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F O R T H E P R E S ID E N T
FROM

J o e C a lifa n o
F o w le r , S c h u ltz e , A c k le y , M c N a m a r a an d I m e t to d is c u s s

the g e n e r a l e c o n o m ic s itu a tio n and w h a t a c t io n s h o u ld b e tak en at
th is t im e .
B ill M a r tin w a s in N ew H a v en , C o n n e c t ic u t , an d I w a s
u n a b le to g e t h im at the m e e t in g .
he w ill d rop by.

I ta lk e d to h im on th e p h on e and

H e v o lu n t e e r e d that he w a s M i s i n t e r p r e t e d n in
m

the p a p e r s this p a s t w e e k on the ta x i n c r e a s e .

A t the s a m e tim e h e

r e it e r a t e d h is v ie w that on e w a s n e c e s s a r y .
S to c k M a r k e t.

F o w le r b e lie v e s the a c t iv it y o f the s t o c k

m a r k e t r e s u lt e d f r o m u n c e r t a in t y a b o u t w h e t h e r t h e r e w i l l b e ta x
p r o p o s a l s , the g e n e r a l e c o n o m ic s itu a tio n , the C o n g r e s s i o n a l a c tio n s
in a p p r o p r ia t in g a d d itio n a l m o n e y and the m ix e d e c o n o m i c in d ic a t o r s .
T h e w h o le s a le p r i c e in d e x is up o n e -t e n t h o f o n e p e r c e n t f o r
A p r i l , w ith in d u s t r ia ls up t h r e e -t e n t h o f o n e p e r c e n t .

D e c lin e in

f o o d p r i c e s w a s the k e y f a c t o r in h o ld in g the w h o le s a le p r i c e in d e x
to s u c h a s m a ll i n c r e a s e .

W ith n o ta x i n c r e a s e , A c k l e y b e lie v e s it

w i l l i n c r e a s e at an e v e n h ig h e r r a te d u r in g the r e s t o f the y e a r .
C o n s u m e r p r i c e in d e x .

A c k le y b e l i e v e s th e c o n s u m e r p r ic e

in d e x f o r A p r i l w ill h o ld o r r i s e o n ly s lig h t ly .

H e b e l i e v e s th is in d e x

w i l l i n c r e a s e m o r e r a p id ly d u rin g the r e s t o f the y e a r .




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U n e m p lo y m e n t,

A c k l e y b e l i e v e s the c u r r e n t r a t e o f

u n e m p lo y m e n t (3. 7%) w i l l g e t to 3% to 3. 25% b y the end o f the
yea r.
T h e f i s c a l 67 b u d g e ta r y s itu a t io n .

S c h u ltz e b e lie v e s

that the i n c r e a s e s in C o n g r e s s io n a l a u t h o r iz a tio n s and a p p r o p r ia ­
tio n s w i l l r e s u lt in an i n c r e a s e o f $ 1 . 5 to $2 b i llio n in e x p e n d itu r e s
d u rin g f i s c a l 1967.

H e e x p e c t s to f a l l s h o r t in o b ta in in g h is $ 4 .7

b i l l i o n a s s e t s s a le s g o a l b y $400 to $ 5 0 0 m i l l i o n .

On the o th e r

han d r e v e n u e s , w h ic h w e r e o r ig in a lly e s t im a t e d at a b o u t $111
b i l l i o n , a r e now e s t im a t e d at $ 1 1 4 to $115 b i l l i o n .

U n d er p r e s e n t

p r o j e c t i o n s , e x p e n d itu r e s and l o s t r e c e i p t s w o u ld i n c r e a s e at m o s t
b y $ 2 . 5 b i l l i o n and r e c e ip t s w o u ld i n c r e a s e b y $3 b illio n .

T h is

m e a n s a n e t d e c r e a s e in the b u d g e t d e f i c i t p r o je c t e d f o r f i s c a l 67
in J a n u a r y .
C r e d it s itu a t io n .

F o w le r b e l i e v e s w e a r e on the t h r e s h o ld

o f a c r e d i t c r i s i s w h ich w i l l b e q u ite s e r i o u s in J u ly and A u g u s t in
the h o u s in g and S a v in g s and L o a n A s s o c i a t i o n a r e a s .

M o n e y is

e x t r e m e ly tig h t and w e a r e b e g in n in g to g e t r e p o r t s that s o m e
m e m b e r s o f the F e d a r e c o n s id e r in g a n o th e r i n c r e a s e in the d is c o u n t
r a t e , a n o th e r i n c r e a s e in th e r e g u la t io n Q a n d /o r fu r th e r in c r e a s in g the
r e s e r v e r e q u ir e m e n t s .




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A c k le y and S c h u ltz e s t r o n g ly b e l i e v e the e c o n o m ic s itu a tio n
r e q u ir e s a ta x in c r e a s e as s o o n a s p o s s i b l e .

I b e lie v e F o w le r s h a r e s

t h e ir v ie w s , bu t d o e s n ot f e e l as s t r o n g ly ab ou t it .

F o w le r c o n s id e r s

it d if f ic u lt to m a k e a d e c is io n at th is t im e .
M c N a m a r a sa y s that h e w i l l n o t know u n til June th e a n s w e r
to tw o k e y q u e s t io n s :
(1)

W h e th e r he ca n g e t b y w ith o u t a s u p p le m e n ta l u n til
J a n u a ry 67, and

(2)

B y w h at a m o u n t h is e x p e c t e d e x p e n d itu r e s f o r f i s c a l
67 a r e lik e ly to i n c r e a s e .

M c N a m a r a d o e s n ot w an t to b e g in a d e t a ile d s t a ff s tu d y in the
P e n ta g o n u n til y o u h a v e m a d e (at le a s t in y o u r ow n m in d ) a d e c i s i o n
to g o f o r w a r d f o r a ta x i n c r e a s e .

H e b e l i e v e s that an y d e t a ile d

P e n ta g o n stu d y o f how m u c h o f a s u p p le m e n t a l w o u ld b e n e e d e d w ill
in e v it a b ly le a k ou t b e c a u s e s o m a n y p e o p le m u s t b e c o m e in v o lv e d .
M c N a m a r a ca n g iv e y o u a g o o d e s t im a t e w ith o u t su ch a stu d y .

F rom

the t im e y o u m a k e a d e c i s i o n and g iv e h im a g o -a h e a d to p r e p a r e
d e t a ile d in fo r m a t io n on a s u p p le m e n t a l, h e w i l l n e e d fo u r w e e k s to
get rea d y.
M c N a m a r a w o u ld w ith h o ld m a k in g a d e c i s i o n u n til June 15.
F o w le r n o te s th is w ill m e a n
J u ly 15.

n oth in g w o u ld go to C o n g r e s s u n til

F o w le r b e lie v e s that th is m a y b e t o o la te to p r e s e n t a ta x

b i l l to the C o n g r e s s f o r p a s s a g e in th is s e s s i o n and that C o n g r e s s m ig h t




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b e q u ite a n n o y e d at r e c e iv in g a ta x b i l l at that t im e .
W e a ll a g r e e d that t h e r e a r e e c o n o m i c s tu d ie s that s h o u ld b e
u n d e r ta k e n , as s o o n as p o s s i b l e . ' It is e s s e n t ia l to h a v e t h e s e s tu d ie s
c o m p le t e d to g iv e y o u the in fo r m a t io n y o u n e e d b e f o r e m a k in g a
d e c is io n .

T h e s e s tu d ie s a r e :

(1) Program for future decision making designed to
reduce our non-Viet Nam budget expenditures — Bureau of
the Budget.
(2) A memorandum from the Secretary of Defense giving
his best judgment on the magnitude and time pattern of
FY 1967 defense expenditures and orders for purposes of
internal planning and decision making.
(3) An analysis of outlook for business fixed investment,
housing, consumer spending, state and local government
expenditures in the light of April and May developments —
together with the material in items (1) and (2) this would
constitute a supplement to the Troika memorandum of April 8.
(4) An analysis of outlook for financial institutions
assuming tax increase and no tax increase.
Joint study by Troika plus Federal Reserve Board
and Federal Home Loan Bank Board.
(5) Study by Federal Reserve Board of implication for
monetary policy assuming tax increase and no tax increase.




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(6) Balance of payments outlook and its bearing on
tax increase issue.
(7) Economic consequences of tax increase - short-term
and long-term.
(8)

Various alternatives for increasing taxes.

(9) Outlook for prices and voluntary restraint on
wage-price decisions' assuming tax increase and no tax increase.
(10) Combinations of fiscal, monetary and debt management
policies assuming tax increase and no tax increase.
W e r e q u e s t a p p r o v a l to s t a r t t h e s e s tu d ie s w ith a t a r g e t
c o m p le t io n d ate o f e a r ly Ju n e.
A p p r o v e _______________

D i s a p p r o v e _____________

A l l a g r e e d that it w a s v e r y im p o r t a n t f o r y o u to e s t a b lis h
a c r e d ib le and tou gh im a g e o f tr y in g to h o ld th e C o n g r e s s in lin e .
W e r e c o m m e n d y o u g iv e us a p p r o v a l to p r e p a r e f o r y o u r
c o n s id e r a t io n a c a m p a ig n t o w a r d this e n d .
(1)

T h e c a m p a ig n w o u ld in c lu d e :

A m e e t in g o f th e le a d e r s h ip w ith y o u u r g in g th e m in the

s t r o n g e s t t e r m s to h o ld b a c k u n n e c e s s a r y i n c r e a s e s and

g iv e y o u

n ecessa ry program s.
(2)

C a b in e t m e e t in g .

(3)

A m a jo r C o n g r e s s io n a l p u sh on s p e c i f i c i t e m s , su ch as th e

HEW b u d g e t i n c r e a s e s , the D oD b u d g e t i n c r e a s e s (o f the on e b illio n
d o l l a r s , l e s s than $20 m i l l i o n is f o r V ie t N a m ), the e f fe c t iv e date o f
the c iv ilia n and m i l i t a r y p a y b i l l s ..




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(4 )

A P r e s id e n t ia l p u b lic s ta te m e n t, c o v e r in g C o n g r e s s io n a l

i n c r e a s e s in y o u r b u d g e t, th e f a c t that y o u a r e d e f e r r in g a ll
d e fe r a b le p r o g r a m s , to th e tune o f $ 1 . 6 b illio n , the is s u a n c e o f
s tr o n g in s t r u c t io n s to y o u r C a b in e t O f f i c e r s and a g e n c y h e a d s to
cu t e v e r y th in g p o s s i b l e and a v o id June s p e n d in g , e t c .
A pprove
S peech es.

*

D is a p p r o v e ____________

E v e r y o n e a g r e e s that t h e r e s h o u ld b e no m o r e

ta lk a b o u t the e c o n o m ic s itu a t io n , u n le s s it is b y y o u .

W e have

n oth in g m o r e to s a y u n til a d e c i s i o n is m a d e and I a m c o n fid e n t
that t h e r e w i l l b e n o m o r e s p e e c h e s as t h e r e w e r e d u rin g the p a st
tw o w e e k s b y th e p e o p le at o u r m e e t in g .

I w i l l c a l l C o n n o r and

W ir tz and m e n tio n th is to th e m on M o n d a y .
If y ou d e c id e to g o f o r a ta x i n c r e a s e , F o w le r thinks w e
s h o u ld m a k e a d e a l w ith M a r t in to r o l l b a c k to 5% on R e g u la tio n Q
and e a s e the m o n e y s itu a t io n .
C o n s u m e r C r e d it A u t h o r it y to c o n t r o l c o n s u m e r c r e d it
w o u ld b e a d e s ir a b le t o o l to h a v e a v a ila b le , a lth o u g h n o on e is s u r e
it w o u ld b e a p p r o p r ia t e to u s e it at th is t im e .

S u ch c o n t r o ls w o u ld

g iv e y o u an o p p o r tu n ity to s lo w d ow n a p p lia n c e and auto p u r c h a s e s .
T h e H o u se B ankin g and C u r r e n c y S u b c o m m it te e h a s r e p o r t e d a b i l l
to the fu ll C o m m it t e e w h ic h w o u ld g iv e y o u the a u t h o r it y to in v o k e
co n su m e r c r e d it c o n tr o ls .

W e r e q u e s t p e r m i s s i o n to a s k L a r r y

O fB r ie n to c h e c k on the sta tu s o f th is b i l l and q u ie t ly m o v e it a lon g
w ith o u t an y in d ic a t io n that the A d m in is t r a t io n is in t e r e s t e d in it.



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A pprove




D is a p p r o v e

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