Masonry Magazine February 1966 Page. 11
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Talk of tax increases is growing in Washington these days. More and more, officials are ready to bet that the President will be asking Congress to raise income-tax rates by the middle of the year. Both corporations and individuals would be affected. The amounts that would be involved would run over $5 billion a year. It is expected that the increases would be labeled "temporary" but they would probably last as long as the Viet Nam fighting.
One big reason for expecting higher tax rates is simply the fact that Viet Nam will cost more than has been estimated. Many officials are saying that even the presently projected build-up will require more spending than President Johnson's Budget figures imply. They're convinced he will have to ask for supplementary funds and increased taxes to raise them.
The authorities think that tax increases will also be needed to combat inflation. There is growing fear that the recent spurts in the price indexes will accelerate. The civilian sector of the economy may be expanding too rapidly. It is overloading the supply side and is bidding prices up. Only by restraining this rampant demand-by siphoning off demand through tax increases can the pressures on prices be eased.
Business is off to a stronger start in 1966 than generally expected. Nearly every indicator is higher than had seemed likely when the year began. Another big year for the economy-repeating 1965-is clearly in the making. There will be stepped-up sales and increased profits as well as more jobs. Viet Nam remains the key as to how long, and how far, the current zip carries.
There is oomph in almost every recent statistic:
- Industrial production has been rising more than 1% a month.
- Orders for durables are outrunning sales, lifting backlogs.
- Personal income buying power... is up more than in 1965.
- Business spending for new plant is zooming, topping plans.
- Credit use is jumping as consumers and industry lift buying.
- New housing starts have show their first bounce in a year.
The jump in Federal outlay now planned is setting the pace for '66. Johnson's new Budget is expansionary despite the tax changes he proposes. Spending is scheduled to rise $6 billion mainly for the war in Viet Nam. Many wonder if this isn't too low-deliberately set low in hopes of a lull. If a slow-down in the fighting doesn't come, outlays will exceed the Budget.
There are grave doubts that the Reds will permit a leveling off in the fighting-let alone de-escalation. They do not seem anxious for peace. Many officials fear a new step-up, instead. which would require many additional billions. The need for tax hikes that really bite would then become great.
The tax changes already requested won't offset the impact of even the spending that's already certain. Graduated withholding and restoration of the automobile and phone excises mean $134 billion less for consumers to spend. But this is peanuts-less than 1% of income. The speed-up in corporate tax payments won't affect profits. All it may do is force some temporary bank borrowing, adding some interest costs. But plant-building won't be curbed.
U.S. gains in business activity will lead the world again this year, in addition to matching those of 1965. Physical output will go up by 5%. Allowing for price hikes at 1965's rate, the President expects total output of goods and services Gross National Product. to expand to $722 billion. That's a gain of $46 billion, about the same as registered in the last year. Spending for Viet Nam will move up steadily through 1966, then level off in 1967 Always assuming the Communinsts will let U.S. plans be carried out.
Some economists think the White House figure will be topped, even if the Reds don't force further escalation. Boom fever is taking hold. Consumers are spending even more freely for autos, TV sets, soft-goods, etc. And businessmen are daily announcing new plant-construction plans, to meet this demand. Faster than expected price hikes may also swell the figure.
Johnson's economic advisers still hope to avoid inflation in 1966. They are forecasting an increase in prices of only 2%-1.9% to be precise. They base this opinion on the big gain in plant capacity that's foreseen-7% as against 512%-plus in 1965-as a