Seeking to Head Off a Policy Collision

Just when the President and Congress were eyeball to eyeball on economic and energy policy, both sides seemed to blink. Collision was giving way to compromise last week as the Democrats speedily hammered out a tax cut not too dissimilar to Gerald Ford's proposal. Even though the White House and Capitol Hill were still at sharp odds over an energy package, everyone involved seemed to be looking out of the corner of his eye for an escape from the impasse. "I am more than willing to cooperate," Ford told a group of Democratic congressional leaders. "I believe there are more grounds for agreement than disagreement." Al Ullman, chairman of the House Ways and Means Committee and a key Democratic strategist, sounded the same conciliatory note. "We must find a way to avoid confrontation. If Congress and the Executive get into a hassle, this country will suffer."

It was indeed no time for stalemate government; the state of the economy demanded quick, concerted action. For the fifth successive month, leading economic indicators continued to dip. Mainly because of soaring oil prices, the U.S. trade deficit reached $3.07 billion last year, the second largest deficit in American history after the 1972 imbalance of $6.9 billion. Most economists anticipated that the jobless rate would continue its climb. The only bright news was a decline in interest rates. While the health of the auto industry remained the largest question mark in predicting recovery, the stock market nonetheless had its biggest rally since May 1973 (see ECONOMY & BUSINESS).

In whirlwind time, the House Democrats formed a rough consensus on a tax cut and began work on a bill. A procession of both liberal and conservative economists generally gave the Ways and Means Committee the same advice: cut taxes more than the $ 16 billion proposed by Ford and do it faster for maximum effect. Ford's proposed two-part rebate scheme--one payment to be made in May, a second in September--would be too little, too late to hasten an economic upswing. Even Arthur Burns, the cautious, independent chairman of the Federal Reserve Board, said that he would prefer an immediate reduction in taxes, provided it was not made permanent. Liberals also argued that more money than Ford had proposed should be returned to lower-income groups.

Ullman's initial bill embodies most of this advice. He called for a tax cut of $18 billion, with $14 billion in relief for individuals and $4 billion for business. The measure included:

P: A 10% rebate on 1974 taxes that would return a maximum of $300 to an individual. The money returned would start to diminish at a taxable income level of $20,000 a year and would be eliminated for anyone with taxable income above $30,000. The President had asked for a 12% rebate for all taxpayers, with a ceiling of $1,000.

P: A rise in the standard deduction from $2,000 to a maximum deduction of $2,500 a year for individuals and $3,000 for joint returns.

P: A tax credit of 5% on all earned income up to $4,000 a year, as an additional boost for the poor. Above that figure, the credit would be phased out until it disappeared at an annual income of $8,000.

P: A permanent increase in the investment tax credit from 7% to 10%. Ford had requested a hike to 12%, but only for a year.

The Democratic program returns 94% of the total tax relief to individuals who earn less than $20,000 a year and 52% to those with an annual income of less than $10,000. Ford, on the other hand, gives 43% of the tax cut to taxpayers who earn more than $20,000 a year and only 15% to those with incomes under $10,000. Republicans on Ways and Means argue that middle-income individuals, pushed into higher tax brackets by inflation, also deserve a tax break, a point that the President has continually emphasized. G.O.P. legislators may try to give them relief by increasing the $750 personal exemption.

There was less apparent maneuver on the energy question, and both sides seemed to be more locked into their positions--the President insisting on a free market approach that would reduce the consumption of oil by significantly raising its cost, the Democrats favoring a system of mandatory allocation or possibly rationing. Even so, there was some subtle give during the week, a sign that no position was so doggedly held that it could not ultimately shift.

Two weeks ago Ford, with a stroke of the pen, raised the tariff on imported oil by $1 per bbl. as the first step of an increase that would reach a maximum of $3 per bbl. on April 1. Democrats thought that they had the perfect riposte to this presidential assertiveness. The liberals on Ways and Means adopted a bill postponing the tariff hike for 90 days. Then they linked the measure with a boost in the national debt ceiling that the Administration had sought in order to finance its ballooning deficit (see box). The Democrats reasoned that Ford could not veto the hybrid bill if he wanted the debt ceiling raised.

They figured wrongly. Republicans knew a political opening when they saw one. A few of them failed to vote against the linkage, enabling the bill to be reported out of committee. Explained an Administration energy official: "If the legislation goes to the White House in that form, the President can brand it partisan, irresponsible politics. Then he will veto it, and the Democrats will look very bad." Belatedly, many Democrats were beginning to realize their mistake. Conceded a Senate Democratic staffer: "We may have to eat some humble pie on this strategy."

During the week, Ullman quietly tried to negotiate a compromise with Ford to avoid a floor fight on the bill. Increasingly, it looked as if the President had enough Republican and conservative Democratic votes in the Senate to prevent an override of his veto of the tariff deferral. Even if they lacked the necessary votes, Republicans were prepared to filibuster and try to pick up enough support to prevent cloture. Ullman felt that the Democrats could live with the $1 bbl. oil increase if the President would hold off on the subsequent hikes.

Get Cracking. What the Democrats need above all is time, and Ford is reluctant to give it to them. Distracted by their sweeping reorganization at the opening of the 94th Congress, they have not been able to produce a coherent energy program of their own. Nor are future prospects very bright. Senator Henry Jackson was supposed to submit a seven-point program last week but, partly because he was recovering from an operation for kidney stones, he shelved it. The Democrats have not even succeeded in drawing up a general policy statement that would lay out possible energy options. Last week a six-member task force, headed by John Pastore of Rhode Island, was set up in the Senate to work out a comprehensive economic and energy policy. House Speaker Carl Albert summoned all the committee chairmen and told them to get cracking on a similar program. In the meantime Senator Edward Kennedy unveiled his own program, featuring higher taxes on gas-guzzling cars and a tax rebate for buyers of more efficient automobiles. He also called for a mandatory allocation program for gasoline as well as quotas on imported oil.

But at best, no overall plan is expected to emerge from both Houses before April--if then. "It's a big, big problem," admits Texas Representative Jim Wright. "We can't agree among ourselves. But we can't just be negative." Says a key Administration energy adviser: "If Congress comes up with a serious alternative, there's a possibility that the next step of the tariff could be delayed. But we've heard about 100 different opinions on which way to go. And no one up there seems to be exerting leadership. Even if we wanted to talk, we don't know whom to negotiate with."

Toward the end of the week some of the urgency of the energy program seemed to diminish as Treasury Secretary William Simon testifying before a Senate subcommittee again emphasized his view that the buildup of petrodollars in the oil-producing nations was not going to be as massive as had been predict ed. Their foreign reserves, said Simon, might reach only $200 billion to $250 billion in 1980, rather than much higher figures that some had forecast. Reacting to higher prices, other countries were buying less oil from the oil states, which in turn were buying more goods and services than had been anticipated. Thus there was no foreseeable danger of world monetary collapse. "The international financial aspects of the oil situation are manageable," concluded Simon.

Democrats began to take a more relaxed view of the President's program. "Why adopt draconian measures?" said one Senate aide. "There's no magic in a 1 million-bbl.-per-day oil cutback that would deflate the economy and shoot up unemployment. There has still been no coherent, clear explanation why we should put on this hair shirt." Said Democratic Whip Robert Byrd: "Let's take first things first--let's stop the recessionary slide, create jobs, cut taxes." Similar advice came from the citadel of conservative economic policy. Arthur Burns cautioned: "The President's program is so complicated that you could not in good conscience act quickly on it. I believe that full and extensive deliberation on energy policy is essential." Despite presidential pressures for haste, that kind of deliberation is just what Congress is likely to provide.

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