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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 Mm i s i n t e r p r e t e d n in 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 . f COPY LBJ LIBRARY 2 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 . COW LBJ UBRARY 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 r COPY LBJ LIBRARY 4 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. f ~ . ‘ COPVLBJ UBRARY v (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 .. COPY LAI LIBRARY (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. COPY UU UBRARY A pprove D is a p p r o v e f COPYLBJ UBRARY
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