased our outlays for the President’s energy program by more than $3 billion in 15 16 order to unshackle American from her increasingly hazardous 17 dependence on foreign oil. 18 The non-defense budget is severely restrained. 19 Non-defense expenditures have actually been cut by 1 percent ii terms of real growth. However, new funds have been added 20 For such critical programs as job training for unemployed 21 youth and housing for the poor. We did this by making 22 existing dollars stretch further and by diverting money from 23 24 less effective uses. 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 0 u H < cr □ o. B9S3-33B )2021 :ENOHP 1 To sum up, we produced, under difficult restrictions 2 and uncertain economic conditions, the 1981 budget. Yet we 3 produced a budget that substantially reduces the deficit and 4 contains almost no real growth over 1980. In fact, it 5 continues basic policy decisions established in the 1980 6 budget. And despite that, we were able to increase funding for 7 crucial programs to meet the Nation's pressing needs. 8 9 10 11 12 13 14 15 u. z 16 □ h j 17 z 18 19 20 21 22 23 24 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 1 The Chairman of the Council of Economic Advisers, 2 Mr. Charles Schultze, will make a few comments on the 3 economic assumptions. 4 flR. SCHULTZE: Good morning. 5 The economic assumptions on which the budget is 6 based are spelled out on page 31 of the budget document 7 and I am not going to repeat them here. 8 I will call your attention to a few points. The budg et 9 does incorporate an assumption of a mild recession in 1980 10 and a moderate recovery in 1981. 11 I think this is the first time any Administration 12 in its budget has officially forecast a recession in advance 13 of its occurrence. Despite the forecast of a recession, 14 the President has submitted a very tough budget. 15 As Director McIntyre pointed out, there is 16 no increase in real spending. There is a decline in real 17 spending outside of defense and there are no tax cuts. 18 Although virtually all economic forecasters in the private 19 sector join us in predicting a mild recession, current 20 economic statistics so far fail to show any overall economic 21 decline in the economy. 22 There has been some weakness in housing, and 23 autos, but it has not yet been generalized weakness. The 24 economy in recent months has shown much more resistance 25 to recession than earlier forecasts have foreseen. So Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 7 0 u h < q: □ Q. 0953-338 )202( :ENOHP 1 forecasts of impending recession could be wrong, as they 2 have been in the past. 3 Under these circumstances, and with inflation 4 continuing at double-digit levels, proposed tax cuts or other 5 stimulative measures now would have signaled that the 6 Administration was prepared to abandon its anti-inflation 7 fiscal policies, not merely at the first sign of economic 8 weakness, but before the first sign even appeared. 9 That would have increased inflationary expectations, that 10 would have weakened the value of the dollar in exchange 11 markets, that would have risked translation of last year’s 12 oil inflation into a new and higher wage price spiral. 13 So the President has submitted a very restrained 14 and a very severe budget. The necessities of the inflation 15 fight require that the Federal Government be extremely a z 16 cautious about when taxes are reduced, or other measures taken □ h J 17 to stimulate economic activity. Now# the necessities z 18 of the inflation fight don't require that we ignore reality. 19 Should economic conditions in prospect significantly deteriora te 20 the Administration would consider tax reductions and temporary 21 or targeted spending measures to improve employment. 22 Under those circumstances, the actions would not be 23 inflationary. But let me repeat, the current economic 24 situation in no way warrants such measures, and it would be 25 extremely hazardous to undertake them. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8 3 a z □ H J z B953-33B )202( :ENOHP 1 Thank you. 2 SECRETARY MILLER: I would just add a few brief 3 words to the remarks by Jim McIntyre and Charlie Schultze 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 1 As Mr. McIntyre has pointed out, the most pressing 2 economic problem we face is inflation. I would just like 3 to call your attention to how the proposed budget for FY 1931 4 fits into the broader strategy to combat inflation,to wage 5 a comprehensive war against inflation on a multi-year basis. 6 An austere, restrained fiscal posture is the cornerstone of 7 our anti-inflation effort and it fits into a pattern that 8 would include a continued disciplined monetary policy with the 9 purpose of restraining the growth of money and credit 10 consistent with winding down inflation. It also includes a 11 program to moderate wages and prices in order to bridge over 12 the period until the fundamental policies of fiscal and 13 monetary restraint can affect prices. 14 It includes a commitment to a sound, stable dollar anc. 15 to bringing our international accounts into balance/ which 16 we have done in 1979. It includes a comprehensive attack on 17 the issue of energy and a commitment to reduce our dependence 18 upon oil as a source of energy and to reduce our dependence 19 upon imported oil and, thus, to free us of the price impacts 20 that cannot be predicted or controlled from this excess 21 dependence. 22 It also contemplates a concerted effort to attack 23 other causes of inflation including the decline in productivity 24 and the general weakness in the investment sector over the 25 past decade. This budget fits in with this overall program Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 10 1 not only in presenting a restrained posture, but in the areas of new initiatives,which have been carefully controlled. In 2 order to deal with the fundamental issue of fiscal restraint, 3 4 in the areas where there are initiatives they have been directed at opportunities for contributing to the longer 5 term winding down of inflation. This shows up in the 6 initiatives to deal with youth employment and youth training, 7 and, these, of course, fit into beginning to prepare the way 8 9 for enhancing the human component that would add to 10 productivity gains. The budget also includes expansion of funds 11 available for research and development which are part of the 12 necessary process of revitalizing our industrial economy. 13 It feeds in with research and development, with better 14 preparation for employment, and we believe in coming years that 15 16 we will also address the issue of incentives for investment 17 which will help us in these areas. 18 So the budget does fit into this whole topic. I 19 will be happy to join with the others here in trying to spell 20 out the details of how this will work. Tli.ink you very much. 21 MR. McINTYRE: Thank you. We will be glad to now 22 entertain your questions. 23 QUESTION: Mr. McIntyre, a brief and possibly 24 technical question on page M-4, the last paragraph, the bottom 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 O u H < or □ DL 0953-33B )202( :ENOHP 11 1 of the page, the President uses a budget authority figure 2 for defense for fiscal 1981 of $158.2 billion. On page 45, 3 he uses a defense figure of $161.8 billion. Can you tell 4 me why the difference? 5 MR. McINTRYE: Yes, I can. The figure on page 45 6 includes the national defense expenditures in the Department 7 of Energy. 8 QUESTION: Energy? 9 MR. McINTYRE: Yes. They total about $3 billion. 10 And the figure on M-4 is the Department of Defense total 11 obligational authority. 12 Ed? 13 QUESTION: I would like to direct a question to 14 Mr. Schultze. The Administration predicts an early recession. The standard criticism of( fiscal policy for combatting 15 or z 16 recessions is that it is applied too late. Isn't this the □ h □ 17 time now to crank up anti-recession measures and if you wait 18 until a recession is manifest and allowing for the lags in 19 fiscal policy, once again won't it be applying the medicine 20 too late? 21 MR. SCHULTZE: Not at all. 22 (Laughter) 23 Let me elaborate. 24 (Laughter) 25 I think you have to look very closely at the risk Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 0 Ui h < O' □ Q. B953-33B )202( :ENOHP 12 1 of being wrong. As someone who is paid to be a forecaster, 2 I have to admit that I am often paid for wrong forecasts. 3 If on the basis of a forecast of a recession the 4 Administration should come in and stimulate the economy early 5 and turn out to be wrong, and overdo it and gin up inflationary 6 pressures, and get it built into a new underlying higher rate 7 of inflation, it would take years and years and years to bring 8 it down. That is one of the problems we are finding. 9 It is so hard to get inflation out once it is in. 10 Conversely, if we should wait a little bit too late to come 11 into a recession, and we are wrong the other way, then: you 12 can correct it relatively quickly. And I think the thing that 13 has to be borne in mind is that the risk of being wrong has 14 penalties that are quite different on the inflationary side 15 than the recessionary side. And in this kind of a world with [X 16 more than a decade of inflation, we cannot afford to take the Z □ H J 17 risk along the lines that you suggest. Z 18 QUESTION: Mr. Schultze, can you tell us in looking 19 at the economic experience in the months ahead, will you be 20 waiting for a recession to develop in the technical terms? 21 Do you have a trigger on unemployment? When do you really 22 begin to look at tax reduction and other anti-recessionary 23 measures? 24 MR. SCHULTZE: There are no mechanical sets of 25 numbers that you can use as the trigger. For example, Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 23 1 unemployment might be rising very rapidly, accompanied by 2 other signs that the use is very brief and would turn around — 3 like, for example, a drop in mortgage interest rates and a 4 rise in durable goods, in which case with a large rise in 5 unemployment you wouldn't do anything because it would turn 6 itself around. 7 Conversely, you might have a situation in which a 8 much slower rise in unemployment was accompanied by a lot of 9 other signs that things were deteriorating very much. It 10 is impossible in advance, and it would be unwise, I think., to 11 pick out any given set of numbers and say if those numbers 12 are exceeded on the down side we will therefore move in. I 13 think it has to take constant monitoring and watching, and 14 there is no fixed set of numbers for doing this. 15 QUESTION: Who is going to be the measurer of the 16 vibes on when we are there? T mean if there is no scientific 17 determination, what is it going to be? A political decision? 18 MR. SCHULTZE: I haven't realized the world was 19 divided into science and politics. 20 (Laughter) 21 The fact that one can't put a specific number on it 22 doesn't mean it is a purely political decision. I refuse, 23 you know, the dichotomy. There are all kinds of considerations 24 that will go into it, including, I think, principally economic 25 considerations which aren't quite the same thing as scientific Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 14 1 considerations,I am sorry to say. 2 (Laughter) 3 QUESTION: Mr. Miller, could you tell us, please, 4 what provisions are in the budget, if any, for additional 5 bailouts and rewards of inefficiency like the Chrysler 6 situation and, also, I would like to know have you thought 7 of minting gold coins as the current high price of gold to 8 compete with Kruggerands, Canadian Maple Leafs, and others 9 (and the Russians have a coin, too,) which could further 10 decrease or even wipe out our deficits? 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 15 1 SECRETARY MILLER: The answer to the first question, 2 there are no initiatives in the budget to deal with financial 3 assistance to troubled corporations, if I may word it that way, 4 and the provisions that are in the budget for the Chrysler 5 situation contemplate loan guarantees that will not involve 6 Federal outlays. Corresponding small administrative expenses 7 will be covered by fees charged to Chrysler for the loan 8 guarantee. 9 For the second question, Congress has already 10 provided for us to mint some gold, a limited number of gold 11 medals, but beyond that, there is no contemplated issuance of 12 gold coins. 13 QUESTION: Mr. McIntyre, can you put any 14 approximate dollar value on the additional cost of the 15 current national emergency? 16 MR. McINTYRE: We have incorporated in the 17 budget already — I said this is a current budget — all 18 of the decisions that the President had made with respect to 19 the international situation at the time the budget was sent 20 to the printer, which was early last week. 21 There is included in the defense numbers, I think, 22 sufficient authority to continue the policies the President 23 has established with respect to the location of the movement 24 of ships and personnel; there are sufficient funds in the 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 16 1 Agriculture Department budget to cover the President’s decisions on the grain embargo. 2 We have $2 billiion in fiscal year 1980 and 3 $800 million in the 1981 budget to cover the grain embargo 4 decisions to purchase the grain and the use of the farm-owned 5 reserve program. 6 In the foreign assistance budget for 1980, we 7 have all of the President's decisions except the $100 8 million appeal for aid decision that he made a week 9 ago. 10 As far as the policy the President has enunciated, 11 there are only two or three items that are not identified 12 by line in the budget. One would be the President’s 13 decision with respect to the Selective Service System, in 14 which we would have to add about $10 million in 1980 and about 15 $13 million in 1981. 16 Another decision that we were able to incorporate 17 in the 1980 budget was the aid to Pakistan decision, but the 18 final details were not worked out on 1981 in time for us 19 to incorporate that in the budget. 20 I might point out, however, we have a contingency 21 allowance in our 1981 budget of about $2 billion in budget 22 authority that should be sufficient to cover most of those 23 types of contingencies. 24 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 17 1 The only other item 1 am aware of that a decision 2 has been made on that would not be covered is an additional 3 $100 million in P.L. 480 in 1981. 4 Those are relatively small amounts of money 5 compared to the totals in the budget itself. I think they could 6 easily.be handled within Our'allowance, for contingencies. 7 The point is that the budget is up to date, it does incorporate 8 all of the President's decisions. 9 One final point, budgets always change during 10 the course of the year to reflect changing events and if 11 events change, obviously we would have to be prepared to 12 look at the budget again and determine whether or not 13 we can accommodate any policy changes within the current 14 totals or whether or not we have to make additional 15 recommendations. 16 As far as policy has been decided on at this point, 17 the budget is current. 18 QUESTION: Mr. McIntyre, to follow that point, 19 on page 5, you show a figure of $9.1 billion for increase 20 in budget authority for military programs. Is it possible 21 to say what part of that 9.1, if any, reflects tenser 22 current international situations just referred to. MR. McINTYRE: No, there is no way to break that 23 24 out, I have indicated some of the changes that have been incorporated in the budget itself for the military programs. 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 18 1 QUESTION: I guess what I am trying to ask, 2 Mr. McIntyre, would that figure have been substantially 3 smaller, say, four months ago? 4 MR. McINTYRE: Substantially smaller? 5 QUESTION: Yes. 6 MR. McINTYRE: In defense? 7 QUESTION: In that $9.1 billion for increases 8 in authority. 9 MR. McINTYRE: For 1981? 10 QUESTION: Yes. 11 MR. McINTYRE: No, it would not have been 12 substantially smaller. You know, we let our defense 13 numbers out early this year, in December. The President's 14 decisions with respect to his defense recommendations, I 15 think, have become more important and proved to be wiser 16 each day. So this number would not have been substantially 17 less. 18 QUESTION: Isn't it possible that that number 19 will grow substantially through supplementals later on? 20 MR. McINTYRE: Everything is possible. We don't 21 know what is going to happen in the future. 22 As far as decisions the President has made, we 23 have covered them. 24 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 U h < a □ ql B9S3-33B )202( :ENOHP 19 1 Mr. Jayne? 2 MR. JAYNE: I think it is important to distinguish 3 between funds that are needed to do specific kinds of 4 operations and what I think you are getting at, which is: 5 Are there defense programs that someone has determined 6 are necessary now that we didn't think of six months ago? 7 I think Mr. McIntyre is exactly right. We spent a great deal 8 of time over the past year or year-and-a-half, looking 9 at a whole range of programs that had to do with a greater 10 capability to deploy worldwide, a greater capability for naval 11 presence around the world, a greater capability for airlift 12 and sealift of ground forces to any contingency anywhere 13 in the world. And I think we can take credit, and we should 14 take credit, for having planned those things and programmed 15 them back in July and August and September, as we put this a z 16 budget together. □ H J 17 In terms of what is going on in the world today, Z 18 in terms of the increased operations of the U. S. Navy 19 in the Indian Ocean, for example, that may require some 20 reallocation of operating money within the defense budget. 21 But as far as we are concerned, the program which we put togetii er 22 is the kind of program that is planned to be, and will be 23 responsive to these kinds of situations and we don't 24 anticipate program additions, as you say. 25 We may have to do some — either moving around Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 20 • Q kJ h < K 0 Q. B9S3-33B )202( :ENOHP 1 of money or actual supplemental increases for operations. 2 MR. McINTYRE: Not to beat that issue into the 3 ground, but one more point about it. Obviously, last year 4 we sent up a supplemental to insure that we maintain the 5 real growth in the defense budget. We have that same 6 commitment and that is a circumstance that could change 7 in the future. We don’t know. Hopefully it will change 8 for the better, but that is another circumstance on which 9 we might have to make some changes. 10 QUESTION: Are there increases in this budget for 11 intelligence functions, Mr. McIntyre? 12 MR. McINTYRE: There are increases in this budget. 13 QUESTION: I have a question on the intent, the 14 issue of foreign policy. 15 Can you give us the total cost now that you O' 16 estimate for the grain embargo, by which I mean to say Z □ h J 17 the grain purchases and grain reserves in set-aside payments z 18 in total, how much you have allocated for fiscal 1980, 19 how much you have allocated for fiscal 1981, and in both 20 cases is it all going into the deficit for those two years 21 and do you have some offsets? 22 MR. McINTYRE: The total cost of the grain 23 embargo over a two-year period is expected to be about 24 $2.8 billion. We have in the 1980 budget $2 billion 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 21 Q Ld H < (X □ Q_ B953-33B )202( :ENDHP 1 for the purchase of grain and for the farmer-owned reserve 2 program, and in 1981, we have $800 million. 3 QUESTION: Does it all go onto the deficit in each 4 of those years, or did you get any offsets? 5 MR. McINTYRE: Yes. It all went on the deficit 6 for those years, but obviously the CCC is having transactions 7 every day and some of it could be offset. But it went 8 on — the $2.8 billion is fully reflected in the deficit 9 figures, and that is one reason the 1980 deficit has moved 10 from $33 billion to $40 billion. 11 QUESTION: Mr. McIntyre, what are you doing with 12 the windfall profits tax receipts in FY 1981? I don't see 13 any offsetting expenditures specifically earmarked for 14 energy-related programs. Are you taking this as strictly 15 a revenue measure to hold the deficit down, or do you have (X 16 dollar-for-dollar offsetting spending for those receipts? Z □ h _J 17 MR. McINTYRE: We have not specifically said z 18 this money comes from the windfall profits tax, because 19 all taxes are fungible.• This is a unified budget and so 20 we haven't tried to earmark any of the particular proceeds 21 in the sense of a line-for-line receipt and expenditure. 22 We have included the windfall profits tax in our overall 23 receipt estimates just like we have income taxes and 24 other taxes, and there are expenditures recommended 25 in Lhe neighborhood of $3 billion that are Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 directly related to the President's energy proposals 2 that he made last July. 3 The key thing about the windfall profits tax 4 is that it is very difficult to try to have an exact 5 expenditure that equals the taxes you take in. What we 6 are trying to do is, over the period of this decade, develop 7 energy-related programs that will in effect use the 8 amount that would be collected in the period of the decade 9 from the windfall profits tax. 10 QUESTION: Would it be fair to say, though, that 11 in FY 1981, the effect of the tax will be to keep your 12 deficit down by close to $10 billion. If you didn't have the 13 tax, wouldn't you show a $26 billion deficit? 14 MR. McINTYRE: If we didn't have income taxes, 15 we would show a bigger deficit. If you take that kind of 16 argument to its extreme, you can see how ridiculous it is. 17 The point is that receipts are fungible, and what we have 18 tried to do is plan a budget based on the economic conditions 19 that we forecast, based upon meeting the needs of our 20 country, and if the picture were different, then we may 21 have been in a position to look at the President's fiscal 22 policy in a different manner. 23 And also, let me call your attention to the 24 fact that there is budget authority in the 1980 budget t.otalinc 25 over $17 billion that'is directly related to the Energy Security Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 23 □ kJ h < IX □ Q. B953-330 )202( :ENOHP 1 Corporation, so it cuts both ways. 2 We have asked for the appropriation in 1980 and 3 1981, but the money will spend out over a period of years. 4 MR. SCHULTZE: Can I just — let me add a 5 point to that, just to drive Mr. McIntyre’s point home. 6 It is clearly the case, and it is the way 7 world works/ that expenditures on major projects get 8 going slowly- You collect the-windfall profits tax and 9 you provide budget authority and outlays/ but it takes time 10 to get spent, and therefore in the first year, second year, 11 you collect a lot more money than you spend. 12 You have three options with that. You can let 13 it go into reducing the deficit, you can use it to spend 14 elsewhere, or you can cut taxes with it. 15 Given the inflationary pressures in the economy, or 16 z what we did was to let it reduce the deficit. □ h _J 17 18 19 20 21 22 23 24 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 24 0 kJ h < a □ CL B953-33B )202( :ENOHP 1 QUESTION: Mr. Schultz, the budget calls for the 2 social security payroll tax in 1981, the increase to go into 3 effect. Won’t that be coming at a time when it might kill 4 this recovery that you are predicting? 5 MR. SCHULTZE: Well, if I thought it would, we 6 wouldn't have predicted recovery. 7 (Laughter) 8 Our forecast, 2.8 percent growth in GNP in 1981 9 takes into account — takes into account — that tax and 10 the effect of that tax. If you will look at the economic 11 forecasts of outside forecasters — Chase, Data Resources 12 you will find they also, taking that tax into account, 13 have increases in 1981. 14 Yes, we took it into account. We didn't forget it. QUESTION: Mr. McIntyre, the 1980 estimate published 15 CL 16 in this book is very, very substantially higher than the Z □ h J 17 Second Concurrent Budget Resolution. Could you outline for 2 18 us — you have named the grain embargo — but could you give 19 us a basic breakout of the difference between the Second 20 Concurrent and your 1980 estimate, what the new spending has 21 been? 22 MR. McINTYRE: It just so happens I have that. 23 (Laughter) 24 I might point out first’ that there is a significant 25 difference in some of the technical estimating techniques used Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25 1 by our office and by the CBO at this time. I think when 2 CBO comes out with its new estimates that the figures will be 3 a lot closer. 4 The reason for the differences are basically 5 re-estimates for interest and other related noncontrollable 6 programs — Medicaid, food stamps, student loan programs. 7 There are some energy initiatives that are reflected in the 8 amount of about $2 billion in budget authority and about 9 $100 million in outlays, and the rest of the difference comes 10 from the grain embargo, plus a host of minor technical 11 estimating differences. 12 QUESTION: Since we are talking a $20 or $30 billion 13 difference, do you have some figures — 14 MR. McINTYRE: How much? We are not talking much. The Second Concurrent Budget Resolution was $547 15 16 billion. We are about $564 billion. So we are talking about 17 around a difference of $16 to $17 billion. 18 QUESTION: Mr. McIntyre — 19 MR. McINTYRE: Because there are some other 20 differences in receipts — that is why your deficit doesn't rise the total 16. 21 QUESTION: Do you have a figure on the cost-of 22 living escalator announced, how much they contributed to the 23 24 increase in the budget? 25 MR. McINTYRE:- Yes, I do. In 1981, Dale, what is it Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26 1 MR. McOMBER: The difference between 1981 and 1980, 2 there is a total increase of $34 billion in noncontrollable 3 programs. Of that amount, $25 billion approximately is due 4 to increases in inflation, interest rates, and unemployment 5 assumptions. 6 QUESTION: Mr. McIntyre, going back to the grain 7 embargo mitigating expenses, the $800 million in FY 1981 are 8 still expenses related to current embargo. I am wondering, 9 does this mean your economic assumptions for FY 1981 do not 10 include the possibility of continuing the embargo and, 11 therefore, that we won't have to pick up new expenses for our 12 farmers? 13 MR. SCHULTZE: You have to remember that what has 14 happened this year with the embargo was that sales already 15 made and already counted on were cancelled and the Federal 16 Government is picking that up. 17 In 1981, the next crop, our best estimate of what 18 the total market is going to be, of what the prices are likely 19 to be is included and that is how you get, among other things, 20 the $800 million. That is, you look at the $2 billion and 21 $800 million as a net of all the things that go into how much 22 the Federal Government takes in and how much of that it is 23 going to be selling back out again. All of that is taken 24 into account. 25 QUESTION: Are you, in your economic estimate in Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 27 1 1981, forecasting a resumption of higher sales of grain to 2 the Soviet Union, which would require less Federal support — 3 MR. SCHULTZE: No, no. I don't know the exact 4 number, to tell the truth. But we are not. 5 QUESTION: Are you cranking in a much higher set- 6 aside support costs? 7 MR. SCHULTZE: It is far too early to tell you. 8 QUESTION: Because you have got a drop from 1980 9 to 1981 in your agriculture budget? 10 MR. SCHULTZE: Because you put the $2 billion in 11 1980. If you look at the years on both sides of 1980—1979 and 12 1981, they are lower. The 1980 is up because it includes 13 that full $2 billion. 14 QUESTION: Does that assume you are going to go back 15 to detente as far as agriculture is concerned in 1981? 16 MIC SCHULTZE: Tt doesn't assume detente or anything 17 else. It does assume some number, which I don't know, on total 18 exports. 19 MR. HESSLER: Both the 1980 and 1981 number assume 20 that exports to the Soviet Union are no higher than the 21 embargo limit, which was 8 million tons under the executive 22 agreement. So it assumes a continuation of the embargo out in 23 the next crop year. 24 The measures that have already been put in place, 25 liberalization of the grain reserve, and such, will therefore Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 28 1 entail costs for the Federal Government in Fiscal 1981 over 2 and above what they would have been without the embargo. 3 That is why you get the $800 million. The cost is a great 4 deal higher in 1980 because we have had to assume all those 5 contracts directly in the short term. 6 QUESTION: Mr. Miller or Mr. McIntyre, your 7 estimates for receipts from the windfall tax are based on 8 your presentation to the Senate Finance Committee. The House DETAROPROCNI .GNITROPER NOTLIM 0953-330 )202( :ENOHP O ' O J K J C U ■ — nt o 4^ 00 and Senate conferees are settling on a considerably smaller tax. Can you tell us how these numbers ought to be revised to reflect that agreement? SECRETARY MILLER: 'Yes, let me address that just for a second. In the first place, the windfall profits tax bill has not yet completed its process through the Congress. I think it would be premature for us to look at the net result of it because it involves not only the question of the application and rates of tax itself but it contains provisions for credits and spending. The netting out of all of those items 19 will have to be taken into account when the Congress finally 20 completes its work. 21 If we look just at the revenue changes, they are 22 not quite so substantial in these years as perhaps it may 23 seem to you. We are talking in the neighborhood of perhaps 24 a shortfall of around $1.2 billion dollars in 1981. That coulc 25 vary a little, but that is what it looks like based on the Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 29 0 kJ h < cr □ o. B9S3-33B )202( :ENOHP 1 Conference work so far. 2 QUESTION: Secretary Miller and Mr. McIntyre, do 3 you anticipate any political difficulties in explaining to 4 the American people why there is a rather considerable deficit 5 in the budget which the President has been promising for 6 almost four years would be in balance at this submission? 7 SECRETARY MILLER: Let me speak to that first and then | 8 perhaps Mr. McIntyre can supplement. I don't think it is 9 difficult to explain to the American people. I think the 10 American people have been acutely aware of the changes in the 11 economic environment since the President was campaigning for 12 office some years ago. 13 They are aware that a year ago, none of us could have 14 predicted, not only the change of government in Iran, but the 15 ultimate overthrow of the Baktiar government and the curtail­ or z 16 ment of production over the short term and long term of Iranian □ h j 17 oil and the aftermath of doubling of oil prices and the working z 18 of that into inflation. • This affected the opportunity for our 19 own economy to operate at the level and in the trend that we I 20 had projected. 21 A great deal of the inability to balance the budget 22 in 1981 is because of the economic impacts of accelerated infla­ 23 tion that have taken place over this period of time. I 24 think it is explainable to the American people, not 25 only why the budget isn't balanced, but why we aren't adding I Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 30 1 more stimulus* Arguments could be made for a balanced budget* 2 Other arguments could be, that, in the face .of a recession, why not more stimulus? I think we are taking the 3 4 prudent course of keeping on an austere posture because of 5 this tremendous clear and present danger of inflation to the 6 well-being of every one. 7 MR. McINTYRE: Let me follow up on that with two 8 points. 9 If you look at the increase in the 1981 budget 10 over 1980, the $52 billion, $37 billion goes to the non- 11 controllable programs. Those are Social Security, Medicare, 12 Medicaid, prior commitments under contract. Some of that 13 is due to the economic assumptions, other portions of it are 14 due to increased beneficiaries in those programs like Social 15 Security, Medicare, Medicaid. 16 The remaining $15 billion is the amount that we 17 are putting into the defense budget. So all of the other 18 "adds" in the 1981 budget would have been targeted to partic­ 19 ular programs have been funded by making cuts in other 20 programs. But I think that is an important distinction, 21 the noncontrollables and the defense increases, taking up 22 most of the slack. 23 Also, just to go back to a point that Mr. Schultze 24 and I both made in our presentations about the economic 25 assumptions, the deficit in 1981 could be said to be the Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 31 0 u h < □ CL B953-33B )202( :ENOHP 1 price we pay for honesty. Had we forecast a rate of unemployment that was lower than what is forecast, perhaps 2 down to the 6-3/4 percent range, we could probably have 3 4 shown a balance or a very, very small deficit at the very least. And the third point I would make is if you look at 5 the high employment budget, you will see that this budget 6 gives a great surplus which means it is a restrained budget. 7 And a final point, Mr. Levine, is in my statement- 8 said that if the economic were to perform at a level to 9 maintain the unemployment rate at about the rate that it is 10 today, 5.9 percent, the budget would actually be in surplus. 11 QUESTION: Mr. McIntyre, one point the President 12 contemplated was holding the budget at 21 percent of GNP. Why 13 did that go by the board? 14 MR. McINTYRE: That went by the board because of 15 or z 16 the slower economic growth. □ H J 17 QUESTION: It was impossible, there is a school Z 18 of economists who believe that in fact higher government spending and higher tax levels penalizes economic growth, and 19 therefore you have a vicious circle by piling on more and 20 more taxes, penalizing the economic growth. 21 MR. McINTYRE: With all due respect to my colleagues 22 there are a lot of economic theories. I am not sure that we 23 24 know which ones are working today. We think that at this particular point in time it is important to meet the national 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 32 1 needs, particularly defense and energy, and deal with 2 problems like youth unemployment. What the President has 3 recommended is his best judgment of what the budget for this 4 country needs to be in 1981 to meet those needs. 5 Charley, do you want to make any other comments 6 on it? 7 flR. SCHULTZE: Yes. I am kind of glad you asked 8 that. It gives me a chance to put some numbers out. 9 If any group of economic theorists would want to 10 pursue that line, that in fact the reason for the economic 11 slowdown is that government spending has been moving up so 12 fast they must contemplate the following numbers. 13 During the decade of the 1960s adjusted for 14 inflation total Federal spending rose at 3.9 percent a year. 15 Saying it another way, it rose 3.9 percent a year faster 16 than inflation did. 17 In the first seven years of this decade, the 18 pre-Carter years, 1970 to 1977, total Federal spending 19 adjusted for inflation, in real terms in other words, rose 20 3.1 percent a year. In the four years 1977 through 1981, 21 this budget under President Carter, that total will be 1.3 22 percent. And in fact, in the last year of that period, it 23 will be two-tenths of 1 percent. 24 So that in fact if you look at this in any kind of 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 33 1 perspective, what has happened in the last four years, 2 including the proposals in this budget, are to make a sub­ 3 stantial change in the very, very large momentum of real 4 Federal spending increases that have been going on for the 5 prior 17 years. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 i i 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 34 1 QUESTION: Mr. Schultze, could you go over 2 some of the forces that you see behind the assumption that 3 you are making about a 10.4 percent inflation rate for 1980? 4 Could you go over some of the factors that are behind that 5 assumption? 6 MR. SCHULTZE: I have a minor little document called 7 Economic Report coming out in a couple of days and I hate 8 to, you know, what little is going to be left, I hate to 9 scoop it. 10 (Laughter) 11 But I will say a couple of things. 12 If I remember the numbers correctly, if one 13 looks at another measure of inflation over the four quarters 14 of 1980, namely, the overall GNP deflator, I think we have 15 it rising at something a little over 9 percent. But I forget 16 the exact number, but it is a little over 9 percent, whereas 17 we have the CPI rising about 10-1/2 percent. 18 What that means is two things are happening, 19 specifically with respect to assumptions about inflation. 20 First is that energy prices will continue to rise faster 21 than inflation in general, although not as fast as they 22 did last year. And secondly, that while housing prices will 23 probably slow up, that nevertheless there will be enough 24 momentum in there that housing prices will probably rise 25 a little faster than general inflation, so that the Consumer Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 35 1 Price Index is still very, very slightly into double digits, 2 while the overall inflation rate of the economy is back down 3 into the single digits. 4 I think I will save the rest for a little later. 5 QUESTION: Mr. McIntyre, last year you were 6 explaining to us that you had to cut jobs in health and 7 housing programs in order to fight inflation, which hurts 8 the poor as much as, or more than anyone else in society. 9 This year we have the worst inflation rate since 10 the end of World War II, and you are raising spending 11 in each of these categories. Why? 12 MR. McINTYRE: The CETA Jobs Program is being 13 held up. 14 QUESTION: The Youth Unemployment Program, you 15 have added -- MR. McINTYRE: The Youth Employment Program 16 17 I think is greatly needed . If you look 18 at the youth unemployment rate and the fact that we need 19 to address the structural unemployment problem that is 20 represented by youth unemployment, particularly minority youth unemployment, I think that is what government is 21 all about, to try to help out people who need help. 22 QUESTION: Why this year, when inflation is 23 24 worse than it has been in 33 years, when last year you 25 couldn't do It when it was Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 36 1 MR. McINTYRE: The Jobs Program, the basic 2 Public Service Jobs Program is held level. We made the 3 reductions last year in the 1980 budget reductions, by 4 the way, that the Congress concurred in and adopted. 5 QUESTION: Subsidized housing — 6 MR. LOVING: We have time for two more. 7 QUESTION: What made you believe the OPEC prices 8 are not going to go up at the same rate this year as 9 they did last year, and is that prudent to assume that? 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 37 1 MR. SCHULTZE: Well, I don't quite know how 2 to answer that, except surely it isn't prudent for the 3 United States Government to put out its official forecast 4 for the budget with the assumption that OPEC is going to 5 double its prices. 6 (Laughter) 7 MR. McINTYRE: Mr. Cowen is asking a question. 8 Go ahead. 9 QUESTION: There has been a good deal of discussion 10 about taxes, the economy and inflation and recession. 11 Could we summarize what you are telling us in the 12 following way: If there is no recession, there will be 13 no proposal for reducing income or Social Security taxes. 14 MR. McINTYRE: Ever? 15 QUESTION: No, in 1980. 16 MR. McINTYRE: In 1980. Charlie? 17 MR. SCHULTZE: Can I answer that? 18 In both the budget documents and, if you will 19 wait a few days,in the Economic Report, we have 20 worked rather hard to summarize our views on this, and 21 I would prefer our summaries. 22 QUESTION: Mr. McIntyre, what provisions are 23 there in President Carter's budget for enforcing the 24 revolving door syndrome? This is just a horse's laugh. 25 Like for instance an SEC Commissioner has just resigned and Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 38 ■-» < • * DETAROPROCNI ,GNITROPER NOTLIM 0953-33B )202( :ENOHP 1 she is going right back to the law firm that employed her. The President has promised he would enforce this. 2 Where in the budget and under what agency is this being done, 3 4 and in particular since we see abuses, a lot of people, 5 particularly in the SEC, are taking jobs — QUESTION: Thank you, Mr. Secretary. 6 MR. McINTYRE: We want to get out of here. 7 The budget is not a law-enforcement or ethics-enforcement 8 9 instrument. That is left to the appropriate bodies to 10 deal with. 11 THE PRESS: Thank you. (Whereupon, at 10:55 a.m., the press briefing 12 was concluded.) 13 14 15 16 17 18 19 20 21 22 23 24 25 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

G. William Miller (1980, January 25). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19800126_miller

@misc{wtfs_speech_19800126_miller,
  author = {G. William Miller},
  title = {Speech},
  year = {1980},
  month = {Jan},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19800126_miller},
  note = {Retrieved via When the Fed Speaks corpus}
}