Ford's Risky Plan Against Slumpflation
It was anything but the standard State of the Union speech. Instead of congratulating himself on the achievements of his young and troubled Administration, Gerald Ford adopted the somber tone of a wartime leader calling for an all-out effort to repel the enemy. Instead of skipping lightly over a broad spectrum of national and foreign policies, the President concentrated almost exclusively on specific means to counter the worst economic slump since the Great Depression, the nation's almost 14% rate of inflation and the U.S.'s dangerous dependence on cartel-controlled foreign oil. Displaying the blunt candor that is his most politically attractive quality, the President proclaimed himself the bearer of "bad news," declared flatly that "the State of the Union is not good," and announced that he did not expect "much if any applause."* Then he unfurled an economic and energy program of considerable scope, great complexity and huge risk.
Essentially, Ford plans a three-stage operation on the severely sick economy:
Stage 1: A quick infusion of $16 billion of new buying power--$12 billion to consumers in rebates on 1974 taxes, $4 billion to corporations in higher tax credits on purchases of new machinery.
Stage 2: Imposition of $30 billion in new energy taxes that will force every citizen to pay more to drive a car, heat a house or turn on a light switch.
Stage 3: Recycling of that $30 billion back into the spending stream, chiefly by permanent cuts in corporate and individual income taxes.
If the policy works as Ford hopes, sales would revive, unemployment would moderate and the nation would be much better able to withstand another cutoff of foreign oil, since Americans would be compelled by higher prices to reduce their prodigious waste of energy. But if the program fails, the consequences could be dire indeed. The $16 billion in rebates and tax credits might be too weak to jolt the economy out of its alarming slumpflation; in that case, the nation could suffer a prolonged agony of unemployment rates higher than any since before World War II. In addition, the higher prices for oil and natural gas that Ford plans could restore the raging inflation that is only now beginning to relax its debilitating grip on the U.S.
Critical Crew. And Ford must sell his ideas to a highly critical crew of consulting physicians: the Democrats, who hold overwhelming control of Congress. The Democrats slapped together their own program for doctoring the economy, but it was an imprecise series of compromises that even party leaders concede will be tough to enact (see box page 19). Still, in announcing the program, House Speaker Carl Albert of Oklahoma said: "We mean business. We intend to act."
The Democrats enthusiastically agreed on the need for a big and fast tax cut. Indeed, within a couple of months they may well enact a deeper slash than Ford has asked. But they fear that the President's energy proposals would push prices .so high as to destroy the purchasing power that the tax reductions would create. Democratic Senator Adlai Stevenson III of Illinois estimates the chances of Ford's energy program getting through Congress as "zero."
When Ford was being escorted from the House by congressional leaders after his speech, his sometime golfing partner, Democratic Floor Leader Thomas P. ("Tip") O'Neill, said: "Your conclusions were great, Mr. President, but we can't go down the same street together."
"Be charitable," said Ford, grinning.
"See if you can give us a chance."
Responded O'Neill: "I don't see how these programs can work."
Later, Ford confidently--and probably overoptimistically--told an aide: "I think I can get 85% of this program." Indeed, he plans a series of speaking trips around the nation in late January or early February to explain--and sell--the program to the public.
Whatever the economic outcome, Ford clearly has seized the political initiative as only a President can. His State of the Union speech and a televised fireside chat from the White House two nights earlier, in which he previewed his programs, marked a welcome change from the drift and indecision, the platitudes and homilies of his first five months in office. The President sounded grim and forceful. Though he still used many cliches, the very flatness of some of his phrases ("Millions ... are out of work. Prices are too high and sales are too slow ... the economic distress is global") had a kind of eloquence appropriate to a crisis.
Where the Democrats were vague, Ford was definite. The Democratic program, as outlined by Albert, advocated "substantial" tax cuts. Asked what that meant, Representative James Wright Jr. of Texas, chairman of the task force that drew up the program, replied: "Substantial is substantial." Ford gave exact figures on whose taxes should be cut, how much and when. On energy, the Democrats called for adoption of "one or more" of a grab bag of seven proposals. Ford's plans, certainly controversial and perhaps even dangerous, are at least precise down to the number of major nuclear power plants (200) and new coal mines (250) that should be opened over the next ten years.
Opening Wedge. The President's program is comprehensive and, in its way, balanced. In addition to both one-shot and permanent tax cuts for individuals and businesses, it also makes a long overdue start toward tax reform as well as reduction. The permanent cuts in income tax rates that Ford proposes for 1975 and later years give much greater relief to lower-and middle-income workers than to the rich, thus reversing a long-run trend toward taxing them more and more heavily.
For conservatives, the plan contains a promise to hold increases in several federal spending programs to 5% a year. Among these programs: food stamps and payments to the nation's 30 million Social Security recipients (Social Security pensioners otherwise might get raises of as much as 9% this year). For political liberals, there is a kind of negative income tax in the form of cash payments of $80 annually to every adult who is too poor to owe any federal taxes. Though the payments are hardly what liberals would consider overly generous, they will surely become an opening wedge for broad welfare reform later.
Congressional Democrats will, and indeed should, quarrel with parts of this program. But they cannot object to its two essential goals: fighting recession by cutting taxes, and reducing oil imports in order to break the stranglehold that the cartel of the Organization of Petroleum Exporting Countries is acquiring over Western economies. Those goals are exactly what the Democrats themselves have called for in innumerable speeches. Now that Ford has proposed specific programs to accomplish those ends, the burden is on the Democrats to come up with something better. Ford made the challenge as pointed as possible by calling on Congress to enact his tax cuts by April 1 and by announcing that he will impose new tariffs on imported oil on his own authority starting Feb. 1. Senate Democratic Leader Mike Mansfield conceded: "He stepped forward, showed some initiative." A high White House aide added, startlingly: "We know he is not home free, but we think he has taken a long step away from Bozo the Clown."
In order to take the initiative, Ford had to take the "180-degree turn" from traditional Republican philosophy --and his own past positions--that he had told businessmen last month he was ruling out. In his October WIN (Whip Inflation Now) program, Ford had insisted that energy consumption should be curtailed only by voluntary measures --and called for a tax increase of 5% on upper-income individuals. In his fireside chat last week, he noted that he had spent all of his political life fighting deficit financing--yet now he projects record peacetime budget deficits of $34 billion in the fiscal year ending June 30, and $46 billion in fiscal 1976.
Enemy No. 3. The President's program has even produced the strange spectacle of liberal Democrats expressing shock at the inflationary potential of energy proposals made by a conservative Midwestern Republican who entered the White House denouncing inflation as "public enemy No. 1." On
Ford's list, inflation now seems to have been demoted to public enemy No. 3, behind the recession and dependence on OPEC oil.
Politically and economically, the circumstances left Ford no choice but to move. The startling plunge of the economy since last fall has done even more than the pardon of Richard Nixon to destroy the trust that most Americans reposed in Ford when he took office. The White House was stunned by a Harris Poll published two weeks ago showing that 86% of those questioned rated the job Ford has been doing on keeping the economy healthy as "only fair" or "poor." The State of the Union speech offered the President just about his last chance to turn those judgments around.
If the recession continues through 1975, and 1976 brings only a halting recovery, Ford's chances of being elected to a term of his own would just about vanish. Some Republican conservatives --who dislike his turn toward big deficits but for the moment are keeping quiet--even grumble privately that if the President enters 1976 with the polls still against him he could not get his own party's nomination. In that case, the Republican Party could split. Some of the conservatives are so determined to block the election of Vice President Nelson Rockefeller that they would follow Ronald Reagan into a third party.
Deepening Slide. Right now, the recession is deepening day by day. Last week the Commerce Department reported that real gross national product fell 2.2% during 1974, the sharpest annual drop in 28 years. During the fourth quarter, real GNP plummeted at an annual rate of 9.1%. Industrial production in December dropped 2.8%. Housing starts last month fell to an annual rate of 868,000, an eight-year low. Auto sales in the first ten days of January plunged 32% below the levels of a year earlier; last week, joining Chrysler in a cash-rebate plan, Ford Motor Co. offered $200 to $500 refunds to buyers of small cars and some other vehicles from now through February.
Layoffs are swelling throughout the economy and could push the unemployment rate some time this year beyond 8%, the steepest since 1941. Last week, for example, W.T. Grant, the retail chain, detailed a retrenchment program under which it will close 126 stores and complete laying off or retiring 12,600 employees. It expects a loss of $175 million in the year ending Jan. 30, one of the biggest deficits in retailing history (see BUSINESS). Rush ing desperately to apply for 225 public service jobs on one drizzly morning in Atlanta, 2,000 unemployed people broke the plate glass when they jammed through a door of the city's civic center. Similar crowds of the unemployed gathered to try for public service jobs in Los Angeles and Chicago.
Most economists expect at least another three to six months of decline, whatever the President and Congress do. But federal policy can make a critical difference in the timing and strength of the eventual upturn. That is especially true now, because the recession reflects a sharp drop in consumer confidence, caused in no small part by confusion over Government policies that seem vacillating and indecisive.
Since 1971, federal economic management has resembled a maze of tortuous twists and turns. Ford's new program is the ninth distinct policy in the last four years. In early 1971, Richard Nixon was still following his original "game plan" of gradually reducing inflation by holding down federal spending and the growth of the nation's money supply. Then came the Phase I wage-price freeze of August 1971, followed by Phase II of tight controls, followed by Phase III of loose controls. A new freeze in June 1973 was chased by Phase IV, which consisted of controls that were removed piece by piece until they expired last April 30. Then the Government converted to "the oldtime religion" of budget cutting and tight money, followed by Ford's WIN program, followed last week by a policy to which the President has not yet given a name. The closest he came was to say in his fireside chat that the time had come to "turn America in a new direction."
Simon's Horror. To chart that new direction, Ford since November has presided over scores of meetings of his advisers--Budget Boss Roy Ash, Chief Economist Alan Greenspan, Treasury Secretary William Simon, Federal Reserve Chairman Arthur Burns and Presidential Assistant L. William Seidman.
Ford would open each meeting with some remarks that steered the discussion to the subjects that he wanted aired, then sit back puffing on his pipe, listening while advisers weighed the options. When he sensed that the talk was becoming repetitious, he would lean forward and say: "Well, I think we ought to do this."
Very early, the need for a tax cut became obvious, particularly to Ash and Greenspan. One reason: the Democrats made it plain that they would press for lower taxes, and they have the votes in Congress. The President's men had differences about the size of the slash. Burns and Simon voiced worry about the ensuing bulge in the budget deficits. At one meeting, Simon remarked: "If I were a money manager, I'd be scared as hell." Ford asked: "Are you recommending against a tax cut?" Simon paused, then reluctantly said: "Mr. President, given the state of the economy, I guess we need a tax cut." (Late last week, while echoing support for the Ford program, Simon said that the prospective deficits for the next two years "horrify me.")
At one point, some advisers argued that the rebates should be made on payments of taxes for 1975, not 1974. But Ford turned them down. "Just a minute," he said. "The people who need it [the rebate] the most are unemployed in 1975, and they wouldn't get anything." He insisted that the tax refunds be made by check, not credits on new taxes. Said Ford: "If you don't send a man a check--money that he can see and hold in his hand--you are going to lose some of the impact."
Ash and Greenspan stressed the need to hold down Government spending and persuaded Ford to oppose any new spending programs for one year. Indeed, Ash wrote the State of the Union passage in which Ford said: "If we do not act to slow down the rate of increase in federal spending, the United States Treasury will be legally obligated to spend more than $360 billion in fiscal year 1976--even if no new programs are enacted."*
Floor Fight. Similarly, the energy proposals grew into a consensus among a different group of advisers. Secretary of State Henry Kissinger early convinced Ford of the necessity of a tough conservation program. That was urgently needed, he argued, to stop the hemorrhage of dollars to oil-exporting countries and demonstrate to the other oil-importing countries, which the U.S. is trying to weld into a coordinated bloc for bargaining with the OPEC cartel, that the U.S. really means to reduce imports. But Kissinger played little part in putting together the details of the proposals. That was done by a group headed by Frank Zarb, chief of the Federal Energy Administration.
Ford gave his advisers some clear directions -- and limits. A proposal to put the main tax and price burden on gasoline, rather than oil prices generally, never was seriously discussed because the President had repeatedly ruled it out. Said one Republican leader: "His whole ethos is bound up in the motorcar syndrome of the state of Michigan." Still, there were some hot debates. To induce energy companies to develop more domestic oil and alternative sources of energy, Assistant Secretary of State Thomas Enders argued strongly that the Government should fix a "floor" below which prices of oil could not drop; Simon protested vehemently that price guarantees violate free, market principles. The matter I went to Ford three times for a decision before he compromised by asking Congress for authority to set a price floor but not committing himself to do so or specifying a figure.
When the time came to present his proposals, Ford took the unusual step of renting a mobile TV unit and rehearsing his fireside chat at least three times, reading updated versions to try out his delivery of revised wordings. For the first time in his career he read the final speech off a TelePrompTer (one that Walter Cronkite had used previously).
The final program is exceedingly complex, breaking down into these main parts:
IMMEDIATE TAX CUTS: All taxpayers would get back 12% of the federal income taxes that they have paid on 1974 earnings, up to a maximum of $1,000 --which is the size of the rebate that typically would go to a family of four that earned $41,000 or more last year. If Congress enacts his plan by April 1, Ford said, the rebate would be paid in two installments: half in May, half in September (though some Treasury aides doubt that the Internal Revenue Service has the manpower to get the checks out so fast). Taxpayers first will have to compute their liability under the current rules, filing returns and paying any additional amount that might be owed under present law by April 15. The IRS then would calculate the rebate on each return and mail it out automatically; no taxpayer would have to file separately for the rebate. Any taxpayer who is owed a refund under present law would get three checks: one for that refund, then two for the rebate. The IRS expects to mail rebate checks to some 83 million families and single taxpayers.
Big corporations, smaller enterprises, farmers, lawyers, doctors and other self-employed people would save $4 billion this year by deducting from their tax bills 12% of the amount that they spend to buy new machinery and equipment. At present the credit is 7% for most companies, and it would drop back to that rate next year. Utilities, however, would get an extra break: their credit would rise from 4% now to 12% this year, then stay at that level through 1977, so long as they invested in power plants that use fuels other than oil or natural gas. Utilities need special help because they rely mostly on borrowed money to expand and modernize, and they had severe trouble raising cash in last year's supertight credit markets. Ford noted in his State of the Union speech that utilities recently have canceled or postponed 60% of the nuclear power plants that they had planned to build and 30% of the nonnuclear facilities because they could not get financing, individual incomes earned in 1975 and beyond would be reduced by an average 9%. This year's reduction would total about $16.5 billion. The mechanism: cuts in the tax rates on the first $6,000 of taxable income (the first $8,000 for single people). Every payer would get some reduction. On a taxable income of $6,000, payments to the Government by a married couple filing jointly would decline from the present $1,000 to $790, a cut of 21%. On a taxable income of $44,000,* the tax would go down from $14,060 to $13,930, or less than 1%.
Ford also proposed an increase in the "lowincome allowance," calculated to remove from the tax rolls entirely all people below the poverty line--now figured as $5,600 in gross income for an urban family of four. If Congress approves the new schedule by April, the Administration promised, withholding rates would be reduced beginning in June. Corporate income taxes would be lowered too--from 48% of profits now to 42%. Savings to companies: about $6 billion a year.
ENERGY: Prices of oil products and natural gas would rise sharply. A family of four that has earnings in the $10,000 to $12,000 range now spends about $950 annually on gasoline, heating and utility bills. By Frank Zarb's estimate, that cost would go up some $250.
The idea, bluntly put, is that the U.S. must reduce its imports of oil--which are now 7.3 million bbl. per day--by 1 million bbl. per day this year, and by 2 million bbl. in 1977. The way to do it is to make energy so expensive that consumers and businessmen cannot afford to burn as much oil as they do now.
The President will start by using his power to impose a $1-per-bbl. tariff on imported petroleum beginning Feb. 1, then raising it to $2 on March 1 and $3 on April 1. He also will ask Congress to enact a $2-per-bbl. tax on U.S.-produced crude, and an equivalent amount--370 per 1,000 cu. ft.--on natural gas piped across state lines. If and when Congress agrees to that, the tariff on foreign crude would drop back to $2. Finally, Ford plans to remove all price controls on domestically produced oil on April 1--a move that he can take on his own but that is subject to congressional veto.
Net result: the average price of gasoline, heating oil and other petroleum products would rise by about 100 per gal. Oil companies would reap huge additional gross profits, but Ford proposes to snatch them away by imposing a "windfall-profits tax," that, combined with regular taxes, would pull in $12 billion this year.
The Government would put the $30 billion raised by the new energy taxes back into the economy in several ways. Some $22.5 billion would be distributed to individuals and corporations by the permanent cuts in income taxes; another $2 billion would go to the people too poor to pay taxes, through the $80-perperson cash grants. State and local governments would get $2 billion of extra revenue-sharing money to help pay their higher fuel costs. Homeowners who invest in insulation, storm windows and doors, and other fuel-saving equipment could deduct 15% of the cost from their tax bills up to a maximum of $150; the total tax saving would be $500 million. That still leaves $3 billion, which the Government will "reserve" to pay its own higher fuel and electric costs.
Ford proposed a wide range of other programs to reduce energy consumption or increase supplies. Among them: opening to commercial drilling the Navy's Petroleum Reserve No. 4 in Alaska; amending the Clean Air Act and other legislation to enable utilities to burn more coal; enacting heat-saving standards for all new buildings; budgeting more federal money for energy research and development. He set a list of specific goals to be achieved by 1985: production of 1 million bbl. per day of synthetic fuels and shale oil; construction of 150 "major" coal-fired power plants, 30 new refineries and 20 synthetic-fuel plants, in addition to the new nuclear plants and coal mines. Picking a rare hero for a Republican President, Ford compared his goals to Franklin D. Roosevelt's 1942 pledge to build 60,000 military aircraft a year; actual production in 1943, Ford recalled, hit 125,000 aircraft annually. "They did it then," he said. "We can do it now."
Will It Work? In totality, the economic-energy package is nothing if not comprehensive. But will it restore the economy to health? It might--but there is an uncomfortably strong chance that the program, if enacted intact by Congress, would produce far more inflation than economic recovery.
The program could actually depress the economy a bit further for a few months. Ford's tariff on imported oil will push up fuel prices from Feb. 1 on, but consumers would get no tax-rebate money until May at the earliest and would not get the full benefits of Ford's tax package until September. Thus Americans' purchasing power in late winter and early spring would be reduced by the amount of the oil-price rises, which could total $2 billion or more during those months. Of course, consumers might step up their spending anyway in anticipation of the tax rebates that they are almost certain to get. Still, February, March and April will be hard months.
When the rebate money does start flowing, it should perk up sales enough to create more jobs or at least prevent some layoffs. But how strong will the effect be? The Administration's own projections are not exactly enthusiastic. Unemployment will continue to rise but at a slower rate. One White House adviser estimates that with the Ford program, the unemployment rate by year's end would be half a point below what it would otherwise be. Economist Otto Eckstein, head of Data Resources, Inc., makes a similar forecast. He reckons that the unemployment rate next December would be a still shocking 8.1%, rather than an even worse 8.5% (it was 7.1% last month).
The U.S. could enter 1976 with unemployment at the highest rate since Pearl Harbor--and by then most of the stimulus of the tax rebates would be gone. At best, the Government would be putting into the economy only as much money as it was taking out in energy taxes. The Administration appears to be gambling that recovery will have picked up enough momentum by early 1976 to make further stimulation unnecessary. That could occur, but only if consumer confidence recovers, and early reactions to Ford's plans are not reassuring. Consumers seem to be more confused than anything else. A common view is that the President is giving them new money with one hand and taking it away with the other.
Veto Vow. Many economists feel that considerably more stimulus is needed: perhaps a net tax reduction of $20 billion or even $25 billion (see story page 22). Congressional Democrats agree: they are likely to enact a tax rebate quickly, but a larger one than the President asked and in somewhat different form. The Democrats aim to give more of the rebate to lower-and middle-income taxpayers, partly for reasons of equity, partly because those people can be more reliably counted on to spend the money rather than put it in the bank. Congress might, for example, make the rebate 16% instead of 12%, but set the maximum lower than $1,000.
Congress might also raise federal spending more than Ford plans, thus pumping still more money into the economy. Ford in his State of the Union speech vowed to veto any new federal spending programs that Congress might enact. But spending on several costly programs, including military pensions and Social Security payments, is tied to the movements of the consumer price index. Those outlays will rise automatically, well beyond the 5% limit that Ford proposes, unless Congress actively votes to hold them down, and there are few things that a liberal Democratic Congress would be less likely to do.
The risk remains that Ford's proposals would cause enough new price rises to wipe out all the benefits of his proposed tax cuts, leaving consumers with no more buying power than before, or even less. To be sure, the pace of price increases finally seems to be slackening a bit. Wholesale prices fell .5% in December, the first drop in 14 months. The recession is likely to cause even more price reductions.
Double Digits. Economists nearly unanimously assume that the inflation rate will continue to simmer down gradually this year--or they did until Ford announced his program. Now they are not so sure. Eckstein predicts that the energy package would make 1975 a second straight year of double-digit inflation, meaning that prices would rise 10% or more. Many of the businessmen and bankers who normally constitute the backbone of a Republican President's support are also seriously worried. "The biggest fear to me is inflation, not recession," says William H. Spoor, chairman of Pillsbury Co. Richard H. Vaughan, president of Northwest Bancorporation in Minneapolis, adds: "We ought to be concerned about the reinstitution of inflation in '75 or '76."
Though businessmen are primarily nervous about the prospective budget deficits, the real danger is the cost-boosting impact of the energy program. In fact, the quibbles over the size and distribution of tax cuts are popgun shots in comparison with the cannonade of criticism that Ford's energy proposals have provoked. The tax on oil will be particularly inflationary in the chilly Northeast, which burns a considerable amount of oil, much of it imported. Massachusetts Governor Michael Dukakis calls the tax "disastrous." Adds James Howell, the chief economist of the First National Bank of Boston: "We in New England are being screwed by the President's program."
On the face of it, the program seems illogical. The OPEC cartel has disrupted Western economies and fanned inflation round the world by quintupling the price of oil since October 1973. So in what sense is the U.S. fighting back by raising its own prices higher still?
There are answers. Price is not the only problem; the huge flow of money from industrialized countries to the oil exporters is another. Ford's program, if it really does hold down imports, would at least divert to the U.S. Government, and back into the pockets of taxpayers, some money that Americans otherwise would pour into the treasuries of Venezuela, Iran, Nigeria, Canada and the Arab nations. Moreover, the U.S. must hold down imports to free itself of the threat of political blackmail from foreign suppliers who could shut off the tap at any time.
Also, in theory at least, higher prices now could lead to lower prices later. If their hold on Western economies was broken, the OPEC nations might cut prices in order to maintain sales. Unfortunately, they also could do just the opposite: they could take Ford's program as vindication of their past price increases and raise prices higher yet. Some Arab governments are willing to cut production in order to maintain prices; Kuwait last week reportedly decided to reduce output by 500,000 bbl. per day, or 20%.
In any case, Ford's program would raise prices quite enough to cause severe pain--and danger for the economy --no matter what OPEC does. The White House itself estimates that the price boosts caused by its energy taxes would raise the overall consumer price index by two percentage points this year. And that estimate appears to assume that the increases will total only $30 billion. In fact, they could go much higher.
The increases on gasoline, heating oil and natural gas would be only the start. Innumerable products made partly from oil would also go up: plastics, chemicals, fertilizers. Higher fuel bills could force up airline fares and freight rates. The greater bills for heating and lighting factories and buying electricity to run machinery could drive up the cost of almost every product. Even wage costs could be raised; many union contracts tie wages partly to the consumer price index, which will be kicked up by the fuel increases.
How great this "ripple effect" might be is anybody's guess; sluggish demand will certainly restrain some price increases. But some of the guesses are frightening. Senator Stevenson figures that the energy program could eventually raise living costs for the average family by $1,000 a year, or four times the $250 in direct fuel increases that the Administration estimates. A. Gary Shilling, chief economist at the Wall Street firm of White, Weld, fears that price increases forced by energy costs could total not $30 billion but $60 billion. That may be overblown, but if the increases go as high as $46 billion, they would take away all the money that consumers would get from Ford's tax rebates and reductions; if they went any higher, purchasing power would actually be slashed. Then the U.S. might get the most painful of all economic combinations: roaring inflation and a deepening recession besides. It is not even certain that Ford's program would cut oil imports as much as he desires; consumers might choose to pay the high prices rather than curtail their driving and turn down thermostats.
An alternative way to cut imports without raising prices so much might be to put a flat quota on foreign oil, accompanied by some form of allocation or modified rationing to share out the reduced supplies. In order to minimize racketeering, any rationing ought to be coupled with what has been called the "white market"--a kind of legal black market in which people who had more ration coupons than they needed could sell them, with Government approval, to others who needed and were willing to pay for extra coupons. On the other hand, if Congress buys the argument of the White House and many outside experts that rationing would be inequitable, it ought to consider enacting a 200-per-gal. tax on gasoline augmented by import restrictions--an idea that some of Ford's advisers would have liked more than the program that they finally produced. A gasoline tax would concentrate price increases in the area where the most energy is wasted, rather than spreading inflation throughout the economy by raising the cost of every form of energy.
Unfortunately, the Democrats do not yet have any coherent energy strategy except opposition to Ford's ideas. Congress is likely to vote down Ford's taxes on domestic oil and his plan to decontrol prices. Several Democrats, including Tip O'Neill and Senators Henry Jackson of Washington and Edward Kennedy of Massachusetts, also are opening a drive to suspend the President's authority to raise oil tariffs.
Mishmash Threat. The Democrats' alternative, though, is not at all clear. Their formal program mentions both rationing and a gasoline tax as options to be considered, but the Democrats seem to be thinking only of a 100-per-gal. tax, and that would be too small to force much conservation. Jackson plans to introduce a bill that includes both rationing and quotas--but only in the form of stand-by authority for the President to use if other measures fail. That does not go much beyond Ford's own program; the President has asked for stand-by rationing authority, even though he has explicitly rejected the idea of rationing now.
The Democrats stress mandatory conservation--a good idea but one that might not work fast enough. Jackson's bill, for example, will probably list such actions as Sunday closings of gas stations, federal regulation of hours of commercial businesses, forced reductions in commercial lighting and regulation of temperatures in commercial and public buildings. But the bill would only give the Federal Energy Administration power to order those standards; it would not compel the agency to do so. There is at least some danger that the final product will be a mishmash of Ford's tariff and a number of halfway conservation rules that would raise prices without cutting imports much.
Happily, though, there is also a good chance that the final result will be an economic-energy package better than the one that Ford himself has proposed. It could include bigger tax cuts than he has asked and an energy policy of gasoline taxes and tough conservation standards. The one outcome that seems impossible is continued drift. By proposing a sweeping and specific program--although one with grave flaws--and emphasizing the need for fast action, Ford has thrown down to Congress a challenge that it cannot ignore. A year or so from now, Ford might even be able to say--if he cared to borrow the phraseology of another Democratic President --that he got the country moving again.
* He got exactly what he predicted: nine perfunctory rounds of hand clapping, mostly by Republicans, during his 41-minute speech.
* The Joint Economic Committee of Congress, on the other hand, estimates that spending under current federal programs would total $346.4 billion in fiscal 1 976 -- which suggests that Ford's $46 billion deficit projection for that year may be an overestimate. There are involved technical differences in the calculations, but a scary deficit estimate does not hurt Ford's efforts to persuade Congress to hold down spending. Taxable income is the amount left over after all deductions and exemptions are taken. Considering the deductions, a family of four that has a taxable income of $6,000 typically has a gross income of about $10,600; a similar-size family that has a taxable income of $44,000 typically has gross earnings in the area of $56,600.
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