Masonry Magazine April 1971 Page. 13
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TALK OF TAX CUTS-TO SPUR THE ECONOMY- is on the rise in Washington. Business activity so far this year has fallen below the Nixon projections, with the brisk recovery the Administration forecast still very much absent. The White House is not quite ready to concede that any new push is needed. Officials say that the President's ambitious 1971 goals are still reachable; but many economists now believe that Nixon will soon be forced to do more.
Economic activity has turned up, but very, very sluggishly. The improvement during the first quarter looked a lot better than it really was. Most of the pick-up was centered in the strike-related auto and steel areas. In most other sectors, though, there was just not very much to get excited about.
Economists see little vigor in the latest figures:
* Retail sales continue soft, and confidence continues weak.
* Auto sales, while up, are lagging behind industry estimates.
* Unemployment, though down a bit, remains uncomfortably high.
* Industrial production still appears to be on the decline.
* Personal income is climbing at a rate below 1970's average.
* Housing starts are now leveling, though at a high plateau.
* Machine tool orders are still at a very depressed level.
THE FIRST QUARTER DID SHOW A BIG STEP-UP in Gross National Product-total output of goods and services. But the gains were less than expected. The rise in GNP fell noticeably short of the $35 billion a year projected. The auto catch-up, strike-hedge buying in steel and higher prices account for a major portion of the first quarter increase more than half, in fact.
Thus, this "strength" holds no promise of bringing the needed momentum to sweep the economy forward, quarter by quarter, to Nixon's target goals. This quarter, for example, will show a measurably smaller advance than the first about $20 billion.
THE ECONOMY SIMPLY LACKS THE KEY INGREDIENTS of a brisk business rise. Usually, the push of a rapid, cyclical recovery comes from inventory-building. But this rise is starting with inventories high, except for autos and steel. The consumer continues to be the major key to a desirable rate of expansion. Until his confidence returns-until he feels secure enough about his job... his income... and the erosion of inflation he won't step up his purchasing.
And business will not invest more in inventory or plant until buying rises. So economists are not counting on the private sector to start the economy moving again. That leaves it up to the government to supply the additional upthrust needed.
EASIER MONEY ALONE CAN'T BE COUNTED ON to rescue the economy in 1971. The Federal Reserve Board is eager to get business activity climbing again. But officials think today's rate of money-supply growth is right on target. They point out that there's plenty of money around; it just isn't being used. Pumping too much money into the economy can bring a new round of inflation.
"Fed" officials say that their agency will resist any White House pressure for additional easing. They believe an 8% or 9% increase in the money supply- the growth suggested by some economists is too high under most foreseeable circumstances.
NEW STIMULATION WILL HAVE TO INCLUDE FISCAL POLICY-Federal spending and tax changes- with any further easing of money kept very, very moderate. Tax reductions are clearly the preferred avenue-rather than spending hikes. They would induce consumers to spend... and business to undertake investment.
Congress has just provided some new stimulus in beefing up Social Security. It lifted benefits, but refused to raise the base on which taxes are paid. Disposable income-spending money thus will be expanded by about $1.5 billion.
MANY ECONOMISTS ARE URGING A SPEED-UP in some income tax reductions already scheduled to take effect in the next few years under existing law-namely, the higher exemptions and standard deductions due to begin in 1972. Consumer spendable income will rise $2.5 billion if the timing is moved up.
Businessmen may be urged to step up their spending on new plant and equipment if conditions stay soft- especially if last year's recession should resume. Some industry and government economists have suggested reinstating the old 7% investment tax credit. The trouble is such action won't bring the needed stimulus now-when it is really needed.
THE PRESIDENT IS NOT CONVINCED YET that new tax cuts are necessary. He will wait, for a while longer, to see how the business indicators move. If the economy improves in the next few months, tax cuts will be dropped.
(Continued on page 35)