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6jSo
94TH CONGRESS

SENATE

EPO. T

THE 1975

JOINT ECONOMIC REPORT

REPORT
OF THE

JOINT ECONOMIC COMMITTEE

CONGRESS OF THE UNITED STATES
ON THE

FEBRUARY 1975 ECONOMIC REPORT
OF THE PRESIDENT
TOGETER W

AN INTERNATIONAL SECTION IN WHICH MAJORITY
AND MINORITY CONCUR, A STATEMENT OF
EMERGENCY PROGRAMS IN WHICH BOTH
MAJORITY AND MINORITY CONCUR,
AND MINORITY AND OTHER
VIEWS

MARCH 26 (Legislative day MARCH 12), 1975

Printed for the use of the Joint Economic Committee

49-768 0

U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON: 1975

.TnTNT ECONOMIC COMMITTEE
(Created pursuant to see. 5 (a) of Publlc Law 304, 79th Cong )
HUBERT H. HUMPHREY, Minnesota, Chairman .
WRIGHT PATMAN, Texas, Vice Chairman
HOUSE OF REPRESENTATIVES

SENATE
JOHN SPARKMAN, Alabama
WILLIAM PROXMIRE, Wisconsin
ABRAHAM RIBICOFF, Connecticut
LLOYD M. BENTSEN, Ja., Texas
EDWARD M. KENNEDY, Massachusetts
JACOB K JAVITS, New York:
CHARLES H. PERCY, Illinois
ROBERT TAFT, JR., Ohio
PAUL J. FANNIN, Arizona

RICHARD BOLLING, Missouri
HENRY S. REUSS, Wisconsin
WILLIAM S. MOORHEAD, Pennsylvania
LEE H. HAMILTON, Indiana
GILLIS W. LONG, Louisiana.
CLARENCE J. BROWN, Ohio
GARRY BROWN, Michigan
MARGARET M. HECKLER, Massachusetts
JOHN H. ROUSSELOT, California

JOHN R. STABK, Executive Director
JOHN R. KARLIK, Senior Economi
LOUGHLIN F. McHooH, Senior EconomisCOURTENAY M. SLATER, Senior Economist
RICHARD F. KAUTMAN, General Counse5
ECONOMISTS

WILLIAM A. Cox
SARAH JACKSON
CARL V. SEAaS
LESLIS J. BANDQ-.

ROaBET D. HAHRIe
LuCY A. FALCOND
L. DOUGLAS LEa
*
JERRY J. JASINOWSKR
LARRY YUSPEH
GEOROE R. TYLEa
MINORITY
GEoR0a D. KRUMBHAAE, Jr. (Counsel)

(II) -

CONTENTS
page

Statement of agreement by Majority and Minority Members 2
I. Introduction and summary.
Emergency economic recovery program6
Need to restore confidence 8
II. Economic situation and outlook -14
The goals of economic policy-16
III. Economic policy for 197520
Fiscal policy
-22
The Administration's recommendations
22
The need for fiscal stimulus - -24
Tax policy
_--------'24
Expenditure policy -'
-:26f
The budget deficit
_
I---':28
Monetary policy
___
--------------_
29
Price incomes policy--.
-'-'31
IV. Federal budget priorities ---- _34
Tax reform..
-36
Unemployment37
Small business---39
Housing _
-- 40
Poverty -- ., -- -- - -- - -- -.. - - -.- - - 41
Health ----41
Health
---'.----------------------------------43
Extended medical
coverage for the unemployed -43
Economic planning _
44
V. Energy
46
Domestic energy
--46
Need for selective energy conservation measures
47
Increasing production _---------48
Regulating energy prices _.------49
Energy tax reform
..50
International energy conservation and security. of supply -51
- Achieving a competitive world oil market -52
VI. Agriculture -.53
A national food policy 53
Monitoring agricultural exports -54
Food aid
e--------------------------------------56
Structural rigidities -------------------------------------56
Retail food market spreads 57
VII. Regions, States, and cities 58
Regional and local economies -.
58
State and local government finance 6)
Statistical programs -63
VIII International economic issues -65
Monetary reforms 65
Avoiding restrictive trade practices -67
Financing oil deficits 69
Official recycling mechanisms -70
Foreign investment in the United States -72
Aid to developing countries 74
(I11)

IV
Page

Supplementary views of Vice Chairman Patman -- 76
Supplementary views of Representative Hamilton 80
Supplementary views of Representative Long-81
Minority views on the February 1975 Economic Report of the President_
83
Supplementary views of Senator Javits -110
Supplementary views of Senator Percy-116
Statement of Senator Taft_
_.-133
Supplementary views of SenarfF A~fnin` i' l------------------134
Supplementary views of Representativ R6usseldt 135
Committee and subcommittee activities in the past year 137
Subcommittee membership, Ninety'WfEURK Congress 151

94TH CoNwRESs

SENATEI,

18t Ses8on

REPoirr
No. 94-61

REPORT ON THE FEBRUARY 1975 ECONOMIC REPORT
OF THE PRESIDENT

MARCH 26 (legislative day, AIAReH 12), 1975.-Ordered to be printed

with illustrations

Mr. HUMPHREY, from the Joint Economic Committee,

submitted the following

REPORT
together with
AN INTERNATIONAL SECTION IN WHICH MAJORITY
AND MINORITY CONCUR, A STATEMENT OF EMERGENCY PROGRAMS IN WHICH BOTH MAJORITY AND
MINORITY CONCUR, AND MINORITY AND OTHER
VIEWS
[Pursuant to sec. 5(a) of Public Law 304, 79th Cong.]

This report is submitted in accordance with the requirement of the
Employment Act of 1946 that the Joint Economic Committee file
a report each year with the Senate and the House of Representatives
containing its findings and recommendations with respect to each of
the main recommendations made by the President in the Economic
Report. This report is to serve as a guide to the several comnittees
of Congress dealing with legislation relating to economic issues.
(1)

STATEMENT OF AGREEMENT BY MAJORITY AND
MEMBERS
- . .MINORITY1
The Members of the Conimit1tee agree on certain recommendations
with respect to economic policy in the period ahead. These are:
(.1) Congress should.swiftly enact.temporary tax cuts to individuals and corporations to stimulate the economy.
(2) As part of the economic recovery program, the Ieder al
Government should establish a -major program to provide transitional public.sector jobs.
(3) A major priority ,pf cu'reu t economic policy is to provide
relief to those persons who suffer mtost from the current economic
slowdown. Therefore, we strongly support extended unemployment compensation benefits..
(4) Monetary policy should attempt to compensate for the
severe slump in housing starts.also agree
The Majority and. Minority Members of the Committeeoutlined
in
'as
recormihendations,
policy.
economic
on international
.
''
Chapter VIII '

Report of the
Joint Economic. Committee
on the
February 1975
Economic Report of the President

(3)

I.,INT•ODUCTION AND. SUMM-AR;Y,.
The UnitedStates economy is in.worse condition.,today~.thin,,it has
been At any time since the Employxne.t .Act vwas, pawed: in 1944.
During 1974 real GNPtdeclined by 5, perpont, The level of production
in the fourth quarter of 1974 was* actuglly lower thaInin the fourth
-quarterrof. 1972.
Real consumer spending dropped 12 percent at an annual ratein
the-fourth quarter of last year. Business fixed investment, which had
held. up during most of the year, dropped at a. 15 percent. rat~e in the
-third.,and fourth- quarters,,while businessiinventories piled up. By
December housing starts were below 900,000 units and auto sales,.in
the lastq uarter of -1974 were 2.3 million betlow the level of the previous
year.
The unemployment rate has risen drastically- for the past 4 months
to the present level of 8.2 percent. This is the highest rate in the post-war period Seven andl one-half million workers were without jobs in
February 1975.
Unfortunately, unemployment is still rising. By-the end of February
the ofcial rate- was still 8.2 percent but growing-numbers had: ceased
'looking for work. In, the: Budget. the Administration forecast that
unemployment will average 8.1, percent for 1975 and that it will drop
very slightly in 1976. In fact, unemployment could rise above 10 per-cent unless strong.-measures are taken.
There is little solace in the fact that this Committee has warned
repeatedly that the economy was in a troubled state'and that rising
unemployment posed a serious threat to national growth and stability}
In its concern with inflation, the- Administration has consistently
ignored this threat. Now, belatedly, it is proposing inadequate
remedies. -

There is virtually no disagreement among economists.as to the need
for, strong stimulus. to the economy. Inflation fears are no'longer credible reasons for inadequate counter-recession policies. The unprecedented price increases that have occurred in the past two years
are abating. During the past year. the Consumer Price Index rose by
more than 12 percent and the wholesale index by more than 20 percent.
Bt. in the- last several months, wholesale price increases have slowed
substantially and there have been price declines in a number of
commodities. As explained later in this report, a substantial abatement
in inflationary pressures is in prospect.
The Administration forecasts a slow economic recovery beginning
in -mid-year. Specifically, they predict that consumer spending will
begin to improve by mid-year and that housing will start a recovery.
They estimate that the overall decline in real GNP for the year will
-he 2.3 percent and that average unemployment for the year will be
8.1- percent. They forecast a rate of inflation of 11.3 percent, as
measured by the Consumer Price Index.

The Administration's expectations are based on the assumption tnat
Congress will enact their proposed program. This consists primarily
of a one-time tax rebate equivalent to 12 percent of total income tax,
liabilities, up, to a limit of $1,000. per person, and, a one-year increase
to 12 percent in the investment tax credit available to industry.
These tax proposals would be combined with Riconmplex energy package involving large {increases inenergy prices and an extensive redistibut~ion of revenues resulting from propopod increases in oil import
tees, excise taxes, and windfall profits.
In''the Committee's view, the Administration's proposed income
taxreduction -is ina'deqtiate and the' enerry ptb6posals: ill-conceived.
*The latter would cdngerously rekiIile 'in ation ,and'add `seriously to
the burden; of unemployment.
If the Administration's proposAs whetr followed, lost output would
be staggering. As measured by the difference betweef aetmial and potential, the lom.in output.would total $1.5 trillioni.bythe end of the
-Aecdade.

Adoption of -the Administration's progran means that uneniployment rates between 9' and -10 percent would -be likely in the second
half of 1975 -and into 1976. At the end of 1976; real output would
not have regained its 197.3 level.
'; The emergency.prolblem is recession. It requires immediate vigorous
action. Beyond thiat is the longer-run need for a balanced and workable solution to our energy needs; development of a national'food
policy; enhanced&capabili'ty to manage our national economy; tax reform: and' limprovoment of programs for' health care, redducing
poverty, and-meeting essential national reds. 'Emergency'Economic Rec'overy Prdgram

To stop the deterioration of. the qconomy andget the Nationwback
on.the growth path, we-proposetie measures listed below. These
and other proposals of the Committee are discussed more,.fully. in
the chapters that follow:
Quick enactment of personal and business tax reductions totaling $32 to $35 billion.
An expansion of .the present emergency public service employment program operated through State and local governments,
the size of the nrogram to vary with the rate of unemployment
from 500,000 iobs when unemployment averages 6,percent, to a
maximum of 1 million jobs at unemployment rates of 8 percent
or above.
- A direct Federally,.administer-d public service employment
program to be triggered at an 8 percent' unemployment rate.
This program should be designed to 'provide about 500.000 jobs
at an 8 percent unemployment rate and an additional 5005000
jobs for each percentage point by which the unemployment rate
-~exceeds 8 percent.1 Senator Proxmire states: "This proposal for public service jobs goes too far.
While I support a public service job program, there is a limit to the number of
useful iobs that can be provided. I believe that the same employment effect can
be achieved more efficiently in other ways. In particular, programs designed to,

7
Conduct of moietarypoliy by the F.deral Reserve. to. meet the
followi-g objectives:
'' 'edi" e both hort-iand longterm interest rates and keeep
thogout 95
jAccompnodxate.Federal borrowing requihemiients.
Provide direct support to the residential mortgage market.
*:As.proposed in- a resolution 'phased by the Senate, Federal! offlcials should consult with-Congress. at semi-annual'hearings beforethe Commitees on 'Bankin'g about the -Federal Reserve_ Board.of
Governors' and Open Market' Committee's objectives and plans
with respect to the growth of monetary and credit aggregates in
theup oming 12 months.,
'
,
Congress 'shoul'd enact a' mortgage subsidy program for lowand middle-income families to reduce interest payments to a level
not to. exceed 6; percent: a year.. The program should be designed
in such a way that the:subsidy-is reduced or eliminated as the
homeowner4s income rises above the. levels of eligibility.3
The Administration should inimediately'reactivate and accelerate all existing. lowand moderate-income 'subsidized 'housing pro*grams..-,
'
-,
. '',
''I "
The Administration should release the $264 million in funds ap.
propriated by 'Congress last" year for the construction' of- lowincome homes under Section 235 of the Housing; Act and the $145
million appropriated for rental assistan-e. Congress should appropriate the .additional,$75' mij,1iin authorized for rental assistance.
Congress should appropriate the $700 million authorized last
year for direct long-term.'loans 'to'finance housing construction
for the elderly.
-',
stimulate housing production, would: be among.the quickest and most' efficient
ways to reduce unemployment. What we-should seek to do is to provide a stiuulus
to the private economy where the response can be quick and decisive. A tax
redaction provides -such. stimulus. Housing.. assistance provides it- 'also.. Very
small., government outlays produce tremepaous private outlays. ,But highway
spenfdiig-wbere most of.the money corpes from the government itself-public
works, and' public 'service jobs cost the Federal' Goveri nent. far. more than
should be the case." - - -*
;
.
2-Representative
Reuss states:;".-The Federal..Reserve should target 'its'policy
on reducing long-term interest rates, both by adequate expansion of the' monetary aggregates and by lengthening the maturity of its portfolio. In light of the
, fact that, the 90 day- Treasury bill rate flag already 'fawinvf'fom above 9 percent
late last.August t9. around. 5.6 percent in early March, furtherlowering. of.shortterm rates does not seem an immediate priority."
-.
' Chairmnan Hilumphrey 'and :Senat6r' 'Poxmire state: "Under the proposed
t!Emergency"EHousing'-bill in the Senate, one million housing unlts'`ould be' assisted
..for about $300-nilbion. The Government would borrow'funds. at aboutT'percent.
A' subsidy of an additional percent, bringing mortgage interest: rates .down' to
6 percent, would provide a tremendous stimulus.'For an average $30.000 house
the cost is only $300 a unit. As each new unit of housing, provides two manyears of work.' one million new units and'up to two million jobs '
c'eated
'for a very small outlay."
*' .a
'
'"
b

prorsuppr4,
continue
6d
stamps,,
food
and
security
social
as
grams, such
to operate fully as currently provided by law.'
'tshou-gd be in, resed to
Maximum weekly unemploynient
re'indlitalstb
with
State,
each
in
wage
average
two-thirds the
ceive at leaSt-5Y'peicefnt of thei'r prevvi ^weektjevwagepspAto the
,
:- -;
.,
:
rdaxim'tm.
Ad'ditional em'egend Federally funded unemployment belietwiith: deitbn-trated-, ctirrenit
Aits shlould' bet ppbiddW'fo) p
lAborforcef'attachmzd;bntutt 7not c1veted ;by present programs ink

Cost-of-livingt adlUetiirentds- in-- Federal .;iI-co~ne

Antirecession grants to State and local gvernnents sh'l ,44'be
to vary in accordace'il1t
enacted, thetotal size of the program
the national unemployment rate. 4 ,. .

7'Ne-o:Resre Confidenoce ,
.;...iv

In makina'ithese proposals the Joiint Economic Committee is fully
arrest' thee! con'tinifh-'detki-i'rati6i -of :'the
confident' that~they '
tffiei path of -`ecoinMic- gtowth'aid
etonomny anif retum'ith'e
full employment. We are likewise convinced that this in turIt will
restore 'vitally nided confidence in ourt econcaey- to; tlh- American
people. As- these measures take holid they will reinvigorate .national
faith in our economic pmrgress *hieh-in itself isa necessry1 element
inomiiprogresswtowafds fullemploymeut The reiediles are aiVailable.- Cngtegswhas the willitb taUke the n-ecessary action. It will do so.

wi~h

Other recommendations contained in the Committee Report 'apear below; coveriig 'Fedeal'bbud-t'prl6rities. energy; agriculture)
regions, States, citiesj and international among others:
An emergency' health benefits program to provide some for'm"of
continued medical- coverage during-the period' of unemployment
should be. enacted-.
Incomes. Policy
While we do not support comprehensive wage-price controls now
'or in the foreseeable future, the following measures are required,:
'Senator Proxmire states: "I do not agree with any antirecession -grants 'to
State and local governmients. I oppose this' on the' same' grounds I oppose general
revenue sharing, i.e.. it severs' the responsibilityt for taxing from the opportunity
-to'snend. States'should be assisted 'by' providing them with tax sources 'they can
tap."

An enlarged staff and the provision of subpoena power for the
iQUnpil on;WAge aFd -PTice Stability,.so,, thatit ,can more adequately carry out its. responsibilities.
.
Provisioit.of authority to, the Council. on Wage and. Price StarbiJy to. delay for a limited period wage or price actions which
thrgaten
y
toundeirmpe -progress toward .price stability.

Fedoral.Budget .Priorities
Congress should authorize action, appropriate funds, and adjust, taxes in a manner that will best promote orderly and, balanced economic growth in the.public and. privatesectors; Congress
;.should: also reduce appropriations and take'other steps necessary
to eliminate. wasteful:spending. and :inefficient .activities, particularly in the. area of .defense, space,. and foreign'aid.
-Arbitrary ceilings on spending programs 'which cannot be
justified by the facts relating to individual programs and restrictions on starting new programs should be rejected.

Tax Reform
Tax reform focused on eliminating' Domestic-International
Sales Corpo Ration (DISC ).provisiqns, strengthening the, minimum
tax,- limiting the foreign tax crledit,,and endingpercentage depletion,5' 6 and other spe'cial preferences .for oil and gas producers
should begin immediately a..f~ter .tax relief legislation recommended above has been passed by the Congress. As the economy
-shows. "definite . signs of .recovery, comprehensive , tax reform
focused. on: all facets .of tax. expenditures. should, proceed.

Smal? Business
A system should be established to cQlIect, .compile,,j 4,distribute
coherent data permitting consistqn,-t comp riousof-telarge. and
small-business sectors, and to report the ,consequepices of, proposed
government actions for large and small businesses.- As part of a
much-needed expansion of, Fqderal, assistance to small business,
the corporate surtax exemption shouldl be increased to $50,000
iinznediately.
Repiesentative Long states: "I oppose an across-the-board repeal of the oil
depletion allowance. Such a change would lead to the further concentration
of oil production in the on(ds of.the.major oil comppanies. Without percentage
-depletion .lindependent: oil. producers; would -And.It -financially advantageous to
.sell-their operations to the, major producers and pay capital gains rather-.than
continue to explore for oil and.develop reserves. Since tbese independent operators now do an overwhelming majority of the drilling and find most of the new
oil. a repeal of depletion would result in less exploration and decreased domestic production. Arbitrary termination-of the depletion allo%'ance to independent
producers will have the most dire consequences in terms of even less conipLetiition in- the industry,,,and- instead. lead to. even' further~ reliance on foreign
eSenatoi Bentsegi
tatbesY "I support the position stated in the Congressional
Democratic Program of Economic Recovery and Enerry Suffliiency recommending the retaining of the depletion allowance only for small, independent, domestic
explorers who do not operate retail outlets."

Poverty
In recognition of-the tragic failure to reduce poverty since 1970,
the following steps.sould be taken:To.assist those who cannot help'themselves, and who are most
hurt by inflation and recession, Congress and the Administration
should act immediately to assure that all children in low-income
families have nutritionally adequate diets.and that the income
levels of elderly persons are raised to' at least the poverty
-threshold.
* To accomplish; these objectives, Congress should: (1) act
promptly on the proposal introduced by. Senator McGovern,
S. :850, which strengthens the School Lunch Program, the School
*Breakfast. Program, the Special Food Service Program for Children, and other child nutrition programs; and .(2) adopt legislation to strengthen the Supplemental Security. Income Program
which provides assistance to the elderly poor.
.
Above all, it must be recognized that a substantial tax cut-and
additional efforts to insure full employment are the major
requisites for aiding the poor.
The Bureau of the Census should accelerate its procedures for
publishing statistics on proverty so that they.are:available to Congress and the public on a timely basis. The~possibility of providing
quarterly poverty-statistics should be explored.

wealth
Congress and the Administration should work toward the early
establishment of a 'comprehensive national health program. This
program should include heath insurance to ensure that all persons have access to medical care, methods for reducing financial
hardships that result from major medical illnesses,'incentives for
more efficient and less costly practices within the medical profession, improved delivery of health services, and increased supply of
health care manpower and facilities wherever needed.

9onoic. Planning

Congress should enact legislation'to establish within the Executive and. Legislative,,Branches an economic .planning agency to
inkprove Qur capability .to assess emerging trends in the economy,
to develop longrrangie policies for economic.growth and development to assess current progress in the light of long-term objectives, and to recommend goals for the efficient and equitabe al'locattion of resources and the distribuution of income.
-

Energy

The President's proposals for tariff and excise taxes on oil and
gas and the decontrol of energy prices would aggravate inflation

and unemployment without necessarily achieving its stated conservation goals. They therefore should be rejected.
Congress should avoid indiscriminate constraints on 'energy
consumption that would cause further job loses, at this time. Instead,,selective measures to curb energy waste and to employ idler.
resources for. conservation,-projects should be emphasized. More
comprehensive measures should. be phased in on a.predetermined multiyear schedule so as to initiate conservationnow.+while avoiding disruption of the economy.
In addition to renewed.emphasis on conservation, the Nation
must proceed with-measures to-expand production of oil and gas
and with steps-to facilitate substitution of coal, nuclear, and solar
energy both.through technology development andthrough resolu.
tion-of environmental controversies.
Oil and gas prices should not be decontrolled; However, a re-'
view of fuel pricing policies is needed to encourage domestic production of natural gas. Closer coordination of domestic oil and gas
price regulation is needed.
The Congress should move immediately' to establish stockpiles
to insure against future supply interruptions. In developing.these
stockpiles, it should consider -(1 a requirement for importers.tol
maintain increased stocks sufficient to.continue supplies to customers for a stipulated period, and (2) the establishment of a
Federal funded civilian strategic petroleum reserve.
The United States should.not support international guarantees
or an effort to set a common pricefloor. under the world petroleum
market. Domestic subsidies for certain types of experimental projects may be warranted on an. individual.basis. We should, however,
join' other 'consuming nations' in promoting reseairch and tech-.
nological development of all forms of energy.
Agriculture
A national food policy must be established to' provide a fair in--"
come to grain, soybean, and cotton producers, price protection to
animal producers, reasonable- retail prices, food aid to needy na-tions, and a continuing competitiveagricultural industry.
A domestic and international early warning food information'
system should-be developed to. provide private export dealers andgovernments with.information on. emerging supply-and' demand
relationships to prevent the misallocation of food resources.
As a component of the national food' policy, short-supply domes-,
tic use and export management'rules must be established which
are designed to prevent exploitation of commodity shortages.
The Congress should continue its current policy, expressed in
the. Foreign Assistance Act passed in December- 1974, to target a
large portion of foreign food aid .to nations suffering famine. - :

12
..The Federal Trade Commission, as soon as practicable, should.
continue with all -deliberate speed' to inveestigate market concentrations,.profits, and pricing practices in the-retail food.industry..

. ;Regional and Local Economye

'Major executitve'and legislative proposals should be accom-pauiie'by; an' analysis fu their impact' on' 'eprpiolrnt, otput,
p~isafldi~'fits ih re'gions ~aiid a~reask'Wfth~i iegions -as--w'kll
as a commitment to provide adjustment '3assistaince S'to -areas,.
husinesses, andX individuals that suffer -particularly adverse
consequences.
Federal (Governfneiit efortg -to restore economic growth should
be' accoinpanied' by sp'eeificL progranis to encourage private and
public sector investment in reiens'an'd areas within regions' that
experience chronic high unemployment.
'The real value'of existing Federal assistance to State and local
governments should:not be allowed'to -decline as long 'as the
economy operates significantly below full' utilization of resources.
- The counter-cyclical revenue assistance grant to State and local
governments -recommended above 'should be-enacted.
aCongress should. give careful consideration to the enactment-of
a Federally financed program of property tax relief -as,part of
any effort to. relieve the total tax burden-imposed. upon low and
moderate-income households and families. Any, Federal property
tax relief program should require' significant partieipationa'y
and meaningful reform of local government
State governments
revenue systems. 7
A task force for regional and local economic sta-tistics should be
-established to provide Congress, the Executive, and. the public
with meaningful and timely statistical information essential for
more effective regional economic policies.
..

. ,..

International-EconomicIssues

Neither the International> Monetary Fund nor any .of its members should maintain a minimum price.ip the private gold-market.
The dollar should continue'to float inmexchange markets and the
trend of this float should .pot be significantly.influenced in either
direction by official intervention. The-amended--IMF Articles-of
Agreement should -make adoption-of either floating, or fixed exchange rates equally acceptable options.
7Senator Proxmire states: "This proposal is fai too openended and( potentially extreimely'expensive: -Property' taes 'are -the province of the' States' and
I see no reason at all for the Federal Government to subsidize them."

The United States should seek renewal, in May 1975, of the oneyear pledge by the nations of the Organization of Economic Cooperation and Development not to take unilateral, restrictive
measures that would shift oil deficits to other member countries.
With the auithority. granted.under the Trade Act- of 1974, the
President shoutd 'aggressively seek -on a reciprocal basis the elimination, of nontariff.barriers to.trade.and the removal of statutory
tariff barriers betweenindustrialized.nations..
The-President should also attempt to reach~multilateral understandings regarding the. availability of commodities and raw ma,terials. He should report to Congress periodically on the progress
of these discussions. 'We should seek assured availability of essential materials imports. In -exchange, the United States should offer
potential recipients of food aid and our regular export customers
assured access-given prior satisfaction of minimum 'domestic
needs-to supplies of U.S. agricultural products and raw materials.
If Congress authorizes U.S. participation in the proposed. $25
billion oil financing agreement, whether by extending loans or by
offering guarantees, it should insure that there are adequate safeguards to assure future repayment. Moreover the fund's authority
should be limited to two years.8'
The United States should continue to encourage OPEC nations
to place their funds in longer term investments to facilitate the
recycling. process. In order to provide adequate national security
safeguards over the inflow 'of capital into the United States, the
Congress and the Executive should review reporting requirements
and procedures for. screening investments. We must carefully
monitor the activities of all firms to insure that, they do not discriminate on the grounds of race, creed, color, or sex or otherwise
violate U.S. law. The-outcome of this review should be a coherent
national investment policy.
In continuing its commitment to assist poor countries, the
United States should support the International Monetary Fund's
special account to subsidize loans from the expanded oil facility to
those developing countries most seriously affected by higher oil
prices. The United States should also encourage the oil producers
to support this account and to assume an expanded role in financing the international development banks-particularly the concessional lending activities.
'Senator Proxmire states: "I would oppose a program under which :'the
United States -would put up or assume liabilities of $7 to $8 billion.. Secretary
Kissinger should understand that Congress would. most likely reject such
a massive commitment on top of the outrageous increase' in. the price of oiL
already assumed by the American people.".

49-768

0 - 75 - 2

. ECONOMIC.,SITDUATION.7
.
IO
.CT
- IL~
A-ND OUTLOOK.;
* ... ..

The United States today is experiencing an economic crisis. After
declining gradually during the first three quarters of 1974, real. out-put plummeted at an, annual rate of 9.1 percent in the fourth quarter.
There is every indication that.a.decline of similar-magnitude-or even
larger-is occurring in the present quarter. The implications of this
.decline can be assessed by. comparing actual output with "potential
.output," that is, the output which would be produced if the economy
Rwere operating at a 4 percent level of unemployment. As shown in
CChart I, the economy, which as recently. as the fourth quarter of 1973
was operating. within about 2 percent of this potential level of -output, had fallen. 11 percent below its potential by the fourth quarter of
1974. In the present quarter the. gap. between actual and potential has
-probably.widened to around 14 percent.'
Chart I

Gross National Product:
Actual & Potential 1969 - 1975

920
*900

1(brmons
RS
of

dahrs.

870
830.

790

750

*
.and

~~Pbteba

GNP

, J

_ ttP21%_
A
CPt

mp;oy

nt.rat.

Prel.minaotreslia

7...E

a rpd

'1970
th 19'69
unmlyet

.n/ ri

1971'

rate

1972
pecet1973ha
at 8.2

no.

-94
rece

it .1975
hihs

'hJEC
Staf Preliminary estimate
Sources: Department
p
of Com erce. Council of Economic AdvisUrs,Joint Econo

level in . yers

...... ,.,.,.,._

The decline in outputhas resultedoin sharp redugtionsa in employmnent and in a rapidly- rising unemploym-ent rate.'In February, Doll-^
farm
rtpayroll employment was 2.3 Cmmiteion belownits October pdak,
rate unemployment
8.2 percent,'had
tat reached its highestl
andv the
level in y4)
(
"These calculations are based on the official "Potential Gcross National Product" series published by the Department -of Commerce. Use of this concept is,
not 'meantto imply that the Joint Economic Committee regards a.4 percent unease'
ployment rate as 'Ifutll employments' Thie Committee has long been. on record ip,
favor of ultimately reducing the unemployment rate to 3 percent or less.
* 2
~~~~~~~(14)

.15
Real incomes have fallen with the decline in output. Disposable
rersonal income in the fourth quarter of, 1974 was'4.5 percent below
-year-earlierlevels. Various alternative measures of real wages show a
similar decline. A further decline of 1.2 percent in real averag'e
weekly earnings occurred in January, bringing the cumulativeidecline
since July 1973 to. nearly 8 percent.
-.
The decline in output has also been reflected in dec'liniing Vproductivity. Output per man-hour in the private. nonfarm sector declined
throughout 1973 and 1974, and by the fourth quarter of 1974 was 4.2
percent. below its first quarter 1973 level. This in turn has helped
produce the sharpest rise in unit labor costs on record. Unit labor costs
in the fourth quarter of. 1974 were 14 percent.above year-earlier levels.
The rise in unit labor costs has contributed to continued inflationary
pressure despite the weak level of demand. However, industrial raw
material prices have been falling for the past five months, and recent
slowing, of tme rate of increase in prices of finished goods at wholesale
indicates that consumer prices should rise much. more slowly in the
months ahead than in the recent 'past. During the most recent three
months for which data are available (November-January), consumer
prices rose at an annual rate of 9.2 percent, compared to a peak rate
of 15 percent during the August to October period.
The Joint Economic Committee has received extensive testimony
on the economic outlook and has had4the Committee staff prepare its
own assessment. Economic'prediction .alvays carries risks, and the
risks are especially great when the economy is ina situation of such'
rapid change as at present. However, it is necessary that economic'
policy be formulated in terms of judgments relating to the outlook.
Therefore, we summarize below our best estimates of the economic
outlook.
As already noted, it seems apparent that a large decline in real
output is occurring in the current quarter. In the absence of new
policies which go beyond what the President has recommended, some
further decline is likely in the second quarter. If the President's pro"-'
gram is adopted, the economy will receive a modest temporary lift in
the third quarter due to the proposed takx rebate. The President's program provides no permanent stimulus. however. and in subsequent
quarters. output would grow very little. *With the labor force continuing to grow, unemployment would rise further. Unemployment
rates of between 9 and 10 percent would be likely in the second half
of 1975 and into 1976. Real output at the eind of .1976 would still not
have regained its 1973 level.
The above assessment, pessimistic though it may sound, is not the
worst possible case. It assumes a moderately easv monetary policy,
some recovery in housing starts, and some pickup in automobile sa les.
Should 'the Federal ;Reserve pursue a restrictive monetary policy this,
together with
Jthe restrictive impct'wlhichi the President?s energy proposals would have in 1976, could well serve to make 1976 the third.
successive year of declining output. Unemployment could rise above
10 percent.
Some reduction in the ratesof inflation is in prospect for .1975. However. the outlook described above, vwhich assumes adoption of the
President's prolram,'w
would prodiice only'limited progress,..ft6ward1,
prie-stability. Productionrcosts are:high in a.stagnan't economy. Labor
costs and overhead costs must be spread over too few units of output

'16
*'for'-eost-efficisnt operation.'In addition, thd'President's 'energy proprsls 'hemselves would add at least 2, aiid perhaps 4, percentage
'p~iiits'to the rate' of price increase. Thus consumer-prices could be'
'e4ected-'sill to 'berisinlg at an annual rate' of 7 to 9 percent' in the
-.
''
'"
latter praf o'f '19-76.
It'is the firm conviction of the Joint Economic Committee that theeribed above, which'is obviously highly unsatisfactorily,.
oatlfook
'dbes-not' have to materialize. Policies are' available which will greatly
improve the prospects for 'economic recovery. We are hopeful that
Congress will' adopt such policies. Below 'we describe what-we believe
to be "attainable 'output,' employment, an'd.;.price targets-for 1975.and
-1976.- ChapteroIII describes policies' which we believe will bring us
t-6

thLesVO

gJoid.

'-No one can be certain what the precise effect of changes in' economicpolicy will be.'There is no recent historical experience which provides.
a-good 'basis of comparison with current conditions. Thus, while it is.
our-present best judgment that the policies we recommend would attain 'the goals we suggest, we will not hesitate to make additional
recommendations if the economy fails to respond satisfactorily to thee
policies we propose.
..The Goals of Economic Policy
With the economy currently operating 14 percent below its potential,
there can be no quick or easy return to full employment.. UTnderutilization of resources and high unemployment will be major concerns of'
economic policy for the remainder of this decade.
* In this situation, it is desirable that fairly precise interim policy
goals be established to provide measuring rods for satisfactory progress'
toward the ultimate Employment Act goals of "maximum employment,
production, and purchasing power."
At a time when the overriding economic need is to restore a. healthy
growth of.output and employment, policy goals can best be established in terms of real output- levels to be achieved. Real. output 'is-.
usually measured in terms of constant 1958 dollars. and, for convenience in comparing our recommendations with those of others, this*Report conforms to that convention. Real gross national product..
(GNP) in the fourth quarter of 1974 was $804 billion measured in
constant 1958 dollars. In the first quarter of this year, this may fall
to the range of $780 to $785 billion. With prompt action on a tax cut
of adequate size, there should be an upturn in real GNP beginning in
the second quarter, and by the fourth quarter of this year, it should be'
possible to restore real output to a level of $820 to $830 billion. From
the fourth quarter of 1975 to the fourth quarter of 1976. policy should
be directed toward aelieving a growth of real.output of at least 8 to 9"
percent. This would bring real GNP in the fourth quarter of next
year to a range' of $890 to $900 billion.2 These are ambitious targets,.
2 If
measured in constant prices based on price levels prevailing in the fourth'
quarter of 1974, our output estimates and targets would he as follows:
__________________________--- $1430 bilion.
1974: IV_
. 1975': 1_ _ _ _______________ ________-________-$1.388 tc, $1397 billion.
- 975- IV--_________.--_--.--____________-______ $1459 to $1477 hillion.
------- $1584to $1601 billion.:,
.'1976: IV--____

17
given the. wealk state of the-economy-at theipresent moment.. HWever,;
the. present. emergency situation. demands, theat, we set- aixd'adweve.
ambitioius targets.
. For any given level of real output, an associated trend rat4ou ea employment can be estimate&d. Because .gr6owth.of the. labor .force- is,
often erraticin the shortrun and becausehiriu.gand~firing of~woirkers
lugs behind changes .in. production. levels, t
actual -measare~d-unemihe
ployment. Orate in an , given. qiarter; oftea departs fro, the trend,
sometimes b,,y a..,con~sigerab1e amount. For this reason,'the dat . on.:real
outp~ut provide a msyre Feai~able guideato where. the economy itcheaded.
tle below gives the trend unernp loyigeutrates asso
,e4 with
the -output targets we propose. During the recovery phase of the busi?production.
ness cycle-; new .hiring. may: lag well, behind the -rise
Hence these unemployment rates. may, in fact be more likely to be
reached in. the quarter following the one. shown in-the table. For- comparison, the table also gives the output levels and associated trend unemployment rates. whiche we estimate.awould result from adoption of
the President's program-?

t-i.-

TABLE 1.-OUTPUT. TARGETS AND ASSOCIATED UNEMPLOYMENT TRENDS
Joint Economic
.Committeq proposal.-

- Administration-program,

.~Tedun-,
GNP
G*P,. :Trend -un-(billions of -employment
(billions of ' 'enloyment
'rate
1958 doilars).: i
raWt
1958 dollars)

1974: IV .-1975: 1.
1975: -V1976: IV-890-9

- - :

: ' 804.
780-785
820-830

- i-6,-6;
1
8.6
7.-8 1
6.5-6.8

I Actual;
2 Estimate.
Sources: Depattment of Commerce. Department of Labor, Joint Economic Committee.

'78-785
789790810-820

i66.0

I 6.6
8.6
9.2L9.5:
S. 2-9. 5

- i

As shown in the Table 1, the 'growth targets we propose would&
bring the trend unemployment rate below 7 percent by- the end of
1976. Of course, we would like to see even-greater progress towards
full employment. However, it would. be a great disservice to propsel
targets which are not realistic. No recent historical experience is fully
.comparable to the situation we confront today, but the evidence which
is available from past recessions indicates that the targets we propose
would require the economy to grow at a rate slightly exceeding the
strongest previous recovery of the past 20 years. If the targets we
propose are achieved, an estimated -2 to 2.5 million more people: will
be at work at the end of next year than under the Administration's
program, and output will be growing at' a' rate which will produce
continued steady progress toward full' employment in subsequent
years.
- A- strong recovery this year and next should have a favorable impact
on prices because productivity gains will help hold down cost increases.
As shown in Table 2, inflation rates historically have been lower in
'Our estimates differ from those presented by the Administration In early
February because the additional information now available makes it clear that
the Administration forecast underestimated the drop in output in the first half
of this year.

the' recovery phase of 'the business cycle than duiOng'. the decline. 'If
the President s'-proposed energy taxes and epiif -decoiitrl measures'are rejected, it. presently appea'sthat it should1.e poible'to bring
th'e 'r4.;'6f''price-increase below 6by
6 pelent
.theeh dof 1975 a'id to,
achieve 'a'significtiixt'urther lessening of inflation in 1976. We empha-'
size, 'however, that prkie prediction is' extremely: difficult 'and uncertain. -Un'anticipated factors, such as a- poor harvest next 'fall, could'
precipitate new pricenincreases. price increases stenming from causes-

unrelated to the overall' level of resource utilization*ould not, how-

ever, -form a sound reasof to retrett..from. policies designed to- pro-mote vigorous economic recovy.
ANTANGES
R
in WnaumLK ridItL

LMDEU
uUMrN.

[Seasonally adjustej annrual ratel
During the
12 months
before peak

Recessions
1957-58
1960-1:1969-70

--.

3.3
:1.8
5.8

ANU PULLOWING RECESSIONS

.'
Peakto
trough
3.0
.

1.2

.5. 6

- '

During the
12 months
after trough

During thev
2d 12 mouths
after trorgh-

0.2
- .9
3.5

2.0
1.2
3. 5'

Concern has been expressed regarding the long-run' inflati6nary implication's of a stimulative economic policy. It is our judgment that
so long as the economy' is far below its optimum level of resource
utilization, rapid recovery will not add to inflation. As fuller em ploy-ment is approached, however, inflationary pressures can 'emerge in

specific sectors even though the economy as a whole is not fully em-

ployed. Thus in future years growth rates should be gradually reduced'
so that full employment can be restored and sustaineci in' an at'mosphereof reasonable price stability.
The growth pattern outlined by the Administration would reverse
this desired approach to full' employm~ent, with growth rates slow at
first-when'idle resources are abundant-and more rapid in 1979 and.
1980, when the economy is expected to be closer to 'full emplon ient.'
Chart II- compares the growth pattern outlined by the Administration
with one which we believe represents a more responsible approach tofull employment, an approach which would minimize the' cumulative
loss of output and improve the' prospect for reasonable price stability
at full employment.
'Details of the Administration's economic projections will be found on page 41
of "The Budget of the United States Government. Fiscal Year 1976." Our chart
applies the 1977-1980 real GNP growth rates given in the Budget to the lower
1976 output level which we now estimate would be the probable result of the
Administration's economic proposals.

,19
Chart 11

ALTERNATIVE
-RECOVERY*& PATHS
f i anz of 1UU D O

f
* so? ':- ' - - ' .'.,1,
750 .

1973

]

1974

1975

: '_''
_

'.':.

. .. ;
______

1976

1977

1978

1979

1980

Sources Department of Labor Office of Management and Budget. and Joint Economic Committee.

The growth pattern outlined by the Administration implies a cumulative loss of output of about $1,450 billion (measured in, 1974 prices)
from 1975 through 1980. Even under the alternative we propose, the
loss of output would be about $700 billion. This tragic and enormous
loss demonstrates the importance not only of a rapid recovery from
the present recession, but also of building.toward a sustainable-situation of full employment and reasonable price stability in which-the
disastrous economic pattern of the past two years will not be, repeated.
Chapter III of this 'Report describes the policies which 'we believe
are needed in 1975 to place the economy on the road to the right kind of'
recovery. There is no way we lcan be certain that these policies will
bring the economy to the targets we suggest above.. The .past.two years
have demonstrated how economic developments.can take even:tlhe most
knowledgeable observers by surprise. We urge the Congress to conduct
a continuing review of the adequacy of economic policy and to. stand
ready to adopt new policies as necessary..

III. ECONOMIC POLICYTFORA1975
Reversing the.present downward couse of the economy wiIl require
forceful government -action.' -The underlying strength.of the private
economy is .enormous, but the-short-runrforces Lehigh would produce a
:self-generated recovery of..private output are undo
ly insufficient
at present.
We'are confident that- Congress wvill respond to the demands of the
present emerg'ency. Indeed, that response is already under way. Congress acted last December to -broa denthe coverago of unemployment
compensation and to initiate an emergency -program -of public service
employment. Legislation to reduce personal taies and increase the
investment tax credit is now well along in the legislative process. These
are important actions, but more is 'needed. Congress, the Executive
Branch;, and the Federal ;Reserve'-iust cooperate in-taking-the further
-.
steps wvhiih are so urgently needed.
As the Council of Economic Advisers has stated:..
T.h'e.n st pressing.Qonieern.o' 'poliiv.isitd'oIalt the declineinei.
production. and employment so' that grdwt-h of. output cn
- -.
-resume and unempl6 yment can.be reduced. -To achieve this objective quickly- will, require a balanced combinatfion of tax -and expenditure actions coupled with a supportive monetary policyi. The fiscal actions should include:
Quick enactment -of personal. and .business; tax -reid-c*tions totaling.$32. to $35 billion. Theseshould. include.the
'$8 billion rebate on -1974 individual incoime .tax pa~yments,,
the $8-billion--reduction -in-.19975.iindividual.inicome-taxes,-and-the $4 -billion reduction in. business taxes which.-have
-now passed.the.House. of iRepresentatives,,plus further
reductions of,$12 to -$15-billion!- in--individual income.,.or,
-social security tax payments,.
Continued full operation of cost-of-living adjustments
in Federal income support programs, such as social
security and food stamps, as currently provided by law.
-An increase in the maximum weekly unemployment
.benefit to two-thirds the average wage in each State, with
individuals to receive at least 50 percent of their previous
weekly wage, up to the maximum.
Additional emergency Federallv funded unemDloyment benefits for persons with demonstrated current
labor force attachment but not covered by present Drograms, including the self-employed. Eligibility for these
benefits would be limited to persons for whom neither
regular public or private employment or special public
-

(20)

service Iemployment' can' -6 provided. -hese benefits
,should -remain -available so- tlong.. as .he-,-nationAt: fMem-:
ployment''rate' :
n
at* extidordifikily higkt l+':a
Antirecession.grants.to State and Flocalagovernmmnts,.
, :the total 'size Dof.:the .program 'tovary in aeodanee wxith:
.the national unemployment rate.These grants should be
on the order 'of $1 'billiotufor. eaeh pereexntage' point. bh.'
whe4: *-; ploy weetCrate e.ceeds.-4 percen. ,lJatribu'ti. wne.detiri
e
f
d '. the.relativse, vP:t.y jQ
.,epp lo eitL la .. c .State . aa.4 lprit...
'Aln expainionvf
ithe prteseintemergency ,pubi :servve
*m hloymestipregram topezatedb.throu'gh State and
-ocan
,gvefmeix~tAbeRzedf the proguam otevary.' with the
rate of unemployment from 500,000 jobs.when unepsylay..ment averages 6.percent, to~a nmwimu o L milkio-bs;
at; ,IremP,,Y3 4,t . aatw of .. p!^veri4. or above,.
A direct Federaly adminiiitered pubelieservice emploYrment'program to be triggered at an 8 percs`t'1iinmWplo.:'
.ents rate., ,This program .should >be. 4
ned .to.prside
about 500,000 s at.ay8pdeentumpe
n4plb
er d
an ad4itDn1,5W0,D00 -jobs for ,each ,p
*gge
.tWby
which'the unemploym ent rate exceeds'8 p'erce' t'Prnvision should'be made within' this'iwgram'to pr'v.4de youth
'ernploymen~t :1pertunities, including semmr'jbs 'for
atude'ts 2 - ,.
In conjunction with the above fiscal p'olicy'actions, the Federal
Reserve should conduct
trwjoy p
to meet the following

objectives:
'
'
-- - Rediu'celioth 'short ani -lo~-term) in te'st ia'
keepthe
'':'.. ' '.-

f'l;

and

1 Senator.' l'roxmire slates : '[1:@ibD~' ,nitgree
wlth any 'antire
es lon ;grants.
to State and local governments. I oppose this on the same grounds I oppose
general revenue, a4ari.ng. .ie.*t,severs the -responsibillty, for taxing from the
opportunity to spend. 'States should be assisted by providing them with tax
sources the.van t.p."
'Senator 'Pr'oxniire' states * ".' ,his proposal for public senrvce Jobs goes too iar.
While 1 support a pitblie service job program, there is,.g'limit to the nuiber of
useful' jobs that 'can;beprovided.- I believe'that:the- -ame employmentteffect can
be achieved -mere efficiently in other ways. In particulhr, progranis designed to
stimulate housing.piodpction would be,,avong te quickest apd plost eicient..ways
to reduce unemploymeint.'What we should seek to do is to provlde~a stimiots to
the Wlvafe economy where' the Tresponse can be qdick and' -deeisve' A taf -reduction' provides such stimhlus. Hoeusing' assistanceR :piovides 'it also.' Vety sinall
government. outlays -prgduce-tremendouls -private .outlays. But bighway- spenidIng-where most of the money comes from the government itself-.p-ublic .works,
and, public service jobs cost the Federal Government far' mote than should. be
the ease," . -,
.
.
.
.
..
..
'3Repmusntative&1Eeuss states: 'The Federal.Reserwe should diveset its .policr
.toward, reducing Jong-tepm interest irates. both. by...tdfuate e pansinn 'of, hbe
monetary, aggr.,egates and, .by' lengtherulng'.the matnrity. of .its ,poro~lio., In .light
of the. fact -that' tbh 90-day'Treasuiy'bill rate ha's.:alrea'dv '!falleni'f'rm'above
I) pereentfate last,-Augift'.-'to Arou'f&"'p6 p
.ertIn' early'Mairdh 'fuiirthe ;lowrivng
of 9hort-terw.-rateswdoes not seem an immediate priority2.'
,:

22
.Accommodate FederT#Aborrowing requirements.
'Provide .direct support to, the residential --mortgage..

-;market'

In .,order to .insure that monetary' policy is conducted- in a manner
lconsistent' with the ,overall policy -objectives, established by Congress,
thq Congres should more iactively exercise its responsibility -toover*seetheaetivitiesof the Federa-l.-ReserveSystem.
* 's proposed in a resoluti'nnowie tfie Senate, Fed-'ertal Reserve offials' sho'ufd'-consult with 4 Co'ngress at
semi-annual hearings hi6dei-the Committee' ne Banking
-about the Federal Reseir.ve Board of Governor's.and .Open
Market iCommittee'siobjectives and-plans4with respect to
the growth of monetary-and credit aggregates in the up-'

onuingl2months. t'

,.;'..

.I>2'.^-r

,'';,

n' order that te- obIctiveg'of monetai r and fiscal policy not be
frustrated by cotind-ra'.p-id increases in the 'overall price level, an
-active,.=rgely voluntary. price'andincomes policy should be pursued.
Thisishaouldiinclude- -.
- An enlarged'saff and theprovlsion of subpoena powver
f6r the' Coifi ci on 'Wage and Price.Stability so- that'it
can more adequately carry out its responsibilities..
Provision: o authority to the-Council on Wage and:
Priee Stability to' delay for a limited period wage or
price actions which threaten to undermine progress to- .
ward price stability.
-'.'
Fiscal' Policy
'Fisetil'poilicy shiuld-be' idjusted quickly to provide iinpregsed sup'pdrt for the' 'economy.'. To do so'. will' improve the, outlook for 'both
.ihpklyiien't''andpdce stability. To'fail to'do go wil invite'the.. con-finnatieon'of .recessii.kaiid rismg u'nemployment into 1976...''
-i'?
i

Adndinistrationis "Recommendations

The President has asked the Congress to etact a numberi of m-ajor
tax meosures, including:a 'rebate':on' 1Y97 individual income, taxes, a
temporary increase in ithe investment tax 'eredit, an 'excise tax on oil
and natural gas, a windfall profits tax, a reduction in the 'corporate
income ta'x rate, and: permahent reductions in individual income tax
liabilities; 'The merits of these; proposals as 'a part of a program for
-reducing' our dependence 'on imported-oil are' discussed in' Chapter'
V-;4ere 'they 'are -analyzed with-respect to their impact 'on output,
'employment, and pfice5. ' :
lTaklen by themselves, the proposhls'for a rebate'on 1974 individual
incone 'taxes and'a temporary 'inrease in 'the'investment tax credit
'would. have-a. temporary-'stimfilative impacton the economy. How*ever,these proposals'cannot be considered in isolation from the PresiL
denit's other. recoirniiendationg, including -his recommendations for ex-'
ercisirig~restraint on Federal otutlays;-The Administration recommends
reducin'g the growth of budget outlaysgby $15.3 billion through'hold-

23
ing the increase in social security, food stamps, and other price-indexea
programs to 5 percent over the 18 month period January 1975 through
June 1976, and by reductions in other ongoing programs. This represents a partial interruption of the workings of the budget's automatic
stabilizers and, therefore, an offset against the stimulative impact of
the proposed temporary tax reductions.
Taken as a whole, the President's recommendations provide very
little support for the economy in 1975 beyond what would be provided
by the Budget's "automatic stabilizers" in the absence of any new
policies. As shown in Table 3, the net stimulative impact in calendar
1975 is only about $8 billion, or barely more than one-half of one
percent of GNP, and this impact is concentrated entirely in the third
quarter. In 1976 the Administration proposals would have a net
restrictive impact.
TABLE 3.-BUDGETARY IMPACT OF THE ADMINISTRATION'S TAX AND EXPENDITURE RECOMMENDATIONS
[National income account basis,
billions of dollars, seasonally adjusted quarterly totalsl
1975

Total revenue effect Temporary tax reductions
Net energy tax changes
Total expenditure effect -Energy
offsets -0
Proposed outlay reductions -Increase in surplus (+) or defcit (-)

1976

III

-0. 1
-. 8
.8
1.4

-1.6
-5.9
4.3
-1.2
.5
-1.7
-. 4

-9.7
-8.1
-1.5
-1. 7
1.8
-3.5
-8.0

-3.0
-.8
-2.2
-2.5
1.8
-4.3
-. 5

0.4
-1.1
1.4
-2.7
1.8
-4. 5
3.1

-1.4
1.3

II
B
-1.1
1.0
-3.0
1.8
-4.8
3.0

Note: Details maynot add to totals because
of rounding.
Sources: Department of Commerce
(Bureau of Economic Analysis) and Council of Economic Advisers.

This analysis still does not reflect the full restrictive impact of
the Administration's energy proposals, because not all of the impact
operates through the Federal budget. The proposed windfall profits
tax on domestically produced crude oil would not affect the extra
profits stemming from higher prices of gas and coal. The amount of
these extra profits to coal and gas producers is difficult to measure
precisely, but could be in the order of $9 billion in 1975 and as much
as $18 billion in 1976. It is unlikely that these additions to profits
will be quickly and fully returned to the spending stream. Since the
proposed tax reductions are insufficient to offset these increased profits,
this transfer of income from consumers to producers will have a restrictive effect on the economy.
Expert private witnesses appearing -before the Joint Economic
Committee have been virtually unanimous in their conclusion that
the Administration's fiscal proposals, judged as antirecession measures, are totally inadequate. They also stressed the great risks associated with the massive changes in the tax structure contained in
the President's energy proposals. At a time when the need to support
output and employment is paramount, the risks contained in a program with an unquantified, but possibly large, restrictive impact are
simply unacceptable. Furthermore, the Administration's proposals
would add substantially to the inflation rate and are far from the
most effective means available for conserving energy. By the Administration's own estimate, the energy proposals would add about 2 per-

24
centage points to the increase in the Consumer Price Index over the
next two years. Others estimate that the total price impact could be
as much as 4 percentage points.
In our judgment, the major elements of the Administration's recommendations should be rejected in favor of a fiscal program which will
stimulate output and employment and a fuel conservation program
which will achieve the long-run objective of lessening dependence on
imports without adding suddenly to the overall rate of price increase.
The Need for Fiscal Stimulus
The rapidity of the decline in output in the past few months has
taken observers by surprise. Policies which seamed adequtew a few
months ago must now be recognized as far from adequate to the
changed situation. The Committee has examined a number of policy
alternatives in an effort to develop a program which will achieve the
output targets suggested in Chapter II of this Report.
At our request, the Council of Economic Advisers, Wharton Econometric Forecasting Associates, and Chase Econometrics have used
their econometric models to estimate the impact of a set of policy
assumptions supplied by this Committee. These assumptions included
a $10 billion rebate on 1974 individual income tax liabilities; a $20
billion reduction in 1975 and 1976 income taxes, effective through a
change in the withholding schedule; a permanent increase in the investment tax credit to 10 percent, effective January 1, 1975; and an
$8 billion increase in fiscal 1976 outlays, primarily to finance public
service jobs. The results of these studies indicated that the proposed
policies would have a substantial favorable impact on the economy.
By the fourth quarter of 1976, the number of unemployed would be
an estimated 650 thousand less than if the President's program were
adopted, real output would be about 3 percent higher, and the price
level about 2 percent lower. Even so, the results are not good enough.
The real growth rate from late 1975 to late 1976 is estimated at only
about 4.5 to 6 percent. This is not sufficient to produce a rapid reduction in unemployment and, therefore, these policies do not represent
a fully adequate response to the present economic situation.
The recommendations presented in this Report would provide
greater fiscal stimulus than was assumed in the studies described
above. This additional stimulus appears required if the desired rate
of recovery from the recession is to be achieved. It should be stressed
that the additional expenditures recommended are tied to the unemployment rate. They will automatically phase out as full employment
is regained.
Tax Policy
Personal and business tax reductions totaling $32 to $35 billion are
needed in 1975. Some, but not all, of these reductions should be continued in 1976 and subsequent years to offset part of the effect of
inflation in raising tax rates. Legislation which has now passed the
House of Representatives would provide an $8 billion rebate on
1974 individual income tax payments, an $8 billion reduction in 1975
individual tax liabilities, and between $4 and $5 billion of business tax
relief, including an increase in the investment tax credit to 10 percent

-and an increase in the corporate, slurtax exemption from $25,000 to
-$50,000. These provisions should be enacted without delay.
Virtually all the expert witnesses who testified before the Committee
urged that there be some tax reduction of, a permanent. nature. lhi-k
.thetax legislation. which the House. has enacted covers 1974 anrd 1975
pnly, .there.is a widespread -presumption. that.: subsequent .egisiitlon
villmake the reductions permanent. This further legislaton- should
proceed quickly. Past experience, shows that fahmily income changes
-xvhich are perceived as permanent have a larger impact'on cons.ier
spending than those which. are seeii as only temporay.
- ;
The legislation discussed above falls $12 to $115 billibn shot.olfthe
total :'personal tax reduction .which is aneeded in 1975.. Therkeade-.A
*numiber of ways in which this furthier reduction might-be a)hieefed;
One which seemn- especially. worthy of consideration is the adoption
-of ''anincome tax credit agai st social security taxt poyments..,.
-In-1975 workers covered .by..the social. secturity system will 'pay a
tax'.f 5.85 percet of. the 'first' $14,100 earned. An individusIJaem
taax'dredit for each worker equal to 11/2 percent of earned incopo up
to $14,,100 would reduce personal-income tax.collectio, by ,$,oQ Ilion,
.including tlie cost of cash refunds to those -lower inome. persons uab1h
-to claim the credit..The.maximuim beixefi.-per ifidividualuwouldiJ~e
$212 for a.worker earning,$14,100 or1 above.-.Tiis, proposal would ,.duce 'the tax burden for.,those middle-income workers w.,o.hate;sn
-their taxes.rise -especiallysharpl-y -in the ~past tw.o .years -because, of
'increases in the social sec urity: wage. base. T'his tix.relief -wsoud be
accomplished through the income tax. .systiem,.leavjijng jhe fiiuapcing
-olf the social security system intact. .
.
An alternative Would be to. couple a smaller individual iicome>,iax
credit. with an equivalent c'edit to.emplo~'ers base don.the ,numJr:of
covered'emiployees: This.tax changep ,ould have the'advantagedof redulcing busness costs and stimulating additional hiring. -cedit
A
of
$150 per em'ployee '($75 to 'the emplboyee and'$5 to. the .emplyer)
would achieve a $12 billion tax reduction, $6,billion to business anid'$6
billion' toworkers,, .inclidimng cash payme
to lower incomejindfridualslwhodo-not pay taxes. .
'
.
.
-Another alterfaftive would be the substitution at the:option' of..the
taxpayer of a credit of $2504'each personal exem-ption,to which .the
taxpayer is otherwise entitlted.. This wootdld. provide a tttalafnnuaf
fax reduction of $12 bijlion. This'change' wouldaIlsoiinerease theprogressivity of the tax system, since the creditis.'of pro'grssivelygreter
value to taxpayers in. lower income brackets.. Assuming.:a aily of
.four, this change. would provide some tai' 'eief for, fsilies viinvi
comnes up 'to $30;000. This 'change vould benefit familiis. with
ihcomes so low that -they presenitly 'pay no tax oily if it Weire-'extoided
to provide a'ctual cash paymehts totheseifamilies.
Whatever 'method of .tax redictin- is- 6hoben,: -the lower .Iiability
should be imnmedia'tel-y -reflected ini reduced-t1x withholding -'s6 that
the stimulative impact is felt in 10~5 'when i't is n'st :needed. The
first credit prop osals could initially be- -for 1'975- and i976 oiily and
could be ieneiwed in]latet years if Yqiii'ed by ekohomic
ut
aohtitions
*that time. The adoptioi ofatax
a
citdit inilieii.o theolersoal xemptionl would pregumiably- bIe a pe'rmafetit chihge-ifn'the tJ code.;'
-.

* : :: ;Expenditure Policy

;

The tax reductions discussed above and the easier monetary policYwhich we support are essential elements in--a program- to' achieve 'recovery..,By themselves, however, they are not sufficient. The ecOnomic
decline has 'bynow been allowed to become so severe that consumer' and
business confidence is eroded.' Surveys of consumer attitudes indicate
that an unusually high percentage of any disposable income gains;
resulting, from tax reduction may be used for savings or debt, retirement. These higher'individual savings and an easier monetary policv
willtmake funds available for private investment. However, the recent
fall-off in private demands for credit suggests that, in the short ruti,.
private .bbusinessmaby ue slow to utilize the available funds.
'
Had- tax. reduction and accommodative monetary policy comesooner, they might have. provided sufficient support for the economy..
Now that the decline has become so deep, Federal expenditure actions.
are aiso required. Government spending:is the-surest and most ddirectmethod of supporting the economy. .
At the same time, permanent new expenditure programs which w'ilT
involve large outlays in future yearse when stimulus is no longie'r re-quired should be initiated only if tbese-progranms are fully justifiable
on theirsintrinsic merits. A time When otherwise-idle resources iae'
available is a good time to initiate 'needed new -programns,3 1ch' as national health insurance and improvements in public transport'atiion.' It
may also be a good time to speed up completion of 'previously authorized- public works, provided the-economic impact of-the-speedup can
be achieved rapidly and then phased down as full efmployrnment is
restored; However,. new public works with long lead times tare not
suitable as countercyclical programs. Previous experience has showntliat such-programs oftenrproduced-more spending after high-emplovment had been regained than during' the recession yeavs in which it

was needed.

'The. need to stimulate the economiy'does not justify-spending in excess of; essential national needs in suich areas 'as'defense. highways, or
public. construction., To foster economic recovery through military' ex-penditures in excess of true needs would simply lay the fouhdatio"i-'for
the next recession wheii these'expenditures wer'e later cut back. .' 'The- expenditure 'nrograms' which we recommend :are'largely of a
temporary. -nature,.-designed- 'to:take -effect quickly 'and to phase out

as full employmentsis regained.

!'',"i

Cost-ot-Living Adjusthnents
s
, ..
-. ; .
. -.
The Administration has -proposed that increases- in- soeialbsecuritvbenefits, food stamp,' and other Federal income support programs beheld to 5 'Pjrcent over the 1&monti period fron: January.19775 through
June"'1976,,'altbhoigh by the A ministration's'own estimateprices
are expected p.t rise 15S percejtver t~hat speriod.,; This would result ill
estimanted ,b'udo~et savings of $i~28 billion .in fiscal 1976.:.Due ,toij-rieincr~e~ases~wh5'eh have already taken Dlace, the entire 5 percent -increasein some urograms would go into. effect by June 1975. For these pro:,
grams, there..wouldcbe vo -tosto'&f-li-vnq
i
qo-zqsrrn
flR'rtil Th-76.. 'Not only-would this be a great iniustlieetho the individuals.
affected. but it *ould partially negate the effect of the tax- proposals-'"
intended to- stimulate recovery. Little net economic- impt; elan be:
expected from using the tax system to raise the real disposable income,

of some families while using expenditure ceilings to reduce the real
income of others. The proposed ceilings on income support payments.
should be rejected.
Public Service Employment
W.ith the unemployment rate now expected to ex ceed 9:percent'beftre.
the end of this year, a greatly expandedvprogram'of ei ergency public,.
service employment appears to be the quickest way to reducea uniemiployment. to more _bearable levels'.Present emergency legislation passed in December 1974 authorizes
funds for approximately 300,000 jobs, all administered through State
and local governments. This authorization :is teinpotary, expiring
at the.end of 1975, and the full authorization is not yet 'funded. This
authorization should', be-fully funded, and a further authorization
should -be provided with the size 'of the funding designed to''vary
automatically with the quarterly .average of. the unemployment rate.
We are- pleased to note that the President has recently- recomm:ended
an extension of the public service 'employment' program binto :1976:i
His proposals are still inadequate, however, i light-of the current'
high level- of unemployment.t.

-.-.

. -

.We: recommend that at ai6 percent unemployment' rate, 'a total of
500,000' public service. jobs~should be provided through State and local
governments. Funds to provide additional jobs should be made available at higher levels of unemployment up to a maximum of onenmillionh
jobs at unemployment rates of 8 percent 'or above.-The program'shold'
be reduced in similar stages: as unemployment declines.,

At'unemployment rates of' 8.percent-and higher, a Federally, administered public; service employment program is' also needed; 'This:
should provide for 500,000 jobs at an 8 percent unemployment rate adi'
an additional 500,000 jobs for.each percentage point by: whicht.he"
unemployment rate exceeds 8 percent. Federal- administration 'of thig
program is desirable-for, the following reasons:-.
'
.....
(1) A number of appropriate work projects are primarily orexclusively Federal in. nature. These include work: on a national
transportation systefm, work in the national. parks,.forests',

a.nd

recreation areas,. work on Federal demonstration projects, andi'
work of many other types.
--.
(2) The 'Federal-Governrmentirmore readily.than:State and''local govein'mments, can provide work on temporary projects zof
one-toftwo years' duration, avoiding the prpblem of displacement'
of regular employees by, special public service workers.:
.(3) Unemployment is especially severs.,among persons between
the ages of 16 and 25. In February the unemployment rate wyas.
20 percent for those, age 16 to 19' and 13 percent for those age[2.
to 24.'WNhile the'Federal coiponentr'of the tiiblic servie em.ployment program should be open to persons.of'iail 'ages,'.it.would
be. especially suitable', for 'these 'younger persons ,w.1o are, mor,.
mobile and better ableto 'accept employmen'et of a temporary hatumre
'and-who would'benefit from the job experi'ence provided byfthiisprogram.
i
- , ,,Antirecession Grant to State and 4ocal Governments- 'This. proposal is: discussed in-greater 'detail. in Chapter VIIT 'Th-e i:
size of the-ggrant we recommend would be equal to .approximiatdyI $1"
billion for each 1 :percentage .point 'rise; in the-iunemplo yment''Tate'

28
above 4 percent. In one sense this program would be a partial subAitiite 'for a larger program of.public service employment. It would
have'the: ad'vantage of providing State and local governments with.
greater flexibility, allowing them to maintain their regular work force'
at times of budgetary stringency rather than, -as is' sometimes the case'
now,' laying -off<-regular employees and 'replacing them with; speial
pubflic'seriece
6mployees It'wotid also provide State and local governmentsawith the funds they need to purchase: equipment and supplies'
without which their public service employees cannot be utilized
efficientlyg.:
'
-Unemployment Compensation..
%~ngreaICRt illZ
lJl-1U
tV&C'U
pJtUIU tCliue CovedLge U ue ullenlptuyment compensation system andjto provide extended benefits at times:
of high unemployment. Action has not yet been taken to provide
greater uniformity a moIg State .prgrams by increasing the maximunu
Weekly..benefit to two-thirds the average wage in each State,.and.providin- that individuals receive at least 50.percent of their previous
weekly waie, un to the maximum. This should;be done.
An additional Federally funded emergency program is also needed
as long as the national rate of unemployment remains at extraordinaril~v'high levels This program should provide benefits .to.any adult,.
includinga the pelf-emTnloyedc
l
.(1) Who ean eimonstrate'currentlaborforce attachment;
(.2) Who is hot otherwise entitled to benefits due either to exhaustion of beneafits or to lack o-f sufficient covered employment,
nor to .incoe sotp-port under other programns, and
(3) For whom no employment of anv kind, including public
*service emphrment, can be made available.
This program would, be 'of special benefit to younger adu.lts apnng
whom unemployment is. widespread and who often have limited, if
any, entitlement to unemployment compensation benefits.
The Budget Delfict
'Tihespending programs we have recommended would add about
$2 billion:to outlays in 'fiscal W975."In fiscal 1976 the' cost would 'be as
follows. assuming an '8 percent. rate of unemployment:
$4 billoQn for antireepssion grants to State and local' governments.

$4 billion for continued full op6ration of cost-of-living escalators in income support programs.
$9 billion for the two public service emplovment programs
(assuming they -reach fuiill
i by'bthe middle of 'the' fiscal
year).
?J .- on
'$3 billion.forthe recomm'"e'nded improvenients'in unemployment
'

compensation.

-Tihe $7 billion proposed by the Administration for '"energy offset"
payments would not be needed under our program.Hence, the.net effect
of -ou proposals would be to increase fiscal 1976 outlays by 'about
$13.',billion.
The tax changes we support would reduce receipts by $10 to $12 billion more in fiscal1975 -and by '$21 'to $25-billion more in fiscal 1976
than would the Administration proposals. IHowever, the higher level
of economic activity generated by or -program should result in .an
increase in tax receipts and a saving on unemployment compensation

29
and other income support programs of about $18.to $20 billion in fiscal
1976. Hence, the net impact of our program would be:to enlarge-the
deficit by $12 to $14 billion in fiscal 1975, and about $16 to $18 billion
in fiscal 1976.4 In making these. estimates, it is assumed'that Congress
will make various other changes from the specific. outlay totals'proposed by the.President.for individual programs, but that the outlay
effect of these changes will be roughly offsetting. As discussed in
Chapter IV, our own recommendations are that outlays for defense be
reduced, that outlays for housing programs-be increased, and that
initial outlays for a national health insurance program and for antipoverty efforts be added to the budget.
A temporarily larger deficit is a necessary step toward restoring
the health of the U.S. economy. The alternative is to allow the economy to continue indefinitely in a state of recession' and rising unemployment. 'Not only is this alternative unthinkable in terms of the
human suffering implied, but it would mean enormous budget. deficits
many years into the future. The policies we support will mean larger
deficits temporarily, but they are essential to bringing the budget
into balance in future years. Indeed, looking at the Budget defict in
fiscal 1970 by, quarters, the. deficit under. our program begins to narrow significantly during the course of the year due to the favorable
impact on tax receipts of increased income and employment.
-Our recommendations are designed to produce a budget surplus
once the economy regains high nmployment' lvels. The permanent tax
cut we recommend -would serve; only to offset pamrt of the'rise in the
full employment surplus in the phst' two vears"due to the impact of
inflation o6n effective tax'rates. The'expenditures we recommend automatically phase out as high employment is resgained. The full em.ployment budget "margin" in 1980 (the difference between full em*ployment receipts and expenditures on present programs,; including
those recommended' in this Report) .would be in excess of $50 billion.
This, of'course, does' not- mean'that the actual surplus will be that
large, but rather that this amoulit -will be available"'to be divided
among 'new. programs, tax *eduction, and 'a Federal 'surplus -to help
finance private investment.
' ' -. ' -''t

l!5onetary Policy '

The fiscal policies'discussed above -vill be effective in restoring economic growth only if -they tare accompanied by an accommodative
monetary policy. With the proper monetary policies, Federal borrowing can be financed and needed credit made available' to the private
sector. If monetary policy is restrictive, however, interest rates will be
driven up, funds will be switched from savings institutions to higher.yielding market instruments, and the inability of savings institutions
to make mortgage loans, will block the recovery of'the housing industry.

In the last three months. business and consumer demand for loan's
'has dropped dramatically. After rising at an' annual rate of 1nearly
' Representative Long states "While I fully support the reconiinendatlons
embodied In this report, I am concerned over the huge deficit in the Federal
budgets for 1975 and 1976 that these policies would create. I also have concern
that the private financial market would have difficulty financing this deficit."

49-768 0 - 75 - 3

30
20 percent in the first 10 months of 1974, business loans outstanding
at commercial banks actually declined at an annual rate of 4 percent
from November 1974 to January 1975. Consumer credit outstanding
fell by $1.9 billion during the November to January period. These
declines have contributed to the rapid reduction in short-term interest rates illustrated in Table 4. The demand for longer-term funds
has remained strong, however, and long-term rates have fallen very
little.
TABLE 4-SELECTED INTEREST RATES

Federal Reserve discount rate-8.0
Federal funds rat -13.0
90 day Treasury bill rate-7.7
Prime bank rte
Corporate Afabonds-.
Municipal bondsFHA new home mortgage yields -9.

July
1974

October
1974

Februa
197

12.0

&O
10.0
7.2
11.5
93
6.5
10.4

G.78
6.3
S.5

I 7
6. 5
5

'8.75
8.6
6.4
9.0

XReduced to 6.25 percent Mar. 7.

*8 percent in early March.

Source: Board of Governors of the Federal Reserve system, Department of Housing and Urban Development, Moody's
Investors Service, Standard &Poor's Corp.

As the seriousness of the recession has become apparent, the monetary authorities have moved to make more credit available. The discount rate has been lowered, and reserve requirements have been
reduced. However, because of the evaporation of the demand for loans,
these easier policies have produced no growth of the money supply
'as conventionally defined (demand deposits and currency). Total
commercial bank reserves also remained unchanged from December
through February as banks used the increase in their nonborrowed
reserves to repay borrowings from the Federal Reserve.
The present situation of very weak credit demand and worsening
recession is one in which further, moves toward monetary ease are
urgently required. As discussed elsewhere in this report, we believe
the objective of economic policy should be to build as quickly as possible to a rate of growth of real output of 8 to 9 percent and to
sustain that rate throughout 1976. Realization of this objective will
require sufficient monetary expansion to hold down interest rates so
that private investment, including, most importantly, investment in
housing, can proceed: vigorously. Monetary policy should be directed
toward keeping short-term market rates below the yield available at
savings institutions and toward narrowing the spread between short
and long-term rates. The latter can besaecomplished through increased
Federal Reserve purchases of securities with longer maturities.
'Concern has been expressed that the large Federal demand for credit
will swamp the financial system in 1975, leaving insufficient funds
available for private borrowers. Witnesses before this Committee have
testified, however, that this concern is misplaced. Private credit demands' will be off markedly because of the recession. One respected
estimate by a private expert is that the total 1975 demand for credit,
including government borrowing, will be 5 percent below last year

31
and 12 percent below the 1973 peak. If heavy government borrowing
does drive up interest rates, it will be'because the Federal Reserve has
failed to make sufficient credit available, not because the financial
system cannot handle the flows.
A brief period of monetary ease will not be sufficient. Interest rates
must not only be reduced further but must be held at low levels for
the remainder of 1975 and for as long after that as is necessary to
insure that a vigorous economic recovery has been firmly established.
At times in the past, economic recovery has been aborted by premature
imposition of a restrictive monetary policy. For example, in late 1958
and early 1959, the economy was experiencing a good recovery from
the 1957 recession, with real output growing 9 percent from the second quarter of 1958 to the second quarter of 1959. Restrictive monetary policies contributed to the interruption of this recovery, however,
and a new recession was precipitated. The result was that it was not
until late 1965 that the economy regained the relatively full employment situation which had prevailed in 1956.
A number of witnesses before this Committee expressed concern
that the Federal Reserve might act similarly to choke off recovery
in late 1975 or early 1976. With the unemployment rate likely to still
be in the 8 percent range or above at that time, any such moves
toward restrictive policy would be totally inappropriate. It is the
responsibility of the Congress to see that monetary policy supports
rapid economic recovery.
It is the Congress, acting with the advice of the Executive Branch,
which has the responsibility to determine the output, price, and employment targets toward which economic policy should be directed. At
times in the past Congress has permitted the Federal Reserve to make
independent judgments with respect, for example, to the degree of
inflationary risk posed by the pursuit of certain output and employment targets. While the advice of the Federal Reserve Governors is of
great value to the Congress on questions of this type, the power of
decision is entrusted to the Congress. The power and the responsibility
of the Federal Reserve is limited to the execution of monetary policies
which will contribute to achievement of the basic goals established by
Congress:
In the critical months ahead, Congress should exercise close over.
sight over the Federal Reserve. In semi-annual testimony before the
Banking Committees, Federal Reserve officials should be required to
discuss Federal Reserve objectives with respect to the growth of
monetary and credit aggregates in the upcoming 12 months. We'are
pleased to note that a resolution presently before the Senate expresses
the sense of Congress that this procedure should be required.
Price and Incomes Policy
Far too often, economic policy decisions are made on the assumption
that there is at all times some simple and immediate "trade-off"
between inflation and unemployment-that is. that as unemployment
falls, inflation will increase. There is an abundance of recent evidence
to illustrate that this is by no means always the case. Indeed, as shown
in Table 2 (page 18), price increases are typically less in the recovery
stages of the business cycle than during the period when output is
declining. There is every reason to believe that if the fiscal and mone-

32
tary policies necessary to restore the growth of real output are adopted
-in, 1975, these same policies will also-slow .the rate of: inflation.,. Most
industries are presently operating far below their optimum level of
capacity utilization. Overhead costs must be spread over too few units
of output, and workers are not always fully employed. As output rises,
cost per unit will diminish. This will be of great importance in helping
to overcome the cost pressures which have been created by the money
wage gains needed to keep pace with past price increases.
With most raw material costs now. level or declining and with the
demand for final output very weak, inflationary pressures are stemming primarily from operating costs. The single most important antiinflationary action to be taken in 1975 is to restore the growth of real
doia
down these css.
output so that productivity gains will
. In addition to the above, policy tools must be available -to deal with
possible price increases in those concentrated industries in which prices
sometimes appear to rise regardless of either market conditions or
production costs. The slowing of wholesale industrial price increases
-in the last few months is encouraging. However, as shown in Table 5,
price increases in certain industrial categories, -especially chemicals,
machinery and equipment, and transportation equipment, are in sharp
contrast to this trend.
One possible explanation of this puzzling price behavior is that businessmen fear the reimposition of price and wage controls and wish to
enter any possible future round of controls with a high base price.
If considerations of this type are in fact influencingi business judgments, then businessmen certainly are pursuing a self-defeating course.
The one thing which would insure their safety from the reimposition
of controls would be clear evidence that prices are being voluntarily
reduced. Similarly, the one thing which might lead .to the reimposition
of controls woula be persistent price increases which cannot be justified by either market conditions or cost pressures.
TABLE 5.-WHOLESALE INDUSTRIAL PRICES
{Percent change, seasonally adjusted ' annual ratesi
FebruaryAugust 1974
All industrials BysaeI
processing:
stCrude
CrBy materials, excluding foodsand feeds -32.7
Intermediate materials, excluding foods andfeeds -45
Producer finished goods
Consumer nonfood finished goods
-24.3
Textile products and apparel -10.5
Fuels related products and power Chemicals and allied products -726
Lumber andwoodproducts
Pulp, paper andallied producMachinery and equipment
Metals and metal produc-ts:58.
e
Transportation equipment-(NSA)Other-industrial-products--(NSA)-

36.9
4
27.4
64 2
-50.9

-2.3
29.3
1
13.6
21.6

August 1974February 1975
8.4
-10.4
76
17.6
9.6
-7.7
4.4
27.3
-13.5
8.3
19.1
.3
19.0
12.6

I Except where otherwise noted.
S Includes: Hides, skins, leather, rubber andplastic products, furniture and household durables, nonmetallic mineral
products and miscellaneous.
a NSA-Not seasonally adjusted.
Source: Bureau of Labor Statistics.

In order to provide more adequate supervision of business price
behavior, especially in concentrated industries, the staff capability

33
of the Council on Wage and Price Stability should be enlarged and
the Council should be given the authority to subpoena data on prices,
wages, costs, profits, and productivity. The Director of the Council
indicated in his testimony to this Committee that the limited size
of the Council staff requires them "to be selective in choosing industries
for study." Appropriations requested-by the Administration for fiscal
1976 would allow the Council to maintain its present total staff level
of 40 persons, but would permit no enlargement. In view of the fact
that the President has now assigned the Council a major role in helping
Federal agencies assess the inflationary impact of new rules and regulations, it would seem imperative that the Council's staff capability
be enlarged sufficiently to enable them to handle -this new function
and also adequately monitor private wage and price behavior.
With respect to subpoena power, the Director of the Council indicated to the Committee that the Council "sometime experiences difficulty in getting profit margin data for particular activities or lines
of business" and that "in some of these cases it might be helpful to
have subpoena power though we would hope to use it sparingly and
as a last resort." Subpoena powers should be given to the Council to
deal with those situations in which necessary information cannot be
obtained voluntarily.
In addition to the above, the Council should be given the authority
to delay price increases for a limited period-say, 60 to 90 daysin cases important to the overall achievement of price stability. This
period of delay will provide time for the Council to fullv examine
the justification for the price increases, to determine their impact on
the economy, and to seek to achieve such adjustment in the proposed
increase as the facts may warrant. The delay period would also give
Congress the opportunity to enact selective price:control authority
or to take such other legislative action as might be required in cases
where voluntary business cooperation with the national initerest is not
forthcoming.
We are aware that the Director of the Council on Wage and Price
Stability has indicated his opposition to the provision of this authority,
partly on the grounds that he fears it would be interpreted as a step
toward reimposition of price and wage controls. We are emphatically
opposed to the reimposition of wage and price controls either now or in
the foreseeable future. The provision of this carefully limited authoritv for the Council on Wage and Price Stability would be a goodmethod of establishing a workable, largely voluntary, prices and inlcomes policy which will insure that the inflationary conditions which
might precipitate the reimposition of price and wage controls will not
recur.
While we do not support comprehensive wage-price
controls either now or in the foreseeable future, the following measures are required:
An enlarged staff and the provision of subpoena power
for the Council on Wage and Price Stability so that it
can more adequately carry out its responsibilities.
Provision of authority to the Council on Wage and
Price Stability to delay for a limited period wage or price
actions which threaten- to undermine progress toward
price stability.

IV. FEDERAL BUDGET PRIORITIES,
The President's Budget estimates a modest increase in outlays for
fiscal 1976 but proposes a reduction in budget authority compared
with fiscal 1975. In his message to Congress the President states that
he is requesting a moratorium on new Federal spending programs
other than energy programs.
The budget document is a unique reflection of the Administration's
prioritieq.. Tn tlerm-s of htoidgt aopst-hnvrjy_ the largest- dnllnr inacr
are proposed for defense, followed by energy (included in the International Affairs category) Federal pay raises (included in the category Allowances), interest on the national debt, and health. However,
the increases for Federal pay, interest, and health result from existing legal requirements rather than Administration initiatives. Moreover, the health increase is about $2 billion less than it was expected
to be due to cuts in the Medicare and Medicaid programs recommended by the President.
Table 6 compares the fiscal 1976 budget with the fiscal 1975 budget.
It will be seen that the President is asking for $16.39 billion more
in budget authority for defense in -fiscal 1976 than in 1975 and $7.76
billion more for International Affairs '(most of which is for the special energy financing facility). Those two items represent the great
bulk of the requests for authority and spending increases among the
programs where the Administration has discretionary authority.
Relatively smaller increases for several other programs, ranging from
$90 million for Community and Regional Development, to $610 million for General'Government.
TABLE 6.-BUDGET OUTLAYS AND AUTHORITY, FISCAL YEAR 1976
Outlay increases
over fiscal year 1975
Billions
National defense.
8.75
International affairs.
1.44
.40
General Science, Space and Technology
.62
Natural Resources, Environment, and Energy
.
.04
Agriculture
--------------1.93
Commerce and Transportation
.
1.03
Community and Regional Development
.
-.09
Education, manpower, and Social Services
.
1.56
Health .------------Income Security --.-.-----------------------12.02
Veterans Beneftt and Services
.
.13
.26
Law Enforcement and Justice
.
.53
General Government.
.22
Revenue Sharing and General Purpose Fiscal Assistance.
Interest.
3.09
7.35 .
Allowances.
-3.35
Undistributed l.
Total

Percent

Billions

Percent

10.26
29.69
9.51
6.54
2.43
16.34
21.14
-.62
5.91
11.27
.81
8L66
20.18
3.07
9.86
---19.9

16.39
7.76
.39
.76
-1.60
-22.34
.09
-. 89
2.57
-20.79
.18

17.94
159.23
9.0
6.65
-27.24
-77. 19
1.75
-6.11
9.05
-13.31
1.11
3.09
22.39
3.44
9.86

IL 46

-9.23

35.93

-----------------.------------

X Comparisons

I Includes salesnotof meaningful.
off-shore oil lases.
Source: Office of Management and Budget and Joint Economic Committee staff.
(84)

Authority increases
over fiscal year 1975

.10

.61
.24
3.09
7.58
-3.35

Id
-2.34

Reductions in budget authority .are recommended.,for Commerce,
and Transportation, IncomeoeSecurity, Agriculture, and Educati(oMi,
Manpower and Social Services.'The.large reduction in Commerce and
Transportation results from sales of mortgages by' several agenoies,
a technical adjustment in the Urban Mas TranJit fund, and a reduced
request- to- use ' monies -in"t~W ':ighw.'a Trust V'7tind. 'The Reduced
request for't~ke Highway Trust'und'rep'reseuts a--policy change which
may br-ing aV#ut lower spend~in.gfor.highways
ue ye'ars although
-outlays will not decline in fiscal Tf976t- .-..
:''';'--''.
A 'portion of the. ~$20.79 'billkn
*eductiin
Income Security
is caused by the proposal to 'place a 5pe'rcent ceilinig oncost-of-liying
increases for social security, coal miners benefits, supplementary security income, civil service and-railroad retirement, andother programs
(the outlayimpact of this reduction is about $4 billion). As in the case
of Federal employees' pay, inereases-in these areas are tied-to changes
in the cost of living. The 5 percent ceiling means a cut in behefits to
many millions of elderly people-who: can least afford it because the
cost of living rose by considerably more than 5 percent last year and
undoubtedly will rise by considerably more than 5 percent in the coming year. Most of thef remainder of the'reduced authority for Income.
Security is the result of technical adjustments in the' Unemployment
Trust Fund and similartransactions'.
The Committee strongly disagrees with the order of priorities contained in this year's budget. It emphasizes large increases for defense
and an International''Energy Fund; while de-emphasizing income
security, health, education, and social services. Proposals have been
made to increase the cost of 'food stamps, and to eliminate the School
Breakfast Program, the Nonschool Food Program, and the Special
Milk Program. Congress has already rejected the proposed increase in
costs and the 5 percent cap on food.stamp benefits.
The long-term projections of Federal spending are even more discomforting than' the figures for the coming year. The budget document contains tables-showing estimates for the next.five years in outlays and authority. The projections are based on the assumption that
defense purchases will rise by 4' percent annually in real terms while
civilian controllable spending remains constant.
Thus, the Administration projects defense spending to rise from
$94-billion in fiscal 1976 to $141.4 billion in 1980, but expenditures
for many civilian activities go down. Outlays for General Science,
Space, and Technology decline from $4.6 billion to $3.8 billion; Natural Resources, Environment, 'and Energy from $10 billion to $9.5
billion- Community and Regional Development from $5.9 to $5.3
billion; Education, Manpower, and Social Services from $14.6 billion
to $13.6 billion; and Veterans Benefits and Services from $14.6 billion
to $14.3 billion. These declines would be greater if inflation were taken
into account. Similarly, the' rise in defense would not be as large.:.as
the figures suggest if they were converted into'real terms.
'The President's recommendation that there shall be no new prograins except in the' area of energy is particularly unfortunate. Such
a rule, if adopted, would have no basis in reason or fact. One of" the
purposes of the Federal Government, as described by the Constitution, is to "promote the general welfare."' To lay down an'edict
against new programs undermines the fundamental principle that the
Government will respond to' the needs of the people in. a manner and

36
toa degree consistent with the' nature and capabilities of our system.
If thtre are national needs to be, met, the 'Federal Government should'
try!to meet'th'em, if it has thecapability; and it should iiot be blocked
b 'arbitrary restrietiona. '

ongress s iould ,afiorlze action, appropriate 'funds,
and adjust taxes 'in'a manner that will best promote or'derly and balanced `economic growth in the public and"
private sectoiis. Congress should also reduce apprjpria,tions and take other steps necessary to eliminate waste-,'
,ful spending and inefficient activitjes particularly in the
.'areaof defense, space and foreign aid.
*Arbitrarvyeeilinga on inentdin' nrnvramm whikh eannat
be' justified by the facts relating to individual programs
-and restrictions on starting new programsshould be
rejected.
Tax Reform
Although -tax relief measiures are.. of. the utimost priority, at this
time, tax reform measures. must be' considered on a continuing basis.
Tax expenditures which redud'e tax liabilities for particular groups of
taxpayers have increased 18 percent over the. lpAst year. As reported in
Special Analysis F of the Budget, their order 'of magnitude, is appreaching $100 billion per year. ,xpenditures which reach such a levei
simply cannot be left unexamined each year, as. they continue their
upward climb. It, is ,time for the Congress to review many of these
provisions just as it carefully, reviews.the actual budget expenditures
each year.
,
"Tax expenditure subsidies. were analyzed in- a Joint Economic Com,
mittee staff study published 1ast October. A major conclusion of this
study, which, examined all Federal' subsidy programs, was: "On the
whole, these studies showed that many subsidies do-not work well economically, they :are, often directed at outmode.d or, nonexistent ob-,
jectives, they redistribute income.' to the aflluent, and in too many
cases their costs far exceed their benefits to' society' as a whole." 1
There are several tax expenditures which are well-rec'ognized major
loopholes in the tax law that benefit'laarge corporations and specific
industries. Action to repeal the following provisions should. be taken
as soon as. tax relief 'legislation and energy, legislation hhave been
passed.
- First, the Domestic International Sales Corporation,. (DISC) tax
incentiveslfor exports should be terminated. This tax law was intended
to encourage exports. Available evidence indicates that the DISC provisions have provided little if any extra stimulus to exports.
'Second, the minimum tax should be reforrued. This should be
strengthened by eliminating two important deductions that prevent
it from being truly effective, in achieving its objective of ensuring that
all wealthy individuals pay some reasonable level of taxes. The changes
would be to reduce the current income exclusion from.$30,000 to
$10,000 and to eliminate the current deduction for taxes paid.
Third, the use of the foreign tax credit by petroleum companies
must be limited. One alternative would be to limit creditsfor foreign
A"Federal Subsidy Programs," a Staff study prepared for the use of the. Subcommittee on Priorities and Economy in Government, October 18, 1974.

37
taxes. as an offset. to U.S. corporate income. taxes to A reassonable per,
t
:
ithe ranger of:.5percen
t
of the, foreign inicoie' A. fraction.
centage
m ,.:,.
would app eat to be reaonable.i
estic and forr
the percentage d epletion allowance- fo dom
.- Finally,
of soexpensing
Cturrent
year,
this
ended
be
eign oil and gas. should
be eliminated.
called "intangible' " drilling. expenses. likewise should
These energy tax measures, could most appropriately: be considered as
part of the energy legislation the. Congress will passin. the first half
of 1975.
These four provisions, are the prime candidates for tax reform. The
economic arguments for their repealware quite familiar and strong.
More comprehensive tax reform..should be considered. after action
measures.
has been taken on these
Tax reform focused on eliminating Domestic Internastrengthen.-'
' tional Sales Corporation (DISC) provisions,
ing the minimum tax,'lim iting-the foreightax credit, and,
ending percentage depletion,2 and'other special preferences for oil and gas producers should begin imninediately'
after tax relief legislationrecmmended above has been
passed by the Congress.3 As the economy'shows definite
signs of recovery, comprehensive tax reform focused on,
all facets of tax expendituresshould proceed.
Unemployment
The fact that nearly 8 million persons are unemployed is only one
of many indications that. the economy is in, an unhealthy state of
imbalance, with prospects of a deepening recession, and that critical
national problems are-being neglected. Although the President's own
Economic Report recognizes the decline.in employment as' a"pressing
concern of podlicy," there areminsufficient funds in the Budget to translate that concern into expanded production and an.increased number of
jobs.
The Budget contains no proposal to continue or increase funding
for public service jobs beyond the first six months of fiscal 1976, and
it shows a $1 billion reduction in authority for Temporary Employment Assistance next year. The Administration originally planned to
decide whether to. continue this program beyond December 31, 1975,
after an evaluation of its success. But State and local officials with the
responsibility for administering the public service, job program have
-'Representative Long states: "I oppose an across-the-board repeal of the oil
depletion. allowance. Such a change would lead to the further concentration
of oil production in the hands ofthe major oil companies. Without percentage
depletion independent oil producers would find it financially advantageous to
sell their operations to the major producers and pay capital gains rather than
continue to explore. for. oil and develop reserves., Since these.inhlpendent operators now do an overwhelming 'majority of the drilling and find most of the new
oil, a repeal of depletion would result in less exploration and decreased domestic production! Arbitrary termination of the depletion allowance to independent
producers will have the xaost.dlre consequences in terms.-f-even less ef~mpetition in the industry and instead lead to even further reliAnce on,.foreign
production."
Senator 'Eentsee ttates: "'I support the position stated in.the congressional
Democratic. Program, of. Economic Recovery, and Flnergy Sufficiency.recommendIng the retaining of the depletion allowance only for small, independent domestic
explorers who do not operate retail outlets."

38
already recommended that it be substantially increased. Recently, the
Administration has indicated its intention to request additional funding of $1.5 billion under the Comprehensive Employment and Training Act (CETA) and $400 million under Title II for fiscal year 1976.
America needs jobs and the Federal Government needs to act quickly
on making more money available for public service employment.
Unemployment rates for minority groups are substantially higher
than the aggregate figures. Probably the worst case is that of the
American Indian. Although statistics about the original native Americans have never been adequate, the'most recent available figures show
that unemployment for all Indians in 1970 was about 29 percent, and
for those living on reservations the figure exceeded 40 percent. Unienpiuylllelit
rates are substantially higher today.
doubtedlythose u
Unemployment among teenagers and young adults is generally much
higher than the national unemployment rate. In February 1975, unemployment for all teenagers 16 years of age and over was 19.9 percent,
up 4,9 percentage points over the rate of the year before. Unemployment for white teenagers rose from 13.1 percent in February 1974 to
17.5 percent in February 1975. For nonwhite teenagers, the February
1975 rate was an unbelievable 36.7 percent, compared to the 28.7 percent rate of January 1974. The jobless rate for young workers aged
20 to 24 was 13.3 percent in February, compared to 8.5 percent a year
ago.
National unemployment is npw expected to go to 9 percent or above
in the third and fourth quarters of 1975. The outlook is even bleaker if
we consider that in June of this year almost 41/2 million young men
and women will graduate from high school. college, and'professional
schools. Most of these spring graduates will be seeking temporary or
permanent full-time jobs at a time of exceedingly loose labor market
conditions. While these young workers may be well-trained, mobile;
and enthusiastic, they lack experience, and it is unlikely that a sufficient number of them will find employment. And yet most of them need
and want to work. Young people have little personal savings, and a
rebate on tax liabilities does not help them.
The problem is heightened for these young people seeking work but
unable to find it by the fact that most of them are ineligible for unemployment compensation.
A worker's unemployment benefit rights are determined on the basis
of his employment in covered or insured work over a prior period,
called the base period. All States require that an individual must have
earned a specified amount of wages or must have worked for a certain
period of time within the base period, or bothb to qualify for benefits.
The intent of such qualifying requirements is to make eligible for benefits only those individuals who are genuinely attached to the labor force
of covered workers.
Appropriations should be substantially increased to
support an emergency public service job program for at
least two million persons annually for the next two years,
phased to change in accordance with changes in the unemployment rate.
The maximum weekly unemployment benefit should be
increased to two-thirds the average wage in each State.

39
Individuals should receive at least 50 percent of their
previous weekly wage, up to the maximum.
Additional emergency Federally funded unemployment
benefits are needed for persons with demonstrated current labor force attachment but not covered by present
programs, including the self-employed. Eligibility for
these benefits would be limited to persons for whom
neither regular public, private, nor special public service
employment can be provided. These benefits should remain available so long as the national unemployment rate
remains at extraordinarily high levels.
Small Business
Once more in this recession as in the other five we have had since
World War II, Federal policymaking has been quite insensitive to
the role of the small business sector of the economy which provides at
least 50 percent of this Nation's jobs. Capital and credit constraints
produced downturns in the small business sector long before other
evidences of recession appeared. Anti-inflationary steps which were
not working for large companies and large unions often worked well
for small businesses.
We have not yet devised restorative measures which distinguish adequately betweein the capabilities and the needs of large and small companies. As a result we keep providing the same kinds and levels of legislative treatment to both. It is not surprising that small business is
hurt first by recession, suffers longest, has v lower survival rate and
recovers much later.
Federal assistance is clearly needed by small business, but Federal
agencie have not been nearly responsive enough to it8 problems. The
Small BusinM8s Administration apparently has not been fulfilling its
mandate. The Joint Economic Committee, therefore, will look into
its operations to determine the changes that are needed to steer the
SBA on to a positive cour8e.
Unless Federal policy on taxes, credit, employment stimulation and
procurement is consciously aimed at small business, we will continue
inadvertently and unintentionally to foster industrial concentration
in the economy.' Taxing all businesses equally actually discriminates
against small companies because it has the effect of causing small
businesses to pay a higher rate of taxes. 4 An increase in the surtax
exemption for small business to $50,000 would help correct this problem. In addition, the large number of small business failures that will
surely occur during this deep recession has made the program recommended above for unemployment compensationifor the self-employed
absolutely necessary.
A system should be established to collect, compile, and
distribute coherent data permitting consistent comparisons of the large and small business sectors, and to report
'the consequences of proposed government actions for
'For example, the level at which the corporate income surtax begins, $25,000,
was established 35 years ago and has never been increased. The failure to raise
this limit has contributed to the fact that the small business'.share of the total
corporate tax burden has increased over time.

40
large and small businesses;. As part of a much, needed
expansion of Federal assistance to small business, the
corporate surtax. exemption should be, increased to
$50,000 immediately.
'
* .. :a,, - .
Rousng
...
,
.
The increasing shortage of good housing, the depressed state'of the
housing industry, and the high incidence of poverty are further indications that national economic problems are not receiving adequate
attention..
In the 1968 Housing Act Congress reaffirmed' the long-standing
national housing goal of a decent home aid a suitable living environ,ent£

forL every

^ A1e1lui

±ll

lily

arid

0se

cic

tariUget1

oJUbLLuinL
UL

26 million housing units by 1978, or 2.6 million units a year. There
was a significant shortfall in meeting this goal in fiscal 1974, and it
can be reasonably anticipated that there will be larger shortfalls in
fiscal 1975 and 1976.
In fiscal 1974 there were 1.71 million housing starts. In calendar 1974
housing starts fell to 1.35 million units and for December 1974 the
seasonally adjusted annual rate was only 868,000 units, the lowest level
in nine years and far below the level necessary to achieve the 2.6 million
rate called for in the 1968 Act.
High interest rates, rising purchase costs, and soaring operating
costs ave combined with declining real incomes to price most American families out of the homeownership market. Conservative estimates
suggest that last year-an annual household income in excess of $23,000
was required to meet total expenditures on the median priced new home.
Fewer than one-fifth of all American households can afford the median
priced new or used home.
The Committee believes direct assistance must be initiated immediately to stimulate housing production and to make homeownership
affordable for a larger percentage of families. One approach would be
to create a Federal interest rate subsidy for low, moderate, and middleincome purchasers. In addition, a mortgage credit program, activated
during periods of tight money, could help avoid the periodic credit
crunches and collapses of the housing industry witnessed in recent
years. The Committee made a recommendation along these lines in
its report, "Achieving Price Stability Through Economic Growth." 5
These measures would lessen hardships for construction workers,
builders, and homebuyers, and permit better planning and resource
utilization in the construction industry, thereby helping to reduce
unit costs.
In the 1968 Act, Congress said that 6 million new low- and moderateincome housing units should be constructed by 1978. or 600.000 units
annually. The target annual rate'has not been met and there is little
likelihood that it will be met in future years under the present policies.
Construction of low and moderate-income housing has never been
great and in recent years has slowed to a trickle. The figures for Federally subsidized units are indicative. Total subsidized production has
declined from 427,000 units in calendar 1970 to 179,870 in calendar
1974. In the same period Public Housing construction went from
"'Achieving Price Stability Through Economic Growth." Report, Joint Economic Committee, Congress of the United States, December 23,1974.

41
95,400 to 40,240 units, Rent Supplement units went from 22,920 to
5,140, and single-family subsidized construction went from'116,07(0
to 11,520.
These precipitous declines re 'ct-th. eci ion to phase out ophase
down Federal housing programs for low- and moderate-income families, a decision which has contributed to-the decline in activity in the
home construction industry. Homeownership for families-with hicomes
below $10,000 per year has been effectively eliminated-'by this'policy,
and many- families are being forced to live in substandard housing the
costs of which make it impossible' for'them to afford other necessary
goods and services.
Congress should enact a'mortgage subsidy program for
low- and middle-income families so as to reduce interest
`--payments to a level not to exceed 6 percent a year. The
program should be designed in such a way that the subsidy is reduced or eliminated as the homeowner's income
rises above the levels of eligibility.(,
The Administration should immediately reactivate and
accelerate all' existing low and moderate-income subsidized housing programs.
The Administration' should release the $264 million
in funds appropriated by Congress last year for the construction of low-income homes under Section 235 of the
Housing Act, and the $145 million appropriated for rental
assistance. Congress should appropriate the additional
$75 million authorized for rental assistance.
Congress should appropriate the $700 million authorized last year for direct long-term loans to finance
housing construction for the elderly.
-

Poverty
The statistics on poverty are especially revealing. In 1973, the most
recent year for-which data is available from the Bureau of the Census,
23 million persons, comprising 11 percent of the Nation's population,
were below the low-income level. In light of the increased amount of
unemployment in 1974 and other deteriorating economic conditions,
it is reasonable to assume that the amount of poverty rose last year.
The Poverty threshold was set at $4,540 for a nonfarm family of
four. Who are the people officially defined as below the low-income
level? Two-thirds were white and about a third were black. Of the
low-income white families 37 percent were headed by women. Almost
two-thirds of the black low-income families (64 percent) were headed
by women. Twenty-four percent of the black mothers who headed
families worked year-round, full-time.
' Senator Proxmire states: "Under the proposed Emergency Housing bill in
the Senate, one million housing units could be assisted for about $300 million.
The Government would borrow funds at about 7 percent. A subsidy of an additional percent, bringing mortgage interest rates down to 6 percent, would
provide a tremendous stimulus. For an average $30,000 house the cost is only
$300 a unit. As each new unit of housing provides two man years of work, one
million new -units and up to two million jobs can be created for a very small
outlay."

Chart III

COMPOSITION OF POVERTY, 1973
BY CATEGORY

[::::::::

i:.::::::::..:.:

L DISABLE.:::::
..............

OTHER:.,
:.:.:..:g: NDTAU
HI R ~ : : :
:::::::::::::::::::::::::::t::FAMILIES::
.. ,

.................................:::

Ws _

BY RACE

.:.:.:.:

: WORKERS ANdTHEIRFAMILIES'

12 Million

~~~~... ... ,

5 Million

. . . .. . . . .. . . . . .... . , ... , .. . .. . .. .

::::::::::::::::::::::WHITE
:
:::::::::::::::::::::S::ER
~ OTHER:
15 Million

BY AGE

AGE

15 AND

6 Million

II:

BELOW'.

9 Million

8 Million

''''''AGE
11

16 65'''

''' ''''........

Million

3 Million

TOTAL 23 MILLION PERSONS
Again, the most serious problems so far as-minority groups are
concerned exist among the American Indians. According to U.S.
Census reports, about 60 percent of reservation families were below
the poverty threshold. The Committee believes that the Government
has a special responsibility to alleviate the causes and effects of poverty
in Indian communities, a responsibility which is not being met.
According to the Bureau of the Census, three-fifths of the low.
income family heads who did nlot work at all in 1973 were retired
persons or women who did not have outside employment because of
family responsibilities. Nearly. 15 percent of all persons below the
poverty threshold, about 3.4 million persons, were 65 years old and
over. A disproportionate number of the people in poverty are members of minority groups, female heads of families, and the elderly.
The trends are equally disturbing. In 1969 there were 24.1 million
persons in poverty compared to the 23 million in 1973. This relatively
small change is in marked contrast to the sharp* decline of poverty
prior to 1969. From 1961 to 1965 the number of persons below the
low-income level went from 39.6 million to 30.4 million, a reduction of
23 percent. By 1968 the number had gone down to 25.4 million, a decline of another 17 percent. The leveling off of the decline of poverty
in recenit years is a fair reflection of the leveling off of efforts by the
Federal Government to combat poverty.
These are shocking facts. They show that the Government is not
meeting its responsibilities to the people and that it is failing to live
up to the commitments it made to provide maximum employment opportunities, to provide a decent home and a suitable living environment
for evtery American family, and to eliminate poverty.

As minimum steps to assist those who cannot help themselves, and who are most hurt by inflation and recession,
Congress and the Administration should act immediately
to assure that all children in low-income families have
nutritionally adequate diets and that the income levels

43
of, elderly persons are raised to at least. the poverty
threshold.
To accomplish these objectives, Congress should: (1)
act promptly on the proposal introduced by Senator
McGovern, S..850, which strengthens the School Lunch
Program,.the School Breakfast Program, the Special
Food 'Service Program for Children, and other child
nutrition programs; and (2) adopt legislation to
strengthen the Supplemental Security Income Program
which provides assistance to the elderly poor.
Above all, it must be recognized that a substantial tax
cut and additional efforts to insure full employment are
the major requisites for aiding the poor.
The Bureau of the Census needs to accelerate its procedures for publishing statistics on poverty so that they
are available to Congress and the public on a timely basis."
The'possibility of providing quarterly poverty statisticg.
should be explored.
. 'I'Health
''
Despite the high costs of Federal programs, such as Medicare and
Medicaid, millions of Americans' are unable to afford'adequate medical care. In this area, too, the Administration has withdrawn a prior
commitment to the people.
In last year's Budget Message the'President said, "I am once again
proposing a comprehensive plan for national health insurance that
would make adequate insurance against the costs of health care available to all Americans. This far-reaching reform istlong. overdue. I
urge early congressional action on. it. The budget proposes measures
to prepare for this program." The Administration now proposes to
postpone taking the steps. toward the reforms which until recently
were recognized as long overdue.
An estimated 9 million persons,. many of them the working poor,
cannot obtain adequate medical care under. the present system of public programs.and private health insurance..Further, many persons
who have private health insurance have minimal coverage, if.4t all,
for the large medical expenses incurred in serious illnesses and long
hospitalizations; The continued rise in doctors' fees, hospital charges,
and other medical costs has exacerbated these. problems.
Congress and the Administration should work toward
the early establishment of a comprehensive national
health program. This program should include health
insurance to ensure that all persons have access to medical care, methods for reducing financial hardships that
result from major medical illnesses, incentives for more
efficient and less costly practices within the medical profession, improved delivery 'of health services, and increased supply of health care manpower and facilities
wherever needed.
Extended Medical Coverage for the Unemployed
During the past year the number of unemployed has increased by
2.8 million to a level in February of 7.5 million without jobs. For these

individaie4thobsslotfaij~ibnme
minort than the-loss-sof ariaed income.
It frequently results in the loss of savings, the inabilityt& mne& the
mortgage pa ywpntjthieloss.ofrnmedicalcoierage, And pertainly the loss
of seg.stqelnA. Whileth~ C-ngr ess jas,
some sigantsteps
g
.en
to pr*
o
mnapl
or g?'.pi'}gor.efforts. iS ,4 area
of nrqdic4*coverag§. . ,.'
_ .
M%.tsie%1th inurnpo.ilces ,are nployqentilbsed. ,When a
worlkgr I zparated~sfrqwIS~ job, it is only a matter of dayss ,9a t.most
a few ~sIort mon~s,. iefprq his fiermer emdyer stops paying the
premium. Un]ess the; nnen oe~d Person. oa~rsthen';.~bsorjb Ploe higher
cost his health insurance lapses.
Tlis-'i ad
fisperat situation for millions ,of the unemployed and
*

theiir' mfW4'h¢

hn've haVgn sacrifce their 'c-eal insura.nc l-ecaus

they can no longer afford' it. If one of the children gets sick arfd has
to be hospitalized, where will the parents find the money t6 pay the
There is ldgislation moVing tboolgh Congress at the moment which
would help alleviate the'plight:of theuhiiemployed by establishing an
emergency health benefits program. Estimates.df the one-year. cost
of a program of this type rangeiftoint$1-to-$2 billion.
An emergency health benefit program to provide some
form of continued medical coverage during the period of
unemployment should be enacted.
Economic Planning
The Joint Economic Committee has urged on several occasions that
measures be taken to improve market efficiency. We have pointed to
the fact that public programs sometimes detract from the efficiency
of the economy; that Federal subsidies' frequently fail to achieve
their statutory objectives; that production quotas sometimes aggravate
inflation; that excess stockpiling unnecessarily increases demand at
times when it may be undesirable.
Moreover, regulation practices may work against the basic objectives of the Employment Act. Government procurement practices
too 'often encourage waste and increase costs. Failure to remove
barriers to employment based on age, sex, and race discrimination,
among others, impairs the functioning of the economy.
Likewise in the private sector, industrial concentration, collusive
practices, administered prices, and the like, make a substantial contribution to inflation and render mpch more difficult efforts to restore
full employment.
Mindful of these elements, the Committee has recommended that
a commission be appointed jointly by Congress and the President
to recommend comprehensive legislation to eliminate governmental
and private barriers to an efficient market economy.
We have also recommended a parallel review of the needs of the
Federal Government with respect to improved management of its
own economic policies. We have urged that inquiry be made into the
question of new informational systems needed to understand economic
trends at home and abroad; means of eliminating duplication in

45
economic policy formulation within the Executive Branch; and means
of expanding the role of the Council of Economic Advisers to coordinate economic policy better.
The urgency of these needs is heightened by the present outlook.
The United States now is faced with the most serious depression
in the history of the Empl-yit Act'7zThis in itself suggests that
something is wrong with the way that the Employment Act is being
administered and with th~e'way the economy is operating.
. Over. the longer. term, the United States faces uncertainty about
its. economic future.' Doubts are' raised as to the extent' to which economic growth can be continued in the faceof resource' limitations
and environmental deterioration. While some of these' doubts may be
based, on undue anxiety, there remains a need to reconcile' our prospective growth with the growing problems of our society,'particularly
problems of the environment, shortages of critical materials, and the
deterioration of the cities. Too often our economic problems seem to
strike policymakers as a complete surprise. The most recent instances
of this phenomenon are' the food situation and the' oil crisis. But
there are other examples: our railroads are in a state of widespread
disrepair and our public. facilities are' underfinanced. All this points
up to a great need for a more competent evaluation of our economic
course.
In the public sector, despite the massive Federal involvement in the
economy, there still is no. adequate machinery within the Government
to coordinate and'manage these involvements and to relate them to
longer range goals. Nor are there any explicit- guidelines for policymakers as to what priorities should govern our allocation of resources.
What is needed, clearly, is a major effort to' establish an improved
Federal mechanism for analysis and planning in the field of economic
growth policy.

Congress should enact legislation"'to establish within
the Executive and Legislative Branches an economic
planning agency to improve our capability to assess
emerging trends in the economy, to develop. long-range
policies for economic growth and development, to assess
current progress in the light of long-term objectives,
*and to recommend goals for the efficient and equitable
allocation of resources and the distribution of income.

49-768 0 - 75 - 4

V. ENERGY
Domestic Energy
In October 1974, President Ford proposed the objective of reducing
U.S. imports of crude oil and oil products by one million barrels per
day by the end of 1975. The derivation of this objective has never
been disclosed. It appears to have been chosen without benefit of econnmie. ilistifieation in the course of negotiation with other oil importing countries. The necessity of this objective has never been demonstrated. The consistency of this objective with the proposal for a large
strategic oil stockpile is not evident.
It is ostensibly to attain an import reduction of one million barrels
per day that President Ford proposed in January 1975 to increase
tariffs and taxes on oil and gas and to decontrol their prices. There
is great doubt concerning the effectiveness of these moves in achieving
their objective.
If prices of, fuels and petrochemicals should go up by the amount
of new taxes, and if all upward price adjustments potentially permitted
by the President's program are made, the bill to consumers 1for these
items would rise by nearly $45 billion or 3 percent of GNP. To this
might be added some increase in processors' and traders' margins.
Moreover, price increases for petrochemicals imply some increases
for petrochemical substitutes, such as natural textiles, aluminum, natural fertilizers, etc. Additional wage claims and adjustments may be
built on all of these price increases, and they in turn would have their
effects on prices. All of these effects, if realized completely, could raise
costs of final products by as much as $55 billion in the relatively short
run, although not necessarily all in one year.
Accordingly, many private commentators estimate the total price
effect of the President's program at 3 to 4 percent and project that
it would sustain the rate of inflation at or'above 10 percent in 1975.
The Administration, however, estimates the price impact at only 2 percent in 1975, assuiming that energy firms and intermediate energy users
temporarily would absorb some of the new taxes and forgo some of the
potential windfall profits implied by the program. The Administration's proposed offsetting energy tax rebates to consumers would be
inadequate to cover even this 2 percent increase in prices. The Report of
the Council of Economic Advisers indicates that additional price
increases would be passed through in 1976.2
Whatever the extent of the proposed energy program's price impact, one must be concerned that the rate of price increase resulting
1
This estimate is based on an oil tariff of $2 which the Administration has
proposed to put into effect when the corresponding excise taxes are in force. If
the temporary tariff level of $3 per barrel remained in force, the cost to consumers would be greater.
' It must be recognized, of course, that deregulation of new natural gas would
involve increasing costs over several years as more and more gas qualifies as
new. Coal prices also would increase over several years.
(46)

47
from this program would hamper the adoption of effective policies
against recession. As indicated earlier, both Chairman Burns of the
Federal Reserve Board and Secretary of the Treasury William Simon
have testified to their abiding concern about the threat of renewed inflation despite the present alarmingly high unemployment rates and
poor production figures. In addition to rendering more difficult the
adoption of decisive antirecession policies, the energy program itself
would cause additional unemployment and production losses. It would
achieve conservation by increasing the costs of energy-intensive industries relative to others, causing curtailment of their output and
a relocation of resources to other sectors. Several hundred thousand
jobs could be lost in these sectors, offset in part by' new employment
in energy conservation and energy production sectors stimulated by
the program. Preliminary estimates are that a net decline of 100,000
to 200,000 jobs would remain as a result of the President's energy
program. With depressed economic conditions, the prompt re-employment of displaced resources cannot be assumed.
Finally, it should not be forgotten that energy prices increased
very sharply during 1974, and the increases were largely passed
through to consumers, but the conservation effect of those price increases has been either relatively limited or slow in coming. Additional
conservation presumably will be more difficult. Moreover, no expansion
in domestic oil output has yet been seen. One must therefore ask why
a big new jump in energy prices would be more effective than before
in obtaining quick cuts in imports. No convincing account has been
presented of how the President's program would achieve the desired
reduction.

*The President's proposals for tariff and excise taxes on
oil and gas and the decontrol of energy prices would aggravate inflation and unemployment without necessarily
achieving its stated conservation goals. They therefore
should be rejected. The goals for import reduction require the most basic re-evaluation.
Need for Selective Energy Conservation Measures
It is important to recognize that oil import levels can be reduced
through certain measures that do not threaten jobs and through some
that indeed could re-employ constructively many people now without
work. The congressional program for energy sufficiency, published
in February, takes this approach. 3 For instance, many needed conservation projects would create new jobs in the building materials
industries and the construction trades, which presently are underemployed. These include improvement of insulation and glazing of
buildings, improvements of fuel efficiency in industrial facilities, conversion of large fuel users to coal, rehabilitation of the railways, and
the
These possibilities should be pushed vigorously with incentives and/or Federal funding where needed. Moreover, renewed emphasis must be placed on reducing excessive heating, lighting, highway
speed, commuter driving and other outright waste. Many actions of
.like.

' "The Congressional Program of Economic Recovery," Wahington, February
1975.

48
this type were taken during the Arab oil embargo in the winter of
1973-74, but vigilance was relaxed when the embargo was removed.
New leadership is needed to educate and urge the public, to. adopt
voluntary conservation measures. Regulatory. standards or fiscal incentives should be employed to spur advances in the fuel efficiency
of the Nation's automobile fleet.
Oil import reduction, important as it is, remains an objective secondary in priority to establishing a sustainable recovery from recession
and reducing Joblessness. All private witnesses during the Committee's
Annual Hearings emphasized this point. Therefore, Congress should
be very, wary' of adopting energy policies that would curtail supply
indiscriminately, such as oil import quotas or gasoline-rationing. Such
policies unavoidably would threaten many iobs.
Impbrt quotas, moreover, by creating shortages, would cause upward price pressures throughout the fuel and petrochemical sectors.
If the resulting windfall gains and inflationary effects are to be suppressed, wide-ranging price controls and supply allocation programs
would have to be imposed. In addition to the fuel sector, markets for
textiles, plastics, rubber, fertilizers, and others would be affected.
Gasoline rationing also would damage our presently weak economy,
as would a heavy gasoline conservation tax. A policy of restriction
introduced gradually' over several years would be better adapted to
the' current situation. Such an approach would put consumers on notice
to consider fuel prices when replacing their cars and choosing their
residences and would forewarn producers to shift toward more efficient cars. It would do this without imposing high costs on consumers
now or hampering economic recovery. It should be emphasized that
any amount of gasoline conservation attainable through the use of
tradable ration coupons can be attained at equal money cost to consumers and much less administrative cost and inconvenience through
a refundable gasoline tax.

Congress should avoid indiscriminate constraints 'on
energy consumption that would cause further job losses
at this time. Instead, selective measures to curb energy
waste and to employ idle resources for conservation
projects should be emphasized, including projects to
improve fuel efficiency of existing structures and industrial processes, conversion of large fuel users to coal,
rehabilitation of railroads, and the' like. More comprehensive measures should be phased in on a predetermined
multiyear schedule so as to initiate conservation now
while avoiding disruption of the economy.
Increasing Production
Obviously, it is necessary to complement conservation efforts with
stronger measures to increase domestic fuel production. In this regard,
oil output from the Elk Hills Naval Petroleum Reserve can be expanded immediately and can reach levels of 300.000 barrels per day or
more within two to three years. Moreover, efforts must be accelerated
to devise a solution to the issues impeding exploration of the Continental Shelf. Development of the potentially prodigious Naval Petro]eum Reserve in Alaska also should begin.

49
Many authorities contend, contrary to government projections, .that
there is. little likelihood that oil and gas production can be expanded
because many U.S. fields.are relatively depleted and new discoveries
will be largely offset by declines in the output of older wells. These projections, if correct, imply that the United States-despite vigorous
efforts to sustain its output of oil and gas-must make provision to convert a larger share of its energy' demand to other energy sources at
earlier dates than implied by existing government scenarios. This prospect puts a premimum on reaching agreement on legislation to regulate
stripmining activities and on finding ways to permit coal, nuclear, and
solar energy to assume' larger roles in U.S. energy supplies. Accelerated
technology development can facilitate this substitution both by improving the performance of alternate energy forms and by' easing
environmental controversies.*-

In addition to renewed emphasis on conservation, the
Nation must proceed with measures to expand production
of oil and gas and with steps to facilitate substitution of
coal, nuclear, and solar energy both through technology
development and through resolution of environmental
controversies.
Regulating Energy Prices
The Committee in its December report, "Achieving Price Stability
Through' Economic Growth,"' outlined a possible compromise on
energy price regulation as an- alternative to a one-sided policy of deregulation. Instead of decontrolling crude oil prices, this alternative
would retain the present ceiling on "old" domestic oil and place a ceiling on "new"' oil considerably below the level of world prices set by
the Organization of Petroleum Exporting Countries (OPEC). This
move would reduce the present inordinately high bidding for oil development equipment and thus constrain the increase in oil and gas
development costs. It could save oil consumers 10 percent or more on
their swollen fuel bills. It would prevent investment in extremely highcost oil development that will become uneconomic if world prices
recede. A price ceiling on new oil substantially below present world
prices also would permit reduction or elimination of present disparities between prices for new domestic oil and new natural gas without requiring gas prices to rise to the present exorbitant OPEC level.
Reduction of this disparity would help to bringlforth more adequate
gas supplies. Such a pattern of energy prices warrants further consideration in the search for a comprehensive national energy policy.

Oil and gas prices should not be decontrolled. However,
a review of fuel pricing policies is needed to encourage
domestic production of natural gas. The objective of
closer coordination of domestic. oil and gas price regulation is needed.
If domestic energy prices were consolidated in the range of $6 to $8

per barrel of oil or its equivalent for other fuels, it would then be possible to extend protection to U.S. producers against a potential col"Achieving Price Stability Through Economic Growth," Report, Joint Economic Committee, Congress of the United States, December 23, 1974.

50
lapse of world prices by a variable tariff designed to prevent oil import prices from falling below a level in the range of $4 to $5 per barrel. A price guarantee at this level would run much less risk of being
invoked for a long period than would a guarantee at higher levels and
would have a less adverse effect on the cost structure of the U.S.
economy.
Energy Tax Reform
It should not be overlooked in the effort to meet new energy challenges that the need to reform the well-knoown tax subsidies to the
energy industries still remains. The elimination of percentage depletion for domestic and foreign oil and gas production as well as the
repeal of current expensing of so-called 'intangible" drilling expenses
anid reduction of the foreign tax credit should be high-priority elements in any energy program. It is no longer necessary to extend general subsidies to energy producers, if indeed it ever was. Withdrawal
of exceptional tax preferences at a time of unprecedented industry
prosperity cannot be considered to be "punitive" taxation. The Committee presented an assessment of tax policy in this area in its report.
"A Reappraisal of U.S. Energy Policy," 5 in March 1974. Additional
energy tax measures will have to be considered as part of new legislation to spur energy conservation and production.
Elimination of the percentage depletion allowance and
other special tax preferences for oil and gas producers
as well as limitations of the foreign tax credit are necessary parts of a national energy

policy." 7

The maintenance of effective competition in energy industries also
should comprise a central part of any energy program. In addition to

enforcement of strictures against collusion. Limitatioiis are required on
the power of one firm over others, such as occurs when oil producers
own oil pipelines, refineries, or product distribution networks. Also
needed are reasonable limitations on horizontal integration of energy
raw materials under the control of a few large companies. Aspects
of the tax laws that favor existing producers over potential new
entrants to the industry should be reviewed.
"A Reappraisal of U.S. Energy Policy," Report, Joint Economic Committee,
Congress of the United States, March 1974.
Senator Bentsen states: "I support the position stated in the congressional
Democratic Program of Economic Recovery and Energy Sufficiency recommending the retaining of the depletion allowance only for small, independent domestic explorers who do not operate retail outlets."
Representative Long states: "I oppose an across-the-board repeal of the oil
depletion, allowance. Such a change would lead to the further concentration
of oil production in the hands of the major oil companies. Without percentage
depletion Independent oil producers would find it financially advantageous to
sell their operations to the major producers and pay capital gains rather than
continue to explore for oil and develop reserves. Since these Independent operators now do an overwhelming majority of the drilling and find most of the new
oil. a repeal of depletion would result in less exploration and decrease domestic production. Arbitrary termination of the depletion allowance to independent
producers will have the most dire consequences In terms of even less competition in the industry and instead lead to even further reliance on foreign
production."

51
International Energy Conservation and Security of Supply
The shock of higher oil prices prompted consuming nations to close
ranks to forestall further supply interruptions and to prevail upon the
producers to lower prices. The United States has sought to promote
such solidarity among industrialized nations. In November 1974, these
sixteen member nations of the International Energy Agency (IEA)
took a major public step in this direction by signing an agreement to
provide oil sharing in case of emergency supply interruptions. Implementing legislation (Title XIII of the Administration's proposed
Energy Act of 1975) now before the Congress provides the necessary
authority. Because this agreement involves an economic commitment
and the delegation of sovereignty, Congress should consider this legislation before the May 1975 deadline for government ratification.
In recent months, the International Energy Agency has focused
mostly on the need for an international energy conservation effort. In
November 1974, Secretary of State Kissinger announced a goal of a
cutback of 3 million barrels per day, or 10 percent, by the end of 1975,
in an effort to put pressure on oil prices by increasing the gap between
supply and demand. Reduced oil imports or reduced prices are essential if the balance-of-payment burden on consuming economies is to be
curtailed. Nevertheless, Kissinger's goal is ambitious and difficult to
achieve. Not only would such cutbacks lower industrial production in
countries like Japan, but they could affect growth even in a country
like the United States which has the most potential for conservation
without cutting essential uses.
It is not clear that cutbacks of 3 million barrels a day would affect
the world price. OPEC already has absorbed at least 8 million barrels per day in excess production.-Although the oil market today is
soft and individual producers are granting credit or rebates to poor
countries, there is no guarantee that the key oil producers could not
absorb further cutbacks if necessary. The stringent measures proposed
by the President to achieve a 1 million barrel per day cutback by 1975,
however, would threaten a speedy recovery from the present economic
slump. While other consuming nations are anxious for the United
States to cut energy consumption and to bring down world prices,
they have no desire for a prolonged U.S. recession. The United States,
unlike other countries, is not faced with an acute balance-of-payments
problem. It is far more important, therefore, that it get its economy
moving and decrease unemployment than to cut a few billion dollars
from its import bill.
In the short run, however, the United States should seek to establish
fuel stockpiles as required under the International Energy Agency.
The most serious danger to this country is not continued high oil
prices, or even the problem of supporting other countries that are unable to balance their payments. but. rather the danger of energy supply disruption. During the Arab oil embargo. the average cutback in
available supply was 1.9 million' barrels below expected consumption
rates. The result estimated by the Federal Energy Administration
was a decline in GNP of approximately $10 to $20 billion in the first
quarter of 1974 and the loss of 500,000 jobs. While a settlement in the
Middle East is an essential prerequisite to security from supply interruption, stockpiles are the best insurance in the face of the continued
uncertainty.

52
l4e1"roposed- legislation. provides for the...establishment of. Yederally funded civilian national strategic petroleum reserves of up to
one billion barrels of oil. This'stockpile might be maintained either
in the form of crude oil storage, possibly -inthe salt domes on the Gulf
Coast or'shut-in production capacity in Naval Petroleum Reserves.
Because of the urgency of providing adequate protection against supply interruption, however, it is important to obtain stockpiles nearer to
the areas depending on imports. One way to do this would be to require
importers to maintain larger inventories. While this measure would
somewhat increase the cost of the imports, it would provide immediate
supplies in the areas which would most need them if there is another
embargo. Clearly the buildup of stockpiles should not be sacrificed
for

the short-term goal o1

Luruailing

ironts

The Congress should move immediately to establish
stockpiles to insure against future supply interruptions.
In developing these stockpiles, it should consider' (1) a
requirement for importers to maintain increased stocks'
sufficient to continue supplying customers for a' stipu-.
lated period, and (2) the establishment of a Federally
funded civilian strategic petroleum reserve.
Achieving a Competitive World Oil Market
In the longer term, there is a need to increase non-OPEC energy
supplies, including domestic U.S. production. .The fourfold increase
in prices has spurred exploration worldwide resulting in discovery of
new reserves at double the previous annual rate in the postwar period.
Present prices have also stimulated research in the development of coal,
unconventional oil recovery, and other alternative sources of energy. In
a speech before the National Press Club on February 3, 1975, Secretary
of State Kissinger proposed that the major oil-importing nations
should agree not to allow imported oil to be sold domestically at prices
which would make their new sources uncompetitive. Such a policy
would be achieved either bv a common floor price for imports or
through a common IEA tariff on oil imports.
While individual countries may wish to guarantee activities of their
own state oil companies sb as to have greater control over their own
energy resources, there seems little reason to provide guarantees for
investments by the major international oil companies. Not only does
an across-the-board guarantee subsidize unnecessarily energy sources
which could be produced more cheaply than the floor price, but
-itwould tend to institutionalize the current high prices. Furthermore,
countries like Japan and Italy with little or no domestic energy production capacity would have little if any incentive to abide by such
an arrangement if world oil prices did drop. Directed subsidies for
new high-cost production would be more appropriate to- assure adequate development of energy supplies.
* The United States should not support international .
guarantees or an effort to set a common price floor under
the world petroleum market. Domestic subsidies for certain, types of experimental projects may be warranted
on an individual basis. We should, however,-join other.
consuming nations in promoting research and technological development of all forms of energy.

VI. AGRICULTURE
Realized net farm income in 1974 fell 16 percent below 1973's record
level of $33 billion." This resulted from a 12-percent drop.:in farm
prices from January 1974, to January 1975, reinforced by an 18 percent
rise in farm input costs. (See Table 7.) In recent months, the decline in
farm prices has accelerated.
Retail food prices rose 12.2 percent in 1974. Farmers now receive
an average 40.2 cents of every retail food dollar-down from 52 cents
in August 1973.
Increased planting expectations for wheat (10 percent over 1974),
soybeans (8 percent), and feed grains (1 percent) and weak domestic
nd foreign demand should reduce farm income in 1975 below that of
1974.2 A delayed economic recovery, a bumper harvest, or implementation of the Administration's energy proposals will emphasize the
anticipated decline in farm incomes; a moderate crop or an early
economic recovery will minimize the deterioration in farm incomes
expected for 1975.
A National Food Policy
A second consecutive year of falling farm incomes, sharp price
fluctuations.and .A' widening farm-'retail price spread wefill increase the
demand for revision`of current food policies. Attention will be focused
on increases in farm price' su'pport, levels.. For several reasons, this
revision should be expanded to include development of a national food
policy.
First, the growth in world agriculture production has.,stabilized at
2 percent annually with the passing of the "green revolution" and
the utilization of most agricultural capacity cultivatable at present
prices. -Large domestic farm crops and. stand-by short supply export
management regulations may be necessary to avoid widespread famine
and' sharply rismg domestic retail food prices.
Second the agricultural industry is subject to a bewildering array
of destabilizing influences which will gradually result in a concentration of productive capacity. Until Federal antitrust' enforcement
becomeseffeotive, a competitive agricultural industry should be encouraged by.minimizing the impact of destabilizing forces on small producers.
*The decline -in net farm Income was concentrated in the last half of 1974.
Seasonally- adjusted net farm income at annual rates declined 37 percent from
the fourth quarter of 1973 to the fourth quarter of 1974, "Farm Income Situation,"
United -States Department of Agriculture,. Februaxy 1975.
'Preliminary planting expectations from "Agriculture-ILetter," Federal Reserve Bank of Chicago, January 3, 1975.
(53)

54
TABLE 7.-FARM COMMODITY AND PRODUCTION PRICES
Price change
(percent)

Price index
1967
Commodities: I
All farm products
-- 254
All crops
226
Foodgrains
177 Feed grains and hay X :
174
Cotton --191
Oil bearing crops
276
Livestock and products 277
Dairy products
-306
Meet animals336
Inputs:'
All productthn items
terrozer
Seed
-197
Taxese
-146
7
Wage rates
.- -- ------------------Interests_
Feed
- -------------------Farm machinery
-150

1974

1975

1974-75

504
470
620
376
429
586
534
508
680

441
462
471
450
355
638
423
488
487

-12
-- 2
-24
+20
-17
+9
-21
-4
-28

184
212
236
1+3
185
222
207
185

+18
+81
+20

156
117
161
189
184

+13
+17
+12
+23

'1967 average; Jan. 15reporting dates for 1974 and 1975. 1910-14=100.;
aIncludes corn, sorghum, oats, barley.
InLludes soybeans, cetton seed, peanuts, and copra.
.Seasonally adjusted.
'1974 price index based on' Dec. 15,1973 prices. 1975 price index based on Dec. 15,1974 prices. 1967-100.
*Farm real estate taxes payable per acre.
?Seasonally adjusted.
aInterest payable per acre on farm real estate debt.

A national food policy must be established to provide
a fair income to grain, soybean, and cotton producers,
price protection to animal producers, food aid to needy
nations, a continuing competitive agricultural industry,
and reasonable retail prices.
The components of this food policy must include:
Farm income maintenance provisions tied to agriculture production costs which will prevent attrition in the number of producers due to severe weather conditions. This can be achieved
through an expanded program of crop insurance, direct payments,
floor price mechanisms, or other techniques. A ceiling on individual income maintenance payments must be a component of this
program.
Commodity reserves should be established to dampen fluctuations in farm prices, animal production, and retail food prices.
Reserves should be accumulated in periods of abundant harvests
and made available in times of short supply at price levels that
avoid major liquidation of animal stocks. Massive commodity
surplus stockpiles should not be a component of a commodity reserve program, and land retirement schemes should not be invoked,
if at all, until desired national reserve levels have been achieved.
Monitoring Agricultural Exports
American agricultural exports in 1974 were characterized by high
dollar value but relatively low volume. Pushed up by high world
grain prices, the 1974 agricultural trade surplus was $12 billion, $2.7
billion more than in 1973.

Oa
The 1975 agricultural export''situation should not change significantly. 3 . Export volumes may fall but relatively high prices could
maintain large'export -receipts. However, bumper ain harvests in
1975 could result inklower p rices and incomesifor U.S. grain producers
despite increased exports due to the lower prices.
'The' United At esi ex'p-orts over one-half of its rice and wheat crops
and just under one-half of its soybean crop. If'-private U.S. exporters
are too generous,. domestic supplies could be driven to dangerously low
levels, which wvould exacerbate food price iiicreases. With the international oilprice''increase, moreover, agricultural trade assumes additional importance' as a source of revenue to finance large oil imports.
To avoid situations in which private dealers or state trading organizations monopolize short commodity supplies, an early waring food
information system should be' developed.' Data from such a system
could allow the world to forecast more accurately supply and demand
relationships and help to prevent dislocations such as occurred with
wheat, feed grains, and sugar in 1973 and 1974.
Participation in an international food information system is an important prerequisite to the national food policy' prposed in this report. Full and cooperative participation of the oviet Union, India,
and the People's Republic of China is of particular importance if this
information system is to be effective.
A domestic and international early warning food information system should be developed to provide private
export dealers and governments with information on
emerging supply and demand relationships to prevent
the misallocation of food resources.
Another important requirement for a dynamic and effective national
food policy is legislation to empower the Secretary of Agriculture and
the President to manage agricultural exports better in advance of a
severe domestic commodity shortage.
As a component of the national food policy, shortsupply domestic use and export management rules must
be established which are designed to prevent exploitation
of commodity shortages.
These rules, in combination with an early warning information system, will prevent excessive export sales f rom disrupting U.S. agricultural markets. They can effectively insulate domestic producers and
consumers from the full burden of adjusting to demand and supply
shifts elsewhere in the world. The rules should include:
An export licensing system for commodities in critically short
supply;
A ranking of export customers to determine (including
famine nations, 'regular, and occasional customers) whose orders
shall receive preference in times of shortages; and
More 'efficient and timely distribution of export orders under
the present export-monitoring system.
8 "Agriculture Letter," Federal Reserve Bank of Chicago, December 20, 1974.

Food Aid;..
A revamped food aid program is a necessary component of a gov-.
ernme t-wide food research, planning, and coordinationF effort to de-.velop a national food policy.'
The United States has consistently contributed moie food aid abroad
than other developed nations through its Food for Peace program of
donations and concessional sales.' Hoy6ever, close to one-half of this
food aid has in the past been 'donated to countriesjfo6 political considerations.'In the fall of 1974, less than half the food assistance to
foreign nations went to those hardest hit by the global food and fuel
crisis.

* TheCongress.shold contuetU
. uirwt
policy, expressed in the Foreign Assistance Act passed in Decemher 1974, to target a large portion of foreign'food aid
to nations suffering famine.
In fiscal year 1975 the Administration requested some $500 million
in food aid to nations based on. political considerations. Close to an
additional $500 million was requested for nations hard hit by famine
and soaring fuel prices. In December 1974, as part of an effort -toexpand the share of food aid' granted to famine stricken' nations, Congress specified that not more than 30 percent of American concessional
food aid could, be allocated for political considerations alone. To
maintain its desired level of food aid allocated for political considerations, the Administration was provided an additional $600 million in
the fiscal year 1975 budget for food aid to nations suffering famine.
The 30 percent ceilings on food aid allocated for political considerations should be made a permanent feature of the United States food
assistance program.
''''
'
''

Structural Rigidities
A variety of phenomena distort domestic farm, and retail food prices.
The most severe are quotas and excessive retail food chain profits reflected- in a widening of the fanrm-retail food price spread during 1974.
Quotas are often an inefficient and inequitable income maintenance
mechanism. A given number of producers can be retained in an industry for alower total cost with direct income paymentsthan through
a quota Quotas only indirectly redistribute incomes via price changes.
In addition, the burden of a direct income payments scheme using
Federal tax revenues will fall less on low and moderate income persons
than will a quota.
The competitive nature of a few American agricultural
sectors may be threatened by government-subsidized
foreign imnorts and, infrequently, by predatory foreign
pricing. When such practices are pursued by foreign exporters and when it is in the national interest to maintain the viability of an industry, steps should be taken

to protect U.S. producers through either (1) the imposi-

tion of countervailing duties or (2) a system of direct
income maintenance payments.
A

Re~tail Food Market Spreads

The spread between farm and retail food prices rose 20 percent in
1974. The 12.2 percnt hike in retail food prices during 1974 was entirely due to price increases at, the processing and retail levels.
The Joint Economic Committee's investigation of the widening
'farm-retail price margin culminated in 4 days of hearings in December
1974. Preliminary findings indicated that. the 1974 rise in retail
food prices was partially a result of excessive food chain profits;
the margin sprea4d was not entirely cost-justified. As noted in
an earlier Committee publication, ".... the return on equity in the top
14 U.S. food chains rose 115 percent from the third quarter in 1973,
when companies' return on equity was comparable to historic levels,
to the third quarter of 1974."I The Joint Economic Committee will
continue its investigations of the retail food industry to determine
whether undue market concentration and anticompetitive priging exist.
The, Federal Trade Commission should continue with
all deliberate speed to investigate market concentrations,.

profits, and pricing practices in the retail food industry.

- A review of U.S. farm credit' and financial requirements, tax laws,
and tax-shelter -schemes will be conducted by the Joint Economic
Committee to determine their impact on maintenance of the family
farm.
-

-Jon Economic.

"' Achieving Price Stability Through Economic Growth," Joint Economic
Committee, December 23, 1974.

VII. REGIONS, STATES, AND CITIES
Regional and Local Economies
Domestic economic policy deliberations in the past have focused
primarily on the effect of various monetary, fiscal, and incomes policies
on aggregate measures of economic activity. More recently Congress
and the Executive have also begun to examine the impact of aggregate
ACAWIomi. n lieiQ An dif…eret
labor i.na.-a-ts, labor uo-groups, income groups, and sectors of the economy. However, little
consideration has been given to the impact of macroeconomic policies
on regional economies and the location of living and working opportunities within regions.
The fact that national economic policy has incorporated little discussion of the location of economic activities has in no way limited
the influence of Federal tax, expenditure, and credit policies on the
location of jobs and people. For example, recent evidence suggests
that tax policies have tended to (a) give preference to new housing
construction over rehabilitation, (b) encourage low density over high
density development, and (c) support the rapid turnover of large
real estate and investment holdings. Similarly, highway and other
transportation investments have extended the commuting and trading
areas in metropolitan regions, thus contributing to the relocation and
decentralization of living and working opportunities. The siting of
major Federal facilities has also had a significant influence on the location of other private and public investments.
Among regions, Federal Government procurement and expenditure
priorities have been shown to have a significant influence on the
regional distribution of economic activity. Other factors, including
trade policy, transportation policies, and government construction
policies, have also affected the distribution of activities among regions.
In the future, Federal Government energy policies will be an overwhelmingly influential factor affecting the health of regional economies, both by stimulating development in resource-rich areas and by
discouraging activity in high-priced energy regions.
Unfortunately not enough is known about the extent and magnitude
of the impact of Federal Government policies on the economies of
regions and areas within regions. The Committee believes that any
rational economic program should include serious consideration of
the impact of that program on regional and local economies. accompanied by a commitment to cushion the impact of policies that
have a particularly adverse effect on specific regions and locales.
It is essential that deliberations over national economic policies include an examination of the impact of
these policies on regional and local economies, in addition
to their effect on aggregate measures of economic activity.
Major executive and legislative proposals should be ac(58)

59
companied by an analysis of their impact on employment,
output, prices, and profits in regions and areas within
regions, as well as a commitment to provide adjustment
assistance to areas, businesses, and individuals that suffer
particularly adverse consequences.
Of particular concern to the Committee are regions and areas
within regions, particularly core areas in central cities, that experience chronically depressed levels of economic activity. While the current recession has certainly exacerbated the economic problems experienced by these areas, their economies have long been characterized by
high unemployment rates, deteriorated housing, vacant land, and
underutilized and deteriorated public and private infrastructure. The
waste of human and physical capital that persists in these areas should
be corrected through the immediate implementation of programs
designed to stimulate public and private investment in these depressed
area.
In the short term, public employment programs should concentrate
on utilizing these idle resources in productive public sector jobs. However, in the longer run, it is more important to encourage permanent
private sector employment opportunities to move into these areas.
Only through the attraction of permanent private sector positions can
the economies of these depressed .areas be revived. There are several
initiatives, in addition to the emergency public service jobs program,
that could provide productive public sector job opportunitieg'in these
regions now and stimulate the development of permanent private sector jobs later:
The investment tax credit could be made geographically selective by offering slightly higher credits if an employer chooses
to invest in an area tbat has experienced chronic high unemplovment rates over a significant period of time. By adjusting the
investment tax credit to reflect a conscious Federal policy to encourage investment in depressed regions and urban areas within
regions, the location of employment opportunities in depressed
areas would become relatively more attractive. This program
could also be used to encourage business location in depressed
urban areas where per capita energy utilization for personal transportation is low.
A revolving fund could be established to initiate low-interest
loans to State and local governments and development agencies
for the purpose of assembling, and preparing for development,
vacant or underutilized land in depressed urban areas. These
loans could be repaid upon sale or lease of the land or from
increases in State and local revenues that will result from development.
Title III of the Emergency Jobs and Unemployment Assistance Act of 1974 could be fully implemented. This title authorized
$500 million and appropriated $125 million to provide employment opportunities in depressed areas by accelerating or initiating labor-intensive public works projects. However, the fiscal
year 1976 Budget transfers the $125 million appropriation into
the Public Service Employment Program. While the public service jobs program certainly warrants vastly increased appropria-

60
tions, the Job Opportunities Program (Title III) could complement this program by providing important supportive infrastrueture (i.e. utility hookups, transportation facilities, site preparation, etc.) necessary to stimulate the development of permanent
private sector jobs in depressed urban areas.
The funds that have accrued in the Treasury in the Economic
Development Administration's (EDA) revolving fund for business loans and grants could be released immediately. While new
appropriations for EDA's business loan and grant program have
been made every year, loans that have been repaid have simply
been allowed to accrue. At present, approximately $150 million
has accrued in this revolving fund, with no indication that the
Administration intends to recommit any of these funds to new
loans. The leverage that could be provided by an accelerated
business loan, loan guarantee, and grant program could provide
important incentives for business to locate in chronically depressed areas.
The budget for the Economic Development Administration
could be expanded to provide much needed economic development
assistance to depressed urban economies, similar to the assistance
provided to rural areas. At present only 25 percent of EDA's
appropriations are spent in Standard Metropolitan Statistical
Areas where 70 percent of the population resides and where
significant unemployment problems persist. These programs could
be expanded to allow depressed urban economies to receive assistance comparable to that received by depressed rural areas.
A domestic development bank could be established to extend
low-interest loans to local governments and development agencies
to finance the construction of infrastructure essential to development in depressed regions and areas within regions. The bank
could also make low-interest loans available, on a limited basis,
to businesses choosing to invest in depressed areas.
Federal Government efforts to restore economic growth
should be accompanied by specific programs to encourage
private and public sector investment in regions and areas
within regions that experience chronic high unemployment. These programs should be designed to develop permanent private sector jobs and to eliminate the waste of
human and physical capital that accompanies long
periods of high regional unemployment.
State and Local Government Finance
As this Committee pointed out in its recent publication, "Achieving
Price Stability Through Economic Growth," ' State and local governments have experienced a significant deterioration in their fiscal position in the past year. The aggregate State and local government deficit
for 1974 was above $7.5 billion compared to a $4 billion surplus in 1972
and a balanced position in 1973 (surpluses and deficits are computed
on a National Income Accounts (NIA) basis and adjusted for surpluses
in retirement and other social insurance funds). This weakened finanI "Achieving Price Stability Through Economic Growth," Report of the Joint
Economic Committee, Congress of the United States, Dec. 23, 1974.

61
cial position of State and local governments is a result of both inflation and recession.
Inflation initially increases both revenues and expenditures. However, in much the same manner that inflation affects the Federal budget,
inflation-caused increases in the cost of providing services soon exceed
the inflation-induced increase in revenues. Recession, on the other
hand, has had a far more devastating effect, seriously eroding the ex:
pected growth in revenues and significantly increasing expenditures
for certain services, particularly public assistance and health.
Unfortunately, Federal Government assistance to State and local
governments has not been sufficient to stabilize State and local finances
in the present situation. In 1974, when inflation and -recession were
already beginning to squeeze State and local governments, the real
value of Federal grants-in-aid actually declined 2 percent (NIA basis)
from the level of aid offered in 1973. For 1975 and 1976, when the impact of inflation will continue and the impact of recession will be even
more severe, the fiscal year 1976 Budget offers less than a 6 percent increase in Federal assistance. Furthermore, Federal aid to State and
local governments will decline for the third successive fiscal year as
a percentage of total Federal outlays, as a percentage of total domestic
Federal outlays, and as a percentage of State and local expenditures
(Table 8).
TABLE 8.-IMPACT OF FEDERAL GRANT OUTLAYS ON GOVERNMENTAL EXPENDITURES
Federal aid as a percent of-

Fiscal year:
197219319741975 estimate
1976 estimate

Amounts
(millions)

Total
Federal
outlays

Domestic
Federal
outlays I

35, 940
43,963
46,040
52,649
55, 632

15.5
17.8
17.2
16.8
15.9

23.8
26.1
.24.7
23.6
22.3

State-local
expenditures 2
23.0
25.2
23.6
23.3
22.2

I Defined for this purpose as excluding national defense and international programs.
2As defined in the National Income Accounts.

Source: "Special Analyses, Budget of the U.S. Government," fiscal year 1976.

Thus, when combined with forecast inflation rates, the Budget
for fiscal year 1976 portends a further decline i"n? the real value of
Federal grants-in-aid to State and local governments. This decline
will only exacerbate the financial-problems that these governments
are already experiencing and will continue to' experience as the recession deepens.
The real value of existing Federal assistance to State
and local governments should not be allowed to decline as
long as the economy operates significantly below full utilization of resources.
However, even if existing levels' of Federal assistance are held constant in real terms, many State and local governments will experience
serious financial problems in 1975. The combination of inflationaffected expenditures and recession-induced revenue shortfalls has
already forced many State and local governments to cut payrolls
through attrition or layoffs, to delay the construction of essential

49-768 0 - 75 - 5

62
capital facilities, and to cut the level of service they are providing
Many State and local governments have also indicated that they wili
be forced to enact significant tax increases to meet State constitutional requirements that their budgets remain in balance.
The aggregate effect of these actions could undermine to a certain
extent Federal Government efforts to initiate an economic recovery.
In the short run, Federal efforts to stimulate the economy by returning
purchasing power to consumers through tax cuts will suffer if State
and local tax burdens are increased concurrently. Similarly, the net
number of new jobs created by Federal Government programs to
provide emergency public service jobs is less than desired when State
and local governments are forced to lay off permanent employees and
replan themu

with Federally financed public service employees.

A sensible approach to this dilemma is to provide needy State and
local governments with untied Federal assistance designed to neutralize the fiscally perverse impact of their actions. The total size of this
revenue assistance program should vary with the national unemployment rate, starting at $2 billion at 6 percent unemployment and
increasing by $1 billion with each 1 percent increment in the national
unemployment rate (i.e. at 8 percent unemployment, $4 billion
would be distributed). This counter-cvelical revenue assistance program should also be designed to target assistance to the units of government experiencing the greatest recession-induced revenue shortfalls. Since the size of this shortfall is dependent primarily on the
level of economic activity in the unit of government, State and local
governments with the largest recession-induced increases in unemployment should receive proportionally greater assistance. Jurisdictions
with unemployment rates below 51/n percent should not receive any
assistance. It should be emphasized that this program should not
attempt to concentrate assistance only in areas that have high structural unemployment rates but rather should pinpoint assistance
toward jurisdictions experiencing the most significant cyclical increases in unemployment above a full employment base period. It is
in these areas that the fiscally perverse budget adjustments are most
likely to occur.
A counter-cyclical revenue assistance grant to State
and local governments should be enacted to cushion the
financial hardships presently experienced by these governments and to urevent these governments from adjusting revenues and expenditures in a manner which will
hinder Federal Government efforts to stimulate a recovery. The total amount of counter-cyclical revenue assistance should vary with the national unemployment rate,
increasing by $1 -billion with each percentage point increase above 4 percent in the national unemployment
rate. The amount of assistance received by specific jurisdictions should vary with the increase in unemployment
above a full employment base period and with the amount
of revenue raised from their own sources. 2
'Senator Proxmire states: "I object to additional revenue sharing to the States
for this or any other purposes. The funds have often been used for trivial purposes
and revenue sharing offends the fundamental principle that those who spend
public funds should be required to raise them."

63
While many local governments may well be forced to increase tax
rates this year, the financial burden imposed by the property tax on
most low and moderate-income families and on the elderly is already
prohibitive. Studies done by the Advisory Commission on Intergovernmental Relations (ACIR) have indicated that property tax payments as a percentage of income are twice as high for the elderly as
for the rest of the population. Similarly, low-income homeowners
and, to the extent that the property tax is passed through, renters
expend a much larger percentage of their incomes on local property
tax payments. For instance, ACIR found that in 1970, households
which owned .homes and had annual incomes below $2,000 spent
one-sixth of their income on local property tax payments.
Many States have already begun to correct this problem by providing property tax relief for households on whom the tax imposes an
excessive burden. This relief is most commonly provided through a
State-financed property tax circuit-breaker. The circuit-breaker provides that the State reimburse the household for property- tax obligations in excess of a predetermined percentage of income. In this
manner, property tax relief is extended without undermining the
revenue base of the local government.
While 25 States have already enacted circuit-breakers for elderly
taxpayers and four States have enacted relief programs for lowincome families, the adequacy of the relief provided varies greatly
from State to State. The Federal Government could play an important
role in these property tax relief programs by providing incentives for
improving the adequacy of property tax relief offered by States to
low and moderate-income households.

Congress should give careful consideration to the enactment of a Federally financed program of property tax
relief as part of any effort to relieve the total tax burden
imposed upon low and moderate-income households and
families. Any Federal property tax relief program
should require significant participation by State governments and meaningful reform of local government revenue systems."
Statistical Programs
A great deal of ignorance about regional and area economies is a
result of the inability of the Federal Government statistical programs
to provide adequate and timely information about regional and local
economies. Information is very difficult if not impossible to obtain
about composition of local labor forces, composition of local industrial bases, the amount of vacant land available in a region, etc.
Several factors would seem to necessitate the improvement of Federal Government statistics about regional and local economies. First,
the increasing reliance on formula allocations (block grants) as a
method for distributing Federal assistance to State and local governments is dependent upon the availability of timely and accurate in' Senator Proxmire states: "This proposal is far too open-ended and potentially
extremely expensive. Property taxes are the province of the States and I see
no reason at all for the Federal Government to subsidize them."

64
formation so that proper allocations'can be made. Second specific
programs that are targeted to solve specific problems (i.e. public service employment) depend on the availability of information to select
regions and areas of critical need. Finally, and most important, better
information is necessary to evaluate the efficacy of Federal, State, and
local government programs to improve regional and local economies.
A task force for regional and local economic statistics
should be established to make recommendations for improving the information available about regional economies and State and local government finance. The
recommendations of the task force should be designed to
provide Congress the Executive, and the public with
meaningful and timely statistical information about local
labor markets, land use, housing, industrial composition,
State and local government finances, and other data that
might be essential for more effective regional economic
policies.

VIII. INTERNATIONAL ECONOMIC ISSUES I
The United States economy has become increasingly interdependent
with that of the rest of the world. Much of the United States inflation
during 1974 was the consequence of external economic forces-the
falling exchange value of the dollar from 1971 to 1973, the fourfold
increase in the price of imported oil, and dramatic hikes in commodity
prices, including metals and grains. At the same time, the U.S. response
to the present recession and continued inflation will have a profound
effect on the rest of the world. The current drop in output has caused a
sharp decline in America's demand for the products of other countries.
Nations highly dependent on the U.S. market for their exports will be
the most affected by whatever the United States does or fails to do to
reflate the economy. To compound the problem, a continued economic
slowdown in Europe and Japan would result in a drop in demand for
U.S. exports and thus intensify the current downturn in the U.S.
economy.
It is therefore important on both domestic and international grounds
that the United States take steps to insure economic recoverv. In
doing so, it should coordinate closely with other countries in the
Organization for Economic Cooperation and Development (OECD)
to gain the maximum benefits of expansionary policies without triggering further inflation.
In its economic program the Administration has paid far too little
attention to the interrelationships between our economy and the rest
of the world. We must become increasingly aware of external effects
in formulating our domestic programs.
Monetary Reforms
The single most serious international economic problem of 1974
was the adjustment to the previous year's quadrupling of world
oil prices by the Organization of Petroleum Exporting Countries
(OPEC) and the financing of resultant current-account deficits. The
growing use of floating exchange rates helped protect the international
monetary system from the massive capital flows that could have resulted from the accumulation of enormous cash balances by the oil
producers.
In .recent months, the value of the dollar has declined, apparently
due largely to falling domestic interest rates and uncertainty about
the ability of Congress and the President to enact a suitable program
for economic recovery. Moreover, Germany has fared better than had
been expected in maintaining a trade surplus, Switzerland has been
particularly successful in attracting capital flows.
The decline in the foreign exchange value of the dollar should not
be a cause for great concern on the part of American policymakers.
Studies conducted by the Joint Economic Committee indicate that
I These views are endorsed jointly by the majority and minority members of
the Committee.
(65)

66
the inflationary consequences of a drop of 2 percentage points on a
trade-weighted basis in the external value of the dollar would add
approximately 0.4 of a percentage point to either the Consumer Price
Index or the GNP deflator. Secondly, a drop in the exchange value
of the dollar helps bolster the international competitive position of
American industry. Finally, to the extent that American exports do
expand or imports are discouraged as a result of these modest exchange
rate changes, domestic economic growth is stimulated and unemployment reduced. The fundamental objective of expanding the money
supply at a more rapid ate than in past months and of reducing
interest rates is to pr uce a resumption of growth and to combat
unemployment. External developments acting to achieve the same
endsi QIshe-lA la

causen

n onb

npthnic rc

Sometime during 1975 the member nations of the International
Monetary Fund (IMF) are expected to be asked to ratify a schedule
of quota increases and a set of amendments to the IMF Articles of
Agreement. In January, the Interim Committee agreed to increase
quotas by a total of 37 percent, including a doubling of OPEC quotas
to reflect the oil producers' new wealth. The quota increase and the
revision of the Articles are both essential elements of the combined
package, since the future role of gold affects both. The Fund's Interim
Committee agreed in January that, contrary to former practice, none
of the quota increase would need to be paid in gold. The Committee
also agreed to abolish the official price of gold in a revised IMF charter.
Both of these changes require amendment of the existing Articles. Two
unresolved Questions regarding -old are whether central banks in the
future will be permitted to purchase gold on the free market, and, if
central banks are to use gold in the future to pay off debts from one to
another, at what price should these transactions occur?
The Joint Economic Committee in its last Annual Report, published
in March 1974, recommended abolition of the official price of gold as a
step toward transforming the metal into a commodity like other
metals. We feel this objective continues to be an appropriate long-run
goal against which to evaluate interim policy decisions regarding
gold.

Under no circumstances should the International Monetary Fund or any of its individual members commit
themselves explicitly or implicitly to the maintenance of
a minimum price in the private gold market.
Another unresolved issue regarding revision of the IMF Articles
is whether floating should be an equally acceptable policy option as
maintaining a fixed exchange rate. Since early 1973, most IMF members have either allowed their exchange rate to float independently or
have pegged their rate to another currency or currencies which are in
turn floating. Given this reality, redrafting the IMF Articles on the
presumption that the world will at some undefined future time revert
to an exchange rate system of fixed parities is a fanciful exercise. Intervention in exchange markets by monetary authorities, whenever it
occurs, should be temporary and directed primarily toward preventing
disorderly conditions in exchange markets.

Given the uncertainties created- by the sizable currentaccount deficits of the oil consuming nations, the dollar
should continue to float in exchange markets, and the

67
trend of this float should not be significantly influenced
in either direction by official intervention. The amended
IMF Articles of Agreement should make adoption of
either floating or fixed exchange rates equally acceptable
options. Whichever option an IMF member chooses, it
should be expected to abide by guidelines insuring that it
does not manipulate its exchange rate to export domestic
economic problems.
Avoiding Restrictive Trade Practices
The quadrupling of oil prices caused current-account deficits for
the oil importing countries of approximately $60 billion in 1974; the
same or somewhat smaller deficits are projected for 1975. While reliance on OPEC investment and other external financing can shift the
burden of paying for oil from the present to the future, the only
way the consuming countries can pay off the debt is to expand exports
of goods and services. With the overwhelming shock of higher import bills, it was feared that the drive to increase exports would lead
industriali'ed countries into unfair competition with one another
through purposeful depreciation of exchange rates, export subsidies, or barter deals offering especially favorable terms. Moreover,
if one industrialized country merely increases exports to its other developed partners, the collective deficit of the industrialized world
with the OPEC countries is not reduced. In May 1974, the OECD
countries pledged for one year not to resort unilaterally to any restrictive trade or financial practices that would shift the oil deficit
to other oil consuming countries. This effort to forswear "beggar-thyneighbor" policies has succeeded and should be continued.
In the first year of higher import costs, some countries have been
more successful than others in narrowing their trade gap. Japan,
for example, has mounted the most vigorous effort to increase exports. Japanese exports during 1974 were 50 percent above the previous year's level. Exports to developing countries, particularly in
the Middle East, increased fastest. In fact, trade of all industrialized
countries with OPEC countries, and particularly those in the Middle
East, has grown more rapidly than expected. Not only have countries
with large populations, more advanced infrastructure and resource
development (like Iran and Venezuela), increased their imports of
goods and services more rapidly than had been projected, but also
those countries with large revenues relative to the size of their
population and level of development (like Saudi Arabia) have also
shown a growing capacity to import both capital and consumption
goods. U.S. exports to OPEC countries during 1974 jumped by 87
percent, while total U.S. exports grew by only 38 percent.
Other countries have been less successful in expanding exports.
Italy, Denmark, and the United Kingdom have experienced difficulties in closing the current-account gap widened by increased oil payment. Now the widespread economic slowdown in the OECD countries further threatens export prospects. While the slowdown has resulted in somewhat lower oil import requirements, it has produced an
even greater drop in potential exports. Today it is important that
industrialized countries do not set up trade barriers in hopes of protecting domestic industries and maintaining employment.

*TheUnited States should seek renewal, in May 1975, of
the one-year pledge by the nations of the Organization of
Economic Cooperation and Development not to take unilateral, restrictive measures that would shift oil deficits
to other member countries.
By granting the President authority to negotiate the mutual reduction of tariff and nontariff barriers to trade, the Trade Act of 1974
has continued the momentum toward the gradual elimination of impediments to international trade. It has breathed new life into the
General Agreement on Tariffs and Trade (GATT), even though current economic conditions of rising unemployment and declining world
growth make it unlikely that major reductions in tariff barriers will
occur in Che immediate future. Hopefully negotiations will be fruitful at an early stage so that reductions can be phased in with economic
recoverv. A revitalized GATT will also provide a forum for monitoring trade practices and preventing unfair competition that might
otherwise result under the pressure of increased oil deficits and the
current global recession.
As a result of the mutual tariff reductions agreed to during the
earlier Kennedy Round of trade negotiations, tariffs levied by all
major industrial countries average 10 percent or less. While Japan
still has the highest level of tariffs, the United States has greater
variation in its tariff structure than either Japan or Western European
countries. Even in the United States, however, few high import duties
actutally make the difference betwen the survival of a domestic industry and its demise. Most tariffs have been reduced to such a low level
that they are more of a nuisance in conducting international trade
than they are a serious inhibition. Reducing remaining tariff barriers
on a reciprocal basis by an average of 1 percent or less each year
would not expose any domestic industry to severe adjustment shock.
With the gradual reduction of tariffs, nontarff barriers (including,
for example, quotas, variable import levies, some internal taxes, packaging requirements, and health and safety regulations) have become
the major obstacle to trade. These nontariff barriers, however, vary
greatly from country to country. making it difficult to agree beforehand on what are equivalent reductions. In the Trade Act of 1974,
therefore, the Congress empowered the Executive to negotiate with
other countries on an ad referenxdum, basis groups of nontariff barriers
that could be fairly traded off against each other. Congress retains the
option to reject any proposed deal which in its estimation bargained
away more than it gained. Because of the likely complexity of negotiations for progressive removal of nontariff impediments to trade and
the urospective need for separate negotiations on different types of
barriers among different groups of countries, these negotiations
should get underway with all due speed.
Since the heyday of mercantilists, efforts to free trade from restrictions have meant the removal of barriers to imports. The oil embargo
and price increases in 1973. however, added a new dimension to appeals for free trade. Instead of access to foreign markets, the emphasis shifted to the availability of supplies of agricultural commodities
and raw materials. particularly petroleum. These events have raised
serious questions for U.S. international economic policy. First, how

69
can we be assured in the future that supplies of imported raw materials critical to the health of the United States economy and not
produced in sufficient amounts here will be available continuously in
quantities sufficient to maintain desired levels of production? Second,
how can occasional sharp increases in the domestic prices of commodities exported from the United States be avoided without periodically
abandoning overseas markets that are essential if major sectors of the
American economy are to earn satisfactory incomes? Pursuing domestic price stability at all costs and periodically ignoring regular
foreign customers risks the loss of foreign markets for U.S. agricultural products and raw materials.
While the current economic slowdown has led to a surplus of most
commodities worldwide, these concerns should not be forgotten, as
they are likely to re-emerge with any period of worldwide economic
upturn. In 1974 Congress established the National Commission on
Supplies and Shortages to study resource adequacy and identify
impending domestic and international shortages. Difficulties in selecting the advisory committee should be resolved quickly so that the
Commission can promptly carry out its mandate. The Trade Act of
1974 authorizes the Executive to consider how such access to supply
can be guaranteed and to initiate discussions. The Executive would,
of course, have to seek congressional authorization before assuring
access to U.S. commodities in exchange for similar foreign commitments.
With the authority granted under the Trade Act of
1974, the President should aggressively seek on a reciprocal basis the elimination of nontariff barriers to trade
and the removal of statutory tariff barriers between
industrialized nations.
The President should also attempt to reach multilateral understandings regarding the availability of commodities and raw materials. He should report to Congress
periodically on the progress of these discussions. We
should seek assured availability of essential materials
imports. In exchange, the United States should offer potential recipients of food aid and our regular export
customers assured access-given prior satisfaction of
minimum domestic needs-to supplies of U.S. agricultural products and raw materials.
Financing Oil Deficits
The enormous flows of so-called "petrodollars" accruing to the oil
producing states as a result of higher prices, it was feared, would
cause a collapse of the international banking system. This fear has
not been borne out. In 1974 the international banking system was not
strained unduly by the $60 billion in current-account surpluses of the
oil producing countries, nor has any single market been the recipient
of excessive amounts of these surplus- funds. Commercial banks
directly and indirectly channeled more than half of these funds back
to the oil consuming nations. The remainder was granted as aid, placed

70
directly by the producers in investments outside their own countries,
or channeled through international financial institutions.
In 1975 oil deficits for consuming countries have been projected to
be approximately of the same magnitude as in 1974. Because of the
increase in expenditures on goods and services by the producing countries and the declining demand for oil worldwide, these estimates
may well be exaggerated. In all likelihood, however, surpluses will be
smaller in future years. Hence the numerous scary projections of
accumulated OPEC surpluses of more than $400 billion by 1980 now
seem vastly overstated.
The pattern of financing oil consuming countries' deficits in 1975,
according to the January issue of Morgan Guaranty's World Financ'ilMarkets, may be quite different from thut of 1974. The rate of
lending by the private banks has declined. During 1974, as the
derived from petroleum sold at high prices accumulated, revenues
producers continued to place their funds in short-term deposits,the
as they
had done in the past. By the second half of 1974, many banks were
approaching their limit on the amounts of short-term funds that they
could loan out. As a result, interest rates in Eurodollar markets
to fall off. To some extent, the producers have begun to diversifybegan
their
placements to a wider variety of banks and into longer term deposits.
The process of shifting these surplus funds into longer term accounts
and direct investments, however, has been slow and, as a result of a
decline in all new international lending, international banks probably
will handle only one-fourth to one-third of the current-account surplus of the OPEC nations in 1975.
Apprehensions remain 'about the ability of banks to handle these
petrodollar flows in the future. During 1974 the series of bank failures
linked to imprudent foreign exchange speculation, rather than oil
financing, intensified concern about the overall soundness of the international banking svstem. In response, the Comptroller of the Currency
has devoted special attention to potential problem banks and tightened
scrutiny of foreign loans and other assets of U.S. banks. Federal
Reserve Board Chairman Burns. in a speech last fall to the American
Bankers Association, discussed the need for new regulatory meaures
to insure sounder banking practices. Clearly these efforts to strengthen
hank safeguards should be reinforced lest the entire banking system
he jeopardized by errors on the part of a few individual banks.
Official Recycling Mechanisms
Several official recycling mechanisms have been established
insure
that a country which has exhausted its ability to borrow intocapital
markets will be able to obtain emergency oil import financing. These
facilities supplement private lending and remove the possibility of
total default on a large number of outstanding debts. Bv borrowing
funds directly from the oil producers, the IMF special oil facility
has been able to make financing immediately available, though at
near-commercial rates, to heln weaker economies strapped bv increased
import costs. In .Januarv 1975, the IMF Interim Committee agreed
to expand this oil facilitv bv "6.1 billion, making the total of $7.5
billion available for leading in 1975.

71
Also in January the Group of Ten countries agreed in principle
to establish the $25 billion oil solidarity fund proposed by Secretary
of State Kissinger in a speech on November 14, 1974, and later amplified by Treasury Secretary Simon. This mutual aid fund, to be set
up under the OECD umbrella, would be designed to provide a safety
net for the industrialized countries after they had exhausted private
market and international institution borrowing. Since many of the
specific details are still being negotiated and legislation has not yet
been introduced, it is difficult to come to a final judgment on the proposed facility. However, there are important problems Congress should
keep in mind in assessing the legislation for this proposed fund.
As part of the effort to achieve consumer solidarity in dealing with
OPEC, the proposed fund links eligibility to borrow to a country's
willingness to cut oil imports. This conservation effort would reduce
balance-of-payments burdens and hopefully bring downward pressure on world oil prices by decreasing the demand for OPEC oil. While
energy conservation in the long run is desirable for all consuming
nations, the stringent goal of a 10 percent cutback set by Secretary
Kissinger may be too much to achieve by the end of 1975. Severe immediate cutbacks could injure the ability of an economy to grow and
pay for oil imports. Even in the longer term, uniform cutbacks would
be arbitrary and could cause disparate burdens. For example, a 10
percent cut in Japanese petroleum consumption would directly affect
industrial production, while similar conservation could be achieved
in the United States by cutting waste and nonessential consumuer use.
The emphasis, therefore, should be placed on meaningful long-term
conservation efforts rather than on severe immediate cutbacks.
By preferring the Kissinger-Simon safety net to a larger expansion
of the IMF oil facility, the United States has assumed a greater percentage of contingent liabilities. Although no specific figiure for U.S.
participation has yet been set, the U.S. share-by any of the criteria
being discussed-is likely to be between 25 and 30 percent, as opposed
to our 21 percent of all IMF quotas. This country, however, has not
attracted a disproportionate share of. surplus revenues from the oil
producers. If the same pattern continues in the future, drawings on
the safety net would cause the U.S. Government to borrow in capital
markets in competition with domestic borrowers.
By linking the safety net to oil import cuts, the Administration
apparently hopes that the resulting drop in world oil prices will
ease the financing burden imposed on deficit countries. Nonetheless,
borrowers will have to run trade surpluses with either the oil producers or with the lenders, like the United States, if they are to repay
their loans. The basic purpose in providing the safety net for additional financing is to extend the adjustment period so that countries
will not have to resort to competitive trade and exchange rate practices or undertake radical domestic economic adjustments. However,
these commitments to assure financing for other countries' current
consumption should not be open-ended. Present plans would limit
authority for the proposed oil solidarity funds to two years. And in
order to assure that the proposed facility achieves its purpose, drawings on the fund should be linked to specific domestic and external
economic policies which will restore credit worthiness of borrowers

72
and reduce the need for future financing. Without such assurances,
the proposed mutual aid fund would become a massive foreign aid
program rather than the "financial safety net" that has been proposed.
If Congress authorizes U.S. participation in the proposed $25 billion oil financing agreement, whether by extending loans or by offering guarantees, it should insure
that there are adequate safeguards to assure future
repayment. Moreover, the fund's authority should be
limited to two years. 2
Foreign Investment in the United States
Increasingly the OPEC nations will less rely on deposits in financial institutions and put their revenues in government-to-government
loans, foreign assistance grants, or in direct and portfolio investments.
During 1974 OPEC countries gave $9 billion to governments directly, of which $6-/2 billion was lent to the industrialized countries.
Despite al of the concern with direct and portfolio investment by
OPEC nations in the United States, it has been very small. The producers have continued to be cautious, maintaining their preference
for short-term deposits, government securities, and, to a lesser extent,
real estate. The Treasury estimates that in 1974 the producers placed
somewhat less than $1 billion in direct, portfolio, and real estate
investments. Morgan Guaranty totals show only about $500 million.
In comparison with Commerce Department estimates of the book
value of total foreign holdings in the United States of $55 billion in
1973, these additional amounts are insignificant. Furthermore, private
surveys of total existing foreign investment suggest that the Commerce
Department's estimates may be substantially understated due to poor
reporting in past years. Hopefully the new benchmark study of existing foreign investment and the review of reporting requirements,
called for under the Foreign Investment Study Act of 1974, will
substantially improve available information.
There is growing concern that if the United States were to receive
a larger share of OPEC surplus funds, and if it were to place these
funds in direct investments rather than bank deposits, bonds, or government securities, OPEC would gain control of an important part
of our economy and use this leverage for political purposes. These
fears are in a large part exaggerated. Even if the United States were
to attract as much as one-third of the present annual OPEC surplus,
or $20 billion, and it were all invested directly, it would represent only
a fraction of the expected $220 billion expected gross private domestic
investment in 1975, and an infinitesimal share of total corporate assets
(estimated at $2.5 trillion in 1973).
The inflow of OPEC funds (in direct and portfolio funds as well as
in bank deposits and government securities) constitutes an offset to
the additional cost of oil imports. While the quadrupling in 1973 of oil
'Senator Proxmire states: "I would oppose a program under which the United
States would put up or assume liabilities of $7 to $8 billion. Secretary Kissinger
should understand that Congress would most likely reject such a massive
commitment on top of the outrageous increase In the price of oil already assumed by the American people."

73
rices has depressed output and, hence, gross savings in the United
States, investment from abroad, if used to expand plant capacity, can
raise future output and help pay off foreign debt. In the longer term,
it is likely that the OPEC producers' own development needs and
ability to absorb funds domestically will be such that they will be inclined to liquidate their foreign investments in favor of investments
in their own countries.
The United States, until now, has basically welcomed foreign investors and accorded them equal treatment with domestic investors.
This policy is consistent with the Government's efforts to gain equal
treatment and protection for U.S. investors abroad. In a few industries
(defense, communications, coastal shipping, and commercial' aviation),
the United States has placed restrictions on foreign ownership. In
other sectors of the economy, the Government can monitor foreign acquisitions through its regulatory and licensing powers. In the case of
banking, the Federal Reserve has blocked foreign takeovers only for
antitrust reasons. While the Foreign Investment Study Act, in addition to the benchmark study, requested a major analysis of economic
effects of concentration of foreign investments in any sector or industry, its recommendations will not be available before 1976. Although
this kind of thorough analysis is necessary, there is growing concern
now that OPEC countries will have made sizable purchases before we
have made up our minds on a policy.
Further legislation already appears necessary to regulate foreign
banking in the United States. This need arises because of the division
of control over banking between the Federal Reserve System and the
States. As a result, foreign banks have gained advantages which domestic competitors do not have by being able to branch in more than
one State. Furthermore, as they become larger and more numerous,
these State-chartered banks can affect domestic monetary policy because they are not required to hold reserves with the Federal Reserve.
State-chartered domestic banks do not at the moment pose such a
threat because they remain small and without international contacts.
To avoid giving foreign banks a special competitive advantage and to
insure oreater control over the domestic money supply, all foreign
banks s-hould be federally chartered as proposed in legislation introduced in the last Congress.
For some time Arab governments have boycotted certain firms that
trade with Israel. Recently some Arab financial institutions have
attempted to pressure American and European banks to follow the
same policy. We deplore this effort to extend the boycott to firms in
the United States. As President Ford recently said, this use of economic leverage is repugnant to the principles of American society.
U.S. firms are explicitly barred from participating in any such secondary boycott and would be liable for any discriminatory action that
violates U.S. law. Foreign firms operating in the United States must,
of course, also comply fully.
The recent bid of the Iranian Government to buy a 13 percent
share in Pan American Airways, however, has pointed up some of the
deficiencies of using the present regulatory process to review foreign
investments without having previously established a clear, overall
policy. Such a process provides no opportunity to re-evaluate broader

74
issues: What criteria should be used to determine when it is essential
to maintain control over American industry, if ever? Would denying
a faltering U.S. company access to foreign capital require the Federal
Government to provide a subsidy? Although U.S. law forbids discriminatory practices by foreign investors in the United States, are
current enforcement efforts rigorous enough? A rush to restrictions,
on the other hand, might discourage all capital inflows. If could also
spark further nationalization and capital controls in other countries,
which would be detrimental to American investment abroad.
There is and should be concern about foreign investments in the
United States. whether by OPEC countries or by large multinational
firms. In the past, U.S. companies have argued that their foreign
UIreVU illI VeL1en, ULarutu Was 111 bIRl U.0. niatfllaol ifitrli. lb iiicrea,3u
the national wealth and served U.S. foreign policy objectives. This
contention has been questioned by organized labor. The Congress must
now begin to rethink to what extent the investment by foreigners in
the United States is in the national interest.
The United States should continue to encourage OPEC
nations to place their funds in longer term investments
to facilitate the recycling process. In order to provide
adequate national security safeguards over the inflow of
capital into the United States, the Congress and the Executive should review reporting requirements and procedures for screening investments. We must carefully
monitor the activities of all firms to insure that they do
not discriminate on grounds of race, creed, color or sex
or otherwise violate U.S. law. The outcome of this review
should be a coherent national investment policy.
Aid to Developing Countries
Increased oil costs have hit the poor countries most severely. While
the actual increases in their oil bills are small compared with those
of the industrialized countries-only 5 percent of the total $60 billion disequilibrium-they are large for the poor. What is more. many
developing countries are suffering from rising food costs and from
loss of exports due to economic stagnation in the industrialized countries. Even those producers of raw materials other than oil who have
benefited by the commodity boom (1972-74), now face sharply declining revenues. Their balance-of-payments deficit doubled from
$10 to $20 billion in 1974, completely nullifying OECD assistance
efforts.
During the last half of 1974. more than 23 developing countries
borrowed from the $3.4 billion IMF oil facility established in August
1974. While oil facility loans were not at concessional rates (7 percent
and five to seven years), drawings could be made immediately merely
on the basis of an increase in oil import costs. Additional deficit financing for the poor countries has been provided by aid from OPEC countries. The OECD's Development Assistance Committee estimated
that OPEC nations committed $8.6 billion in aid to poor countries
between January and September 1974, not including more than $1 billion of which was loaned to the World Bank. Actual disbursements of

75
bilateral aid have been estimated at approximately $2.5 billion for
1974. For the remaining financing, poor countries drew down their
reserves and in some cases were able to borrow in the world's capital
markets. To the extent that the poor countries' needs were not met,
they imported less and their real standard of living declined.
The needs of the non-oil-producing developing countries will be
greater in 1975 if they are to maintain even their present rate of
growth. With near-zero growth in the industrialized economies
through the. first 'half of 197, the developing countries will experience continued loss of export revenues. Uncertainty in world capital
markets and growing debt burdens have also begun to squeeze those
developing countries which had previously been able to finance part
of their needs at commercial rates.
The most important factor influencing prosperity in the developing world is the rate of growth in the industrialized countries. To the
extent that the OECD countries are able to finance their deficits and,
not resort to restrictive trade and financial practices, the problems of
the developing world will be less serious. Restoration of the trend
rate of 5 perc ent growth of GNP for the OECD countries in 1976
would make an important contribution to: the solution of the problems of developing countries. However, because the poorer countries
have difficulty making the internal adjustments needed to develop
new exports quickly, an additional $3 or $4 billion of support is
needed to restore reasonable rates of growth, i.e., 2 percent per capita
per year." Some of this aid may come foem the OPEC countries themselves, although recent figures show that OPEC assistance as a percentage of GNP far exceeds that of the OECD nations. The oil producers should certainly be encouraged to participate more fully in the
concessional lending activities of the international development banks.
The United States and the other OECD countries must also continue
to support this effort.
At its January meeting, the IMF Interim Committee agreed to
establish a special account to subsidize the interest rates charged on
loans, made from the IMF oil facility to poor countries. A subsidy of
about 5 percentage points would be financed jointly by the oil producers and industrialized coumtries. So far, the United States has done
little to support this commitment. There is no provision in the 1976
budget for a U.S. contribution. Lest the IMF make hard loans to
developing countries that cannot afford them and that will only need
further assistance in the future, the United States should support the
IMF special account.
In continuing its commitment to assist poor countries,
the United States should support the International
Monetary Fund's special account to subsidize loans
from the expanded oil facility to those developing countries most seriously affected by higher oil prices. The
United States should also encourage the oil producers to
support this account and to assume an expanded role in
financing thr international development bapks-particularly the cwicessional lending activities.
8
Hollis B. Chenery, "Restructuring the Wofid Economy," Foreign Affairs,
January 1975, p. 262.

SUPPLEMENTARY VIEWS OF VICE CHAIRMAN PATMAN
This is a good Report and I agree with most of its findings and
recommendations as far as they go. However, the recommendations
concerning the Federal Reserve Board and its monetary policies don't
go far enough.

At one point, the Report states that the Federal Reserve Board of

Governors should be required to present snpecifie

evidleno,

that

mne-

tary policy has been conducted in a manner designed to achieve the
employment, price, and output targets established by Congress and
to discuss the policies needed to achieve such targets in the future.
Elsewhere in the Report, it is said that the present situation of
very weak credit demand and worsening recession is one in which
further moves toward monetary ease are urgently required. Shortterm interest rates should be reduced further, and the monetary authorities should also take steps to influence long-term rates directly.
I agree with these recommendations, but I have no confidence that
the Federal Reserve Board will ever cooperate so long as it considers
itself independent of the Government.
Congress must make the Board accountable to it and the President.
Anything less than this will simply assure continuation of the Board's
practice of conducting policy as it pleases without regard for the
Employment Act or other requirements of congressional economic
policy.

Specifically, Congress should approve legislation which reduces the
terms of Board members from the present 14 years to 4 years and be
co-terminonus with that of the President. As it is now, Board members
frequently have what amount to life terms. More to the point, the
14-year terms prevent the President from appointing a majority of
Board members during his tenure even when it extends to two terms.
For the same reason, the term of the Federal Reserve Board Chairman should be made concurrent with that of the President. With these
changes, a newly elected President would have the immediate option
of nominating the Board chairman of his choice and would be able to
appoint a majority of Board members during his first term.
The present situation regarding the Federal Open Market Committee portfolio can only be classified as ridiculous. The Federal Reserve, a Federal agency, purchases the securities with credit of the
TT.S. Government and thereby ineurs a debt owed by another Federal
agency, the Treasury. In effect, the Federal Government ends up
owing monev to itself on Federal securities purchased with its own
Federal eredit. Moreover, the Federal Reserve, without any restrictions
(76)

77
whatsoever, utilizes whatever portion of the $6 billion in interest payments it wishes to finance its operations and turns back the remainder
to the Treasury at the end of the fiscal year. In this way, the Federal
Reserve, a Federal agency, remains financially independent from either
the executive or legislative branches of government.
This is an intolerable situation. No interest should be paid to the
Federal Reserve on Federal securities it holds for trading purposes.
Rather, the Federal Reserve should be made to rely solely on Congressional appropriations, and thus be answerable to Congress and the
Administration regarding broad, long-term monetary policy issues.
Finally, the General Accounting Office should be authorized by law
to annually conduct a full-scale audit of the Federal Reserve System.
The Federal Reserve System is one of the most, if not the most, important agency of government in determining whether the Nation shall
have prosperity or recessionary conditions because it regulates the flow
of the country's money supply and implements other policy decisions
which, in turn, decide the level of interest rates, prices and the level of
employment. In addition, the Federal Reserve handles an amazing
volume of financial transactions. In 1972 alone the Federal Reserve
handled 35 billion pieces of paper worth $24 trillion in addition to
holding $84 billion in Federal securities. In 1974 it processed 10.8 million checks with a value of $3.3 trillion. Yet, despite its paramount
importance to the Nation's economy, the Administration and the Congress know only what the Federal Reserve itself wishes to disclose
regarding its activities and programs. It is, in fact, the only important
agency of government which is not audited by the General Accounting
Office.
To immediately remedy this situation, I have introduced H.R. 4316,
co-sponsored by 101 Members of the House to require the Federal
Reserve System to undergo a full-scale audit by the General Accounting Office. I have already begun hearings on this legislation and I hope
this measure is speedily adopted by the full House Banking, Currency
and Housing Committee as wellas the House as quickly as possible.
Reforming the Federal Reserve System in this way would make the
Federal Reserve Board fully accountable for its actions and programs
and responsive to the economic policies of the Administration and
Congress. Furthermore, with these changes, Congress would continually occupy a strong position to exert influence over the Federal Reserve regarding the allocations of credit to priority areas of the economy. In effect, the Federal Reserve would have to exchange its attitude of ignoring the wishes of Congress for a continuing willingness
to coordinate its programs and activities with the economic goals of
Congress. In my view, this is the most effective way of bringing the
Federal Reserve in line with the executive and legislative branches of
government.
An alternative, in the absence of any other change, would be the
enacting of specific legislation directing the President and/or the
Federal Reserve Board to allocate credit to prescribed areas of the
economy. This, in fact, was the course that I took when I introduced

49-768 0 - 75 - 6

78
H.R. 3160, which required the Federal Reserve Board to conduct
monetary policy so as to reduce long-term interest rates and unemployment; and H.R. 3161, to require the President to allocate credit
to priority areas of the economy, using the Federal Reserve System
for this purpose if 'he so chooses. Both of these bills were approved by
the Domestic Monetary Policy Subcommittee of the House Banking
Committee. Unfortunately, only H.R. 3160 has been taken up by the
full Committee; and when it was, it was reduced to the status of a
concurrent resolution. As such, it merely amounts to an expression of
opinion by Congress and completely lacks the force and effect of law.
The Federal Reserve Board is free to ignore it and history indicates
it will do so if the Board wishes to follow another course. Only a coinsidence between the intent- nf the -resluntion and
qnth
deicisions of the
Federal Reserve Board will result in compliance and that itself may
be only momentary.
It should be recognized that the use of central banks for the purpose
of allocating credit to desired areas of their economies is standard
procedure in most industrialized nations. For example, Japan, for
the past 30 years with the use of its central bank, has managed to
generate real per capita growth at a rate which is two and three times
that of the American economy. Sweden, which also uses its central
bank in similar ways, has a per capita growth rate substantially higher
than ours. Switzerland has one slightly above us and West Germany
is in the process of passing us. The examples which these nations have
set should serve as ample refutation to assertions that allocation of
credit to priority areas of the economy through our central bank, the
Federal Reserve, would be a dangerous mistake. In point of fact, it
continues to be a dangerous mistake not to use the Federal Reserve
for this purpose.
It is a matter of record that I have long advocated establishment
of a National Development Bank patterned after the RFC which
played such an instrumental part in helping the nation recover from
the depression and to marshal the monumental financial resources
that were needed for the Nation's World War II effort. The benefits
provided by the RFC had great impact on every level of the economy.
But its most important achievement was the provision of credit to
loan starved priority areas of the economy-small business, State and
local governments and housing. Its loans put men back to work and
gave the people hope and confidence.
There should be no question in anyone's mind that the Nation is in
great need of a National Development Bank to pump adequate credit
at reasonable cost into those areas of the Nation's economy that have
virtually come to a standstill because of high interest rates and tight
money conditions-conditions which the Federal Reserve Board's
misguided monetary policies have played a major role in creating.
A National Development Bank, such as the one I promised when
I introduced H.R. 1955, on January 23, 1975, should be established
but in no way should it be used as a mechanism to bail out large finan-

79
cially ailing corporations or the large commercial banks which have
made bad loans to these business giants.
A National Development Bank should be a people's bank. It should
provide adequate credit at relatively low cost for low- and moderateincome housing, for small business and industry to create job training
and employment opportunities and to State and local governments
for urgently needed public works and facilities.
It should also be used to finance technological innovation to develop
improved methods for the utilization and conservation of energy
and other vital national resources. This aspect of the National Development Bank's function is particularly vital since the area of technological innovation is one which is chronically starved for credit
whether the economy is stable and prosperous or bordering, as it is
now, on depression. This is true because many large corporations,
which could afford the investments needed for technological innovation, have little incentive to do so because they occupy such dominant
positions in their markets.
Congress should speedily pursue the matter of allocating credit to
priority areas through a National Development Bank and through the
monetary and regulatory mechanisms available to the Federal Reserve. Congressional action on this subject is desperately needed.

SUPPLEMENTARY VIEWS OF REPRESENTATIVE
HAMILTON
The essence of the Committee's majority opinion is that a program of
strong economic stimulus is needed to reverse the recession and revive
the economy, and I subscribe to that view. Fear of a large deficit or a
resurgence of inflation should not deter us from a program of greater
stimuluis than t~he President has recommended in his economic and
energy proposals.
At the same time, I have some concern with the magnitude of the
stimulus suggested by the tax reduction and new expenditure figures
in the majority report. I find myself somewhere in between the only
slightly stimulative program of the President and the vastly stimulative program of the majority report. For this reason, I do not
wish to endorse the specific receipts -and expenditures figures in the
majority report.
The majority report also endorses several new social programs for
health care, housing, unemployment and anti-recession grants to State
and local governments. While I subscribe to the objectives of these
programs, and may very well support them when they come before
the Congress for consideration, as a new member of the Committee,
I do not feel that I have examined each of them in sufficient depth to
endorse them unreservedly at this time.
(80)

SUPPLEMENTARY VIEWS OF REPRESENTATIVE LONG
In my opinion, this Report presents an accurate assessment of the
present condition of the economy, our most pressing national concern.
The proposed recommendations are the result of much testimony by
official and private economists, as well as experts in a number of fields
relating to the economic management of the Nation. To me, it is both
important and significant to outline briefly how these recommendations
were reached.
The Administration, in its Economic Report of the President for
1975, made recommendations which included the need for a strong
program to stimulate the economy. Experts and economists-both
Democratic and Republican, liberal and conservative-uniformly
agreed that such a program of strong stimulus was needed urgently.
Consequently, I am of a mind to go along with these recommended
programs, especially in view of the overwhelming support for the
general approach that the Committee has taken.
We all must be reminded, however, that the line one must draw
between those policies needed to combat inflation and those policies
needed to combat recession-and the varying degrees of each-is
extremely difficult to define, and the degree to which we must implement these policies is equally difficult to ascertain.
Personally, I am concerned about the extent of the recommended
stimulus and, as I have indicated in the body of the report, I am concerned about the size of the deficits for 1975 and 1976 that these policies of stimulus would create. My other concern, as indicated in the
report, is with the Committee's posture on the subject of the oil depletion allowance.
My reservations are partially alleviated, however, by the Committee's use of "trigger mechanisms" that automatically implement policies as the need arises. I am referring particularly to the emergency
public service employment recommendations, which add on jobs as the
level of unemployment climbs. This mechanism is a sophisticated
method of defining the line between policies needed to combat inflation
and policies needed to combat recession, and it provides an appropriate
method of implementation as well.
Of course, we must be wary of any solution to our economic difficulties that places sole responsibility on the shoulders of the Federal
Government. I am one who believes that the Federal Government
cannot do everything, that the efforts of State and local bodies are vital
to the success of any program, and that all Federal programs must be
carefully constructed to preserve the integrity and autonomy of State
and local governmental units. Also, we must encourage full participation by our private business sector so that the Nation can benefit from
the many resources and capabilities of our free enterprise system.
Finally, I am convinced that public and consumer confidence is essential if we are to turn the economy around. I am confident that the
recommendations embodied in this Report can and will do the job,
especially, if they are expeditiously implemented, carefully monitored,
reviewed and revised as needed to meet changing circumstances, and
are given whole-hearted support by the American people.
(81)

Minority Views
on the
February 1975
Economic Report of the President

'Senator Javits states: "I cannot agree with certain of the findings and conclusions of the Minority, specifically, as to how to and how much to reduce oil consumption, the size of the deficit and the appropriate monetary policy to stimulate
the economy without rekindling inflation, and the best way to assist the unemployed. Therefore, I have submitted supplementary views to discuss my own
opinions as to these matters."
Norw-These Minority Views are not directly responsive to the issues and
recommendations included in the committee report. The extremely tight schedule
prescribed by law does not provide sufficient time for the Minority Members to
receive and analyze the report written by the Majority, and then develop views
based upon It. Consequently, as has been true in recent years, the two reports
have been developed concurrently, and the Minority's Views are independently
based upon the 1974 President's Economic Report, other messages and this committee's hearings.
(83)

CONTENTS
page

I. Introduction
_-------_-_-_-_-_------_-_-_-_87
II. Fiscal polcyIII. Monetary policy--_--__----___----_---------_-_-_
IV. Energy _---------------_-_-----_-_-_-95
V. Productivity --------------------------VI. Employment
_-------_-_-__-__---_-__-100
VII. Revenue sharing--___------------_---------_102
VIII. Agriculture -__----------__----------__-----_--105
Supplementary views of Senator Javits _-_-_-_-_----_-_Supplementary views of Senator Percy
_-_-_-_-_-_--_-116
Statement of Senator Taft _____-____-_-__-_----_-_-_-_-_-_-_
Supplementary views of Senator Fannin _-__-_-_-_-_---__-__-_Supplementary views of Representative Rousselot
_-(85)

89
92
98

110
133
134
135

I. INTRODUCTION
By almost any comparison, 1974 has been a difficult year for the U.S.
economy and for the world economy as well. Economic news has dominated world headlines in spite of significant political developments
in almost all parts of the world. The shock of the fourfold increase in
crude oil prices not only adversely affected economic life in 1974, but
will possibly be the most significant development of the decade with
respect to our standard of living. The effect of the massive transfer
of wealth to oil producing countries and efforts at home to control inflation induced partly by higher oil prices have combined with the
natural course of the business cycle to create a recession more severe
than any of the postwar period. These problems have been frankly
presented by the President in his budget message.
The details of our economic dilemma have been described by analysts
and politicians to an almost unprecedented degree; there is no want
of words to describe the afflictions of today's economy. However, as we
view our Nation's economy and the economic problems of the world
in general, we are struck by two disturbing distinct phenomena which
will influence standards of living and the role which we must expect
from government in the near and far term.
First, the world is undergoing a political crisis of leadership change
at a time when the economic and international problems facing us demand the highest statesmanship and political strength. Witnesses before this Committee have expressed alarm at the seeming lack of public
confidence' in institutions by Americans. In instance after instance',
political leaders of governments around the globe have been removed
from power. Only 10 of the 24 OECD countries, for example, have the
same President or Prime Minister as they had at the beginning of 1974.
One characteristic of mature democracies has been the transfer of government accomplished in an orderly fashion. However, there is an
inevitable testing period when the policies of a new Administration
are not yet completely formed. Throughout the world, the past year
has seen many such periods of testing new policies, and the United
States is no exception.
This political phenomenon is important to economic policy because
of its impact on consumer confidence. Many writers and analysts
emphasize the need for consumer confidence in seeing our way out of
our current economic dilemmas.
The second phenomenon is also related to consumer confidence. This
phenomenon has been analyzed in this Committee as well as in publications of other organizations. It is the extent to which increased taxes
have contributed to the current inflationary spiral. As we discuss below, spiraling taxes are a problem which the American people have
visited upon themselves, but makes them no less serious.
A recent report of the Subcommittee on Consumer Economics of the
Joint Economic Committee found that higher tax payments in 1974
(87)

88
outstripped all other price increases in consumer budgets this year.
The Conference Board has concluded that during the last 6 years
income and Social Security taxes have risen nearly 65 percent for the
average family while the cost of food, housing, clothing and other
goods and services has risen only 35 percent. The Conference Board
analysis indicated that the highest premium that a family pays now
to maintain the same standard of living it enjoyed in 1967, is the tax
premium. This premium is greater than the increase which a family
must spend on food, on housing, or on any other personal expenditure.
We are sure that this point has not been lost on the American taxpayer. Whatever the trials of having to pay higher food prices, the
burden of having to pay even higher taxes must provide a clear
t
has bvc
luessage thlat therlerole of guviL-Luneii ini Uhis0 curLw.
large and too oppressive too quickly for our own good.
Unfortunately we have operated on only half of the Keynesian principle over the last decade. That is, we have "primed the pump" and
had deficit spending to stimulate the economy during periods of slack,
but when we were operating at capacity with full employment, such
as during the latter years of the Vietnam War, we did not effectuate
tax policies which countered inflation and overstimulation.
Given the rather dismal economic scene, the goals for economic
policy in 1974 must be modest. We cannot hope to right the economic
wrongs of a decade within a single 12-month period.

The most we can realistically expect to achieve this year is to
lay a sound basis for a sustained, long-term, recovery. In this
regard, we would stress that what the economy needs now is a
slow, but strong and steady growth towards full employment
and capacity output so that we do not reinflate too quickly.
We are all too aware of the mistakes made by policymakers in the
recent past. We have always known that too rapid and unnatural a
governmental stimulus toward economic growth is self-defeating in the
long run. The lesson of 1972 is that ik can also fail in even the short
run. The lesson of the past 200 years is that what made this country
great was not the ability of government to solve its problems but the
ability of individual Americans to create the largest free market economy in the world. That ability is a function of confidence that government will not frustrate the rewarding of individual initiative.

II. FISCAL POLICY
The course of fiscal policy during the next one and a half years will
be very important in determining the nature of government activity in
the economy for a decade or more. This is because the need for fiscal
stimulus, with which we do not take issue, could be confused with
the need to enact large new spending programs or permanently increase those in existence.
The President has proposed' a $53.7 billion deficit. for fiscal year
1976, and the combined fiscal 1975 and 1976 budgets are planned to
have a combined deficit in excess of $80 billion. Frankly, we are
alarmed at the size of this deficit, even though we realize that there
is a good theoretical basis for it and that the full-employment budget
projections show a substantial surplus for each of these'years. Witnesses before the Committee have split on the issue of the optimum
size of the deficit, but we take seriously the recommendations of the
Federal Reserve Chairman Arthur Burns that Congress should strive
to hold spending below the level projected by the President.
As a practical matter, government spending is likely to be considerably in excess of the $351.2 billion total on, which the $53.7 billion
deficit figure was based. This is because the 1976 Budget does not
cover an estimated $11 billion of off-budget items; nor does it include
$15.3 billion in rescissions and deferals which were advocated by
the Ford Administration in the fall of 1974, but which the present
Congress is unlikely to enact.,
These facts indicate that Congress must watch the overall
budget figures very closely as it enacts appropriations measures
during the coming months. In this setting, we believe that if we
must tolerate huge deficits, because of the need to ameliorate
the hardship posed by high unemployment rates, then these
deficits should be focused on extended unemployment compensation benefits, public sector jobs, and other such measures that
will bring relief to those persons who suffer most from the
current situation.
We fear that a Congress obsessed with painless, short-term solutions
to the current economic problems will add too casually to the deficit
already proposed either by ineffective increases in spending, overriding rescissions of wasteful programs or both.
The Congress must give careful consideration to the spending
levels suggested for fiscal year 1976 in the President's Budget
because our political system places the budget initiative with
the President. But Congress also has an opportunity and a responsibility for initiative as well.
1
At this Committee's Annual Hearings, Donald T. Regan, Chairman of Merrill,
Lynch & Co., Inc., indicated that we cannot have much more than $75 billion of
deficit financing in fiscal year 1976 without crowding out private borrowers and
having a severely retarding affect on economic recovery.
(89)

We are now in a war against depression and against the energy
crisis. The seriousness of this situation dictates that Congress
carefully establish its own priorities and determine jointly with
the President spending levels for fiscal year 1976 as the year
and the economic energy situation develop. Just as the President
has approached his budget responsibility, we strongly believe
that Congress must use every discipline within its power to hold
spending to reasonable levels and to the extent consistent with
economic recovery, we must look to new revenue sources such
as increased luxury taxes to finance additional expenditures.
Our second concern with the President's Budget lies in the extent
to which the Federal Government is becoming increasingly "locked
in" to Federal programs which inevitably compound their costs over
the years. So called relatively uncontrollable outlays now account for
74 percent of all budget outlays compared with 64 percent 5 years
ago. This suggests that Congress has been making larger and larger
claims upon our future resources, creating an overhang of spending
proposals to be forced on future Congresses and Administrations.
Another way of describing this phenomenon is to chart the extent
to which the Government, as it enters a fiscal year, is encumbered
by unspent authority which has been enacted in previous years. The
record shows that the Federal Government is suffering increasingly
from a "fiscal overhang" of unspent authority which threatens in the
long run to severely limit our options and which guarantees in both
the short and long run that the Federal Government will have a
dominant and not necessarily beneficial effect on the nation's economy.
The proportion of unspent authority to outlays has changed substantially during the past 10 years, growing from 113 percent in fiscal
year 1971 to a proposed 141 percent for fiscal year 1976.
We can only hope that unspent authority as a percent of current outlays will fall still further in future years, and that we can thus undo
the "foot in the door" techniques of past budget planners. With these
points in mind, we strongly urge that the Congress scrutinize carefully
all authorization and appropriations measures with the view toward
scaling down or eliminating those programs which imply a commitment in the future years which we cannot afford.
On the revenue side, the Ford Administration has proposed $16
billion in temporary tax cuts, through a 1-year increase in the investment tax credit and through a $12 billion rebate measured by 1974 tax
liabilities. The Administration package also includes a series of energy
excise and windfall profits taxes, which would be passed through to
consumers by means of permanent changes in the tax code; these permanent changes would be designed primarily to benefit low- and middle-income taxpayers.
We support the swift enactment of temporary tax cuts to individuals and corporations to stimulate the economy.
Although we may differ on the exact form of the President's proposal, the advisability of a tax cut and its general size are matters we
agree upon fully. We urge immediate passage of the personal tax cut as
a means of helping restore consumer purchasing power and of imparting a sense of certainty and confidence about the future of the economy.
The 1-year increase in the investment tax credit is required, we believe,

in view of the downward trend in capital spending plans and the need
to continue to modernize this country's physical plant.
With regard to the President's energy tax and permanent
reduction proposals, we believe, as we discuss more fully below,
that the timing of any tax on imported petroleum products is
as important as the principle of a tax itself.
We are concerned lest a sudden increase in the price of gasoline and
other products cause dislocations as severe as the ones we have already
experienced with regard to previous price increases. On the other hand
we believe that tax reform in the form of advantages to middle- and
low-income taxpayers need not be tied to energy changes. We are confident that Congress will continue its work which was begun last year
on reform of the personal income tax.

III. MONETARY POLICY
The Federal Reserve was the major government influence in the
economy during 1974. During this past year the monetary aggregates

decelerated significantly in keeping with

polScy aims of slowing

both

the expansion of total spending and the rapid rise in bank credit. In
that year, the monetary aggregates grew at a slower rate than during
1973, even with taking 1974's higher inflation rate into account. On
a real basis, the Fed's monetary policy was actually tighter than the
numbers imply, because the real growth in the money supply declined
one to two percent from 1973.
In 1975, it is quite likely that the course of monetary policy will again
be one of the prime influences on the economy. The projected budget
deficits for fiscal years 1975 and 1976 have drawn attention to the
need to relate Federal Reserve monetary policy to the Treasury borrowing patterns. Several times during the Annual Hearings of this
Committee witnesses were pressed to give their opinion as to the
rates of money supply growth which would be most called for this year
to meet the needs of current and future economic conditions. Answers
varied and there were differing views on the impacts different policies
would have on financial markets. But the issues which seem to emerge
with regard to monetary policy centered about the optimum rate of
money supply expansion (not whether to expand, but how much) and
the extent to which the Congress should participate in the formulation
of monetary policy.
We note that several proposals have been made in the Congress
to compel or to attempt to persuade the Federal Reserve to follow
certain money supply growth patterns. While we believe that a
constructive dialog between the Congress and the Federal Reserve
is desirable, we strongly oppose any legislation which would
compel the Fed to a particular course of monetary policy set by
Congress.
There is no analogy with fiscal policy. The impression of Congressional control of fiscal policy through appropriations measures does
not begin to approach the delicate kind of control needed over monetary
policy. Even so, there are those who seek legislation to try to give
Congress such control over monetary manipulation. At the present
time, setting fiscal policy is imprecise. It is still influenced largely
by the Executive Branch, through the scheduling of payments, deferrals, rescissions, etc. With the enactment of the Congressional Budget Act, Congressional control over fiscal policy can become more of a
reality, though there are those of us who are pessimistic about the
prospects for success. The political bias of a fiscal policy set by Congress always is toward the deficit or expansionary side, even though
economic theory and logic tells us expansionary fiscal patterns are not
always advisable. Similarly, any Congressional effort to set monetary
policy would almost surely be politically tilted toward expansion, even
(92)

though economic theory and logic tells us that expansion of the

money supply can be as undesirable in many circumstances as unconstrained fiscal expansion.
It should also be noted that Congress is forever tardy in actually
completing its action of fiscal policy questions. Is there any reason
to feel it would act in more timely fashion on monetary policy-even
though monetary actions must be more carefully timed and delicately
tuned? On the contrary, the very sensitive relationship which exists
between fiscal and monetary policy and which would have to be employed by the Congress in any exercise of control over macroeconomic
policies generally does not appear to be within the ability of Congressional exercise. The Budget Act provides for fiscal oversight starting
with the fiscal year 1977. Only when Congress has established a successful record under that law should it consider the ways in which
it might have an increased voice in the conduct of monetary policy.
With regard to monetary influence this coming year, we view with
some concern the financial needs which will have to be satisfied in 1975.
Not only will the borrowing requirements of the U.S. Treasury reach
record levels this year, but the need of corporations to improve balance
sheet positions, the clear depression in the housing market, and the
liquidity situation in our financial institutions will all require a
marked degree of monetary ease.
The particular money supply growth rates which these conditions
might suggest have been projected by witnesses before this Committee
at anything from 8 to 12 percent. The Data Resources Econometric
Model implies that a policy of 8 percent Ml growth produces an economic recovery scenario which makes headway against both unemployment and inflation.
Federal Reserve Chairman Arthur Burns testified that a 10
to 12 percent growth target for M2 and an 8 to 10 percent target
for Ml were "too large" for long term success in achieving economic stability. Though such an expansionary monetary supply
might help employment and even inflation in the short run; the
long range impact toward inflation was so great as to be undesirable. We tend to agree. At the same time he stated that the Fed
keeps an open mind on the subject. So do we.
With these considerations and with our own recommendations
in mind for a more restrained fiscal policy, we believe that money
supply growth rates should be at the low end of the scale which
has been discussed above.
However, we believe that it is important to emphasize the monetary
stimulus in 1975 must keep a watchful eye on unemployment and
industrial malaise and be prepared to act or react as the situation
merits. It is important to note that the United States went into this
recession after 8 years of unusually high inflation, unlike the extended
era of relative price stability which preceded the Depression of the
1930's. Therefore, one might wish to be cautious about the inflation
danger waiting to be rekindled in this situation which was not present
in the United States in the 1930's. Our situation now has more parallels
with the Weimar Republic Days in Germany in the late 1920's than
anything else-including a certain lack of confidence in government's
ability to do anything well, including manipulate the economy. Ob-

49-768 0 - 75 - 7

94
viously, there are a great many more cushions and restraints and
precautions built into our system today than was true in the America
of the "Thirties" or Germany in the Weimar days.; But even so, confidence in oneself may exceed confidence in government in a postWatergate America.
The implications of this situation for tax, fiscal and monetary policy
are clear in terms of not locking ourselves in at this time to expensive,
long-range programs of government control or undue government
domination of economic decision-making vis-a-vis the Gross National
Product. Tax policy should not. stifle individual initiative. We also
emphasize that monetary policy be directed at a substantial diminution
of inflationary pressures as well as at progress against the very real
and unacceptable level of unemployment. T1he consequences of failing
to make headway against inflationary pressures are too dire to enable
us to advocate a monetary policy which does not contemplate reducing
inflation as one of its primary goals. At the least, an accelerating rate
of inflation would substantially lower real wages and salaries, thus
once more reducing the standard of living of most Americans. At the
most, failure to come to grips with inflation in this country could also
seriously weaken the strength of the dollar abroad which would
further delay U.S. economic recovery.

IV. ENERGY
Perhaps the most controversial aspect of President Ford's antirecession program is his energy-package. Twenty-one separate recommendations are included in this package. Among them are: tax credits to residential homeowners for improving insulation; standards to
increase automobile gas mileage; tax changes to encourage investments in electrical utilities; the expansion of Federal leasing activities; deregulation of old oil and all natural gas; and the imposition
of import fees on crude oil and crude oil products.
The primary goal of the President's program, which also includes
domestic stockpiling of oil, is to cut our dependence on imported
crude oil by 1 million barrels a day by the end of 1975 and by 2
million barrels by the end of 1976. Other goals include creating a beneficial climate for investment in synthetic fuel processes, and discouraging consumption by the price mechanism, but rebating taxes to municipal and low- and middle-income consumers so as to stimulate the
economy. The energy measures, of course, have been necessitated by
the economic drain resulting from the fourfold increase. by OPEC
countries in the price of crude oil and by the realization that national
and international security requires us to become less dependent on
foreign sources of supply.

The economic implications of these goals and the forces which
have caused us to reassess our energy policies are profound. At
the very least, they involve direct costs to American consumers
either through the diversion of resources to pay the increased
price of crude oil imports or the increased -cost of market-priced
or excise taxed domestic oil. In addition, there will be some
economic restructuring as a result of efforts to increase domestic
oil production to enable this country' to become more energy
self-sufficient.

At the consumer level, higher energy prices take a substantial bite
out of workers' earnings; and the President's conservation program
with its goal of a reduction in petroleum imports by 1 million barrels'
a day by the end of this year implies that consumers will be forced
to change their patterns of energy consumption.
It is clear that the policies for change of this magnitude (one-sixth
of our consumption this year) must be designed for the long run.
Short run policies aimed at suppressing demand through creation
of an artificial shortage by mandatory rationing or by a system of
quotas are not likely to be sustainable. Unless American consumption
habits are permanently adjusted, it could only postpone the day of
judgement. In developing solutions to our energy problems, we cannot afford to wear ideological blinders, but must look at all options.
Our response must be a mechanism which cannot be interrupted or
frustrated by OPEC countries. With these considerations in mind,
we have the following observations and recommendations with regard
to the domestic aspects of the energy situation.
(95)

At the outset, we believe the energy situation is a problem
of the greatest significance which must be dealt with quickly
and firmly. The consequences of failing to act on the energy
situation will create even more long range inflationary problems
as this country becomes geared to the price strategies of OPEC
countries. This in turn will make Americans subject to a recurrence of recessionary pressures if the United States attempts to
adjust to still higher oil prices or is faced with another embargo.
The results of a dependent oil economy will be a severe erosion
of confidence in Government economic policies as consumers
see their economic situation tied to the policies of foreign oil
producers.

Second, while we may have reservations about individual aspects
of the President's program, we believe that this program is the only
comprehensive plan available to date. Therefore, it must be the basis
for debate. We believe the President has made an honest attempt to
develop policies which will sustain this country in the long-run.
To the extent that decreased consumption of energy is called
for, we support' the "rationing" of energy through the price
mechanism rather than through direct means such as allocation
or rationing, although we believe there is room for debate on
the abruptness with which price adjustment should be carried out.
Thus, we agree in principle with the eventual deregulation of natural gas and old oil, although again we emphasize that the gradual
phasinio in of such deregulation of prices is a matter of some importance. Too sudden an increase in -theamount of dollars being absorbed
in consumer spending by such a universal product as petroleum and
gas can have a depressing effect on economic activity in other areas
and, therefore, on demand and employment in all sectors'.
While expressing our preference for utilizing the price mechanism as a primary means for rationing energy supplies, we are,
nevertheless, concerned whether the price mechanism alone can
handle the present problem.
For this -reason, we believe that the Administration must keep its
options open with regard to modifying its energy conservation methods or to investing in more aggressive efforts to find energy alternatives. We also approve of the President's announcement that he will
maintain contingency plans for emergency rationing, should the need
arise.

Several of the, President's proposals involve incentives for
voluntary conservation efforts, and we stress the importance
of providing these proposals as part of an overall energy package.
Although we do not believe in energy conservation for its own sake.
there is no escaping the fact that dependence on foreign sources of
energy carries strong political and economic implications. The outflow
of petrodollars from the U.S. economy amounts to a drain on U.S.
resources, exceeding $100 annually for every person or about $450 per
family, a decline of over 3 percent in U.S. living standards. Petrodollars which are used to purchase goods and services represent a
present claim on U.S. resources, and petrodollars which are utilized
for investment in this country constitute a future claim. While excessive cutbacks on the use of energy have already had an adverse

97
effect on domestic employment, and could have serious future impacts, failure to start now at restructuring our energy usage patterns in order to achieve greater independence could result in a devastating transfer of economic resources out of this country. For these
reasons, we strongly endorse the President's~proposais for insulation
standards and the tax credit for improving t~he thermal efficiency of
residences through installing insulation, storm windows, etc. We also
applaud the successful efforts which have been made by the Administration in obtaining commitments from automobile manufacturers
to improve the full efficiency of autos in this country.
We would support mechanisms to further this purpose as

necessary.

We stress the importance of enacting some amendments to the
Clean Air Act, particularly the proposals which would impose most
aspects of the California Standard on 1977-1 model year automobiles.

In conclusion, we again stress that action on the energy front
is required now. While we recognize that individual members of
Congress may disagree on certain particulars of the President's
program, the fact is that this program is goal-oriented, comprehensive, effective and the only one in existence. If this country
is serious about developing a capability for dealing with the
energy problems of the 1970's and beyond, it must enact and implement a carefully designed program to adapt this country to a
long-term goal of energy conservation and increased selfsufficiency.

V. PRODUCTIVITY
In 1974, productivity in the private economy actually declined by
2.7 percent. This is the first such decline in our country since we
started compiling productivity figrures.
While some of our poor productivity performance in 1974 can be
ascribed to the. peculiarities of the business cycle, some can only be
explained, we believe, by certain, disturbing long-range trends in the
American economy and its society. Since the end of the post-World
War II adjustment period, output per man-hour in the total private
economy-one of the commonly accepted measures of productivityhas increased- at an average annual rate of 2.9 percent. However, in
recent years, this average as grown smaller and smaller; the corresponding figures for the last 20 years is 2.6 -percent, it is 2.1 percent
for the last 10 yea rs, and only 1.6 percent for the last 5.
It is not surprising,, then, that the productivity performance in the
United States also compares unfavorably with that in other countries. In fact, productivity growth 'inthe United States since 1965 in
the manufactuiing sector (the only sector for which -international
comparisons are availabfe)- is the worst in all the OECD countries.
The importance of productivity in bringing the U.S. economy back
to a healthy state cannot be overestimated. According to a recent
study published by the National Commission on Productivity, improved productivity has a direct relationship to controlling the rate
of inflation. In a more general sense, productivity gains are the only
way in which this country can achieve higher standards of living from
our finite < 'sources. In the international arena, good U.S. productivity performance ensures the strength of the dollar abroad and our
ability to purchase needed imports at reasonable prices.
Conversely continuation of our poor productivity performance
could have adverse effects on the economy. With output per man-hour
actually declining, wage increases are not being absorbed at the present time by more efficient work methods, and must be passed directly
along to the consumer. This phenomenon is reflected in the Ford Administration's rather pessimistic projections of consumer price activity in 1975. Similarly, we are depriving ourselves of a better standard of living through our poor productivity performance. Had the
rate of productivity growth in 1974 been at the postwar average, it
would have added $80 billion to the Gross National Product, or an
amount almost equal to the entire defense budget. In the international
money markets, declining output per man-hour contributed to the
weakening of the dollar vis-a-vis virtually every other major currency during 1974.
In his January 14, 1975, address on economy and energy, President Ford stated that "at the heart of our problems is the need to improve productivity. * * * The maintenance of our historic role of
productivity growth is a vital factor in the broader task of achieving
a less inflationary and more stable economy." We fully agree with
(98)

99
the President both as to the diagnosis and the goal, and with these
considerations in mind we make the following recommendations:
First, be believe that the Federal productivity effort has been
grossly deficient to date. The National Commission on Productivity has been seriously underfunded ever since its inception,
having been budgeted for less than its authorization and having
received less than the requested amount.
Furthermore, the Commission itself has done little in the way of
actively promoting productivity improvement, and it should be
adapted to fit this very important role. In those areas where the
Commission has taken an active role, notably in the encouragement
of unit trains from California to the East Coast, we note that significant success has been achieved, not only in establishing new techniques
for productivity improvement but also in promoting competition in
the private sector. The unit train concept, for example, was implemented by competing railroads as. soon as the Commission had encouraged one set of lines to adopt the idea.
Second, we believe that any Federal productivity effort must
be made jointly with the private sector.
Thus, we believe that the form of the Productivity Commission
should be changed to be jointly funded by the Federal and private
sectors as a center for productivity improvement. If private contributors were to accept a responsibility in such an operation, it would
be an investment well spent. Such 'a joint commission should be
charged with actively promoting productivity improvement in the
Federal and private sectors, by proposing and offering comments on
legislation which affects productivity, and by mounting a broad public relations campaign to inform Americans of the very vital role
which productivity plays in increasing our standard of living.
Third, within the Federal Government, the President should
implement a system of incentives for productivity improvement.
This recommendation is similar to one which' was made in our
interim report, "An Action Program To Reduce Inflation and Restore Economic Growth," and is as valid today as it was last fall
when it was published. Such a system, if effectively administered,
could go a long way toward improving the efficiency of the Federal
sector, stabilizing tax rates and insuring Americans that their tax
dollars are being well spent.
Fourth, business and government should be encouraged to
establish labor-management committees at the unit, community,
industry and national levels as a means of promoting productivity
through improving the quality of work.
The few examples of efforts to improve the quality of work in
this country indicate that significant productivity improvements can
be made through attention to the factors which motivate people to
do better jobs, and by promoting employee responsibility and independence in the work place. At a time when our labor force is
more than twice as well educated as it was onlv ,0 years ago, we are
still employing methods of work which existed in the 19th century.
We urge ti-at the Federal Government and forward looking business
leaders make a special effort to spotlipht successful cases of improvement in the qualitv of work and to demonstrate that this aspect of
productivity improvement can be successfully implemented.

VI. EMPLOYMENT

Clearly the employment situation is the number one issue of 1975.
During the past year unemployment has climbed more rapidly than
in any other similar postwar period. The jobless rate now stands at
the highest point since 1941. There is evidence to suggest, furthermore, that the rate would be higher but for the numbers of persons
echo

ave Wi L.iawni

telrun
labor force Tor lack of Siitabie job

opportunities, a condition which presumably existed in 194i as well.
A number of factors make the present situation especially ominous.
First, the onset of the steep rise in unemployment during the third
and fourth quarters of 1974 was almost totally unforeseen by both
government and private economists. At midyear, 1974, most major
econometric forecasts projected that unemployment would not rise
above 6 percent in 1975. By the beginning of this year, the same forecasters were predicting an approximately 8 percent average unemployment rate for 1975, and the lowest of these forecasts was 7.2 per-.
cent. In the interim period, forecasters have been revising their
projections to reflect the pessimistic data which has been produced
each month, and these pessimistic revisions continue to this dav.

Second, the coincidence of high unemployment rates and high
inflation means that any efforts to reduce unemployment must
be taken cautiously and over a long period of time. The Administration's unemployment projections which appear so pessimistic, are, in fact, consistent with a price scenario which envisages
4 percent inflation in the year 1980.
Third; the amount of long-term unemployment indicates that
temporary programs for solving the unemployment problem
may not be sufficient.
The percentage distribution of long-term unemployment (15 weeks
or more) indicates that the long-term unemployed are becoming a
larger and larger portion of the ranks of the jobless. The number of
long-term unemployed as a percent of the unemployment rate now
stands at the highest it has been in more than 10 years. Another way
of looking at this problem is to investigate the average duration of
unemployment, which has also climbed sharply in recent months. It
now stands at 10.7 weeks, up more than 11/2 weeks from 1 year ago.
These conditions suggest that a multipronged approach to the
unemployment problem must be undertaken if we are to make any
headway.

We strongly recommend the establishment of a major program
to provide jobs through the public sector to cope with the unemployment created by the currentrecession.

Such a program should be administered through the facilities established by the Comprehensive Employment and Training Act. Characteristics of such a plan should include (1) a trigger mechanism
designed to release more funding if the unemployment rate climbs
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beyond certain levels, and to phase the program out as the unemployment rate is reduced to more acceptable levels. (2) -The provision of
transitional, as opposed to permanent jobs. The program should be so
designed that persons provided employment can quickly find jobs in
the private sector as the economy gains strength. (3) There must be
a provision for jobs under such a program to provide useful services
as opposed to "makework." According to findings published in the
April 1974 "Manpower Report of the President" only 22 percent of the
funds expended under the Emergency Employment Assistance Program over the period April 1971 through June 1973 were devoted to
public works projects-; the remainder of the funds were aimed at education, law enforcement, health, and other sectors. We believe that
future public sector employment programs should be similarly. diversified, so that a full range of public sector needs can be satisfied. (4)
The program must be supplemented by public employment plans at
the State and local -level which can be quickly implemented. Unlike
a major public works program, the emergency public sector jobs
program must respond to temporary phenomena so that it can be
quickly implemented and efficiently phased out.

Because we believe that the unemployment situation, and especially the long-term unemployment situation, is relatively unusual, we believe that special efforts must be made to supplement
the transitional public sector jobs approach. For this reason, we
believe that the Federal Government must make a special effort
to increase funding, through the Job Opportunities Program or
other suitable means, for longer term employment projects of
a labor intensified nature.

For example, the Department of Commerce has identified more than
15O000 labor-intensive projects in the Federal Government which could
be expanded in order to provide increased employment opportunities.
The amounts involved total $20 to $30 billion. The Department of Defense alone has $1 billion in deferred maintenance and repairs which
could be implemented through such a program. The Appalachian Regional Commission has $258 million of projects for increased employment which it could implement on relatively short notice. The rail
rights-of-way of Amtrak and the proposed Conrail system could be
modernized under such a program without the necessity for complicated planning.

Again, as in the Public Sector Jobs Program, we believe that
this increase in Federal activity should be temporary, and should
provide employment opportunities only so long as private sector
opportunities do not exist.

However. we believe that if labor intensive projects such as we have
mentioned can be given Federal assistance, the effort could serve a
dual purpose of providing useful services as well as employment. In
the rail transportation area in particular, we believe that the present
economic circumstances affords an excellent opportunity to modernize
the national passenger network and the northeast corridor for high
speed, efficient, intercity transportation.

VIL REVENUE SHARING
With the energy and economic proposals of the President and Congress at the center of our national focus, it is important to consider the
status of State and local governments. Revenue Sharing was passed
during the 92d Congress with the hope that the fiscal imbalance between Federal and State and local governments could be. substantially
improved.
At the time of General Revenue Sharing's initial passage, the burden on State and local governments was substantial. State and local
governments spent l_
98 percent of all publie. funds spent on education;
82 percent of the funds going to welfare;
71 percent of health and hospital expenditures; and
75 percent of public housing and urban renewal outlays.
Historically, the capacity of the Federal Government to raise revenues through the progressive income tax placed the State and local
level in the role of supplicant to the'Federal level.
The plethora of categorical gant programs of the early 1960's was
one approach to the fiscal prob em of State and local governments. But
by the end of that decade, it was clear that categorical grants had
failed to meet the diverse needs of the State and 'local units of
government.
The enactment of Revenue Sharing in 1972 culminated an arduous
legislative debate that had begun in the 1960's. The theoretical base
on which the bill was enacted has only changed in degree. There is
till a disparity between the taxing and borrowing capacity of the
Federal Government vis-a-vis the State and local governments. While
the financial status- of State and local governments improved somewhat in 1972 and 1973, inflation and the cost of energy have virtually
eliminated the position of "fiscal luxury" in which some States were
thought to be.
Recent data from the Department of Commerce shows that on a
national income accounts basis, State and local governments enjoyed a
$4.8 billion surplus in the first quarter of calendar vear 1973. Bv the
second quarter of calendar year 1974, a- deficit of $7.7 billion was in
fourth
existence. The Department of Commerce estimates that the
quarter 1974 figures will finally show a deficit of $10 billion. 2
Complicating this turn around in the fiscal status of State and local
governments is the increased cost resulting from the current recession/
inflation. Unemployment, welfare payments. and diminished sales and
income taxes exacerbate the financial plight of State and local
government.
Source: U.S. Congress. House of Representatives, Committee on Ways and
Means, General Revenue, Sharing, 92d Congress, 1st session, 1971, pp. 1026-1027.
'Source: U.S. Department of Commerce, Social and Economic Statistics,
Bureau of Economic Analysis, "Survey of Current Business," November 1974.
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103

Under these conditions, Congress, in all good conscience, cannot
fail to enact a continuation of the General Revenue Sharing legislation when it comes up for renewal this year.

Revenue sharing entitlements under Public Law 92-512 will amount
to over $30 billion for the 5-yeur entitlement period of the program.
Given the current state of the economy, and the impact it is having on
tax receipts at the State and local level, the relatively unencumbered
nature of revenue sharing assistance is of substantial benefit.
The most significant reason for initiating revenue sharing was to
provide more economic and equitable methods of distributing Federal
assistance to local communities. Most local governments have enthusiastically endorsed the results of the program.
General Revenue Sharing was devised because "need" can be defined differently in different places. For example, in Newark, N.J., the
bulk of general revenue sharing funds in 1973 were utilized to stabilize
property tax rates. This was a priority for Newark in order to maintain businesses in the downtown area. This, in turn, generates greater
tax activity in the urban area which can only assist the State of New
Jersey and the City of Newark in meeting the service requirements of
their residents.
Revenue sharing was adopted under the banner of "Fiscal Federalisin." This term was meant to demonstrate the commitment of the
Federal Government to a maintenance of viable and vital Stalte and
local governments.
The United States' current economic malaise calls for an "Economic
Federalism." The reenactment of General Revenue Sharing before it
expires on December 31, 197i, should be. a top priority for the Congress and the Administration.
In recommending the renewal of revenue sharing, it is important
to clarify several points:
(1) Flexibility of revenue sharing entitlements is the underpinning
of its successful continuation. The less restrictions placed on State
and local use of revenue sharing, the more likely it .is that effective
economic recovery programs can be initiated and continued by State
and local governments.
(2) Local needs will vary from locality to locality. Thus, the use of
revenue sharing funds as a means of stabilizing local property taxes
is consistent with the theory of federalism which should encourage
creative diversity in its public policy as much as it has tolerated
diversity among its people.
(3) The monitoring of revenue sharing has proved to be a source of
considerable controversy between the advocates of the "no strings
attached" philosophy and those who believe that the full impact of the
Federal enforcement authority should be used when distributing revenue sharing funds. The Office of Revenue Sharing, the Department
of the Treasury, and the Department of Justice are currently examining. the civil rights provisions of the revenue sharing legislation to
determine the most effective means of enforcing them. Regulations
should take the form which enable the Federal Government to fully
enforce the civil rights provisions of the bill in those cases where discrimination is apparent. This can be accomplished without injuring
the basic goal of the program which is to assist State and local governments to do those things the recipients deem important.

104
(4) We reaffirm that general revenue sharing is a viable political
concept and can be supported on that basis alone. A Brookings study
has concluded that in approximately half of the jurisdictions covered
in its detailed research, revenue sharing resulted in an increased public
awareness of the State or local budget process and increased activity
on the part of public interest groups. This is, we believe, the ultimate
test of revenue sharing, and we are encouraged by these preliminary
findings.

VIII. AGRICULTURE
. In general, we support the direction in which farm policy and farm
programs have been moving in recent years-particularly since the
new farm program was enacted in 1973.

We favor freeing American agriculture from the traditional

government farm support programs and moving it toward reliance on the world marketplace, while still poviding farmers some
income protection. We favor freeing farmers from production
controls and allowing the American farmer to -get increased
return in the marketplace.
We are certainly conscious of farmers' fears that bumper crops in
1975 could result in depressed prices. Prices have been declining on
commodity exchanges since October, and January 1975 was the third
consecutive month of decline in prices farmers receive. Lower farm
prices have intensified pressures to rewrite the 1973 farm bill' this year
toward higher target prices for wheat, corn and cotton. Those opposed
to such a course of action fear that substantial increases in price
guarantees and support-loan levels for feed grains, wheat and cotton
could stimulate production artificially and further obligate the Government to billions of dollars of additional expenditures in years to
come for price supports and storage.
r i y
to
Some farm groups, not having faith in the legislative and~executive
branch processes, have even called for farmers to.cut back their plantings this year in order to reduce supplies, hopefully to get prices
higher.

We strongly support the movement in American agriculture
in the direction set by the Agriculture and Consumer Protection
Act of 1973 toward a market orientation for American agriculture
and away from government support programs, while still providing a basic degree of income security for farmers. Any changes
written into a new farm bill during this Congress should reflect
this basic orientation. Though there may be just cause for some
higher price guarantees, we would urge they not be so high as
to, distort the market mechanism. We should also change the laws
for rice, extra-long staple cotton and peanuts to have these crops
also directed toward the free market approach established for
wheat, feed grains and cotton in 1973. We strongly urge American
farmers not to cut back on their planting intentions this year as
we foresee sufficient demand both at home and abroad to justify
full production.
Increasing food demand in a world where some countries are suffering from acute food shortages, has led to calls for some kind of
international system of food reserves. This was apparent at the World
Food Conference held in Rome last November. In the past, this was
never an issue as the United States basically acted as the world's reserve in times of need. However, with demand'and supply for U.S.
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106
production coming closer into balance in the past 2 years, the United
States no longer has a cushion which can automatically guarantee food
assistance wherever and whenever needed in the world.
To date the U.S. Government has agreed in principle to some form
of international grain stockpile to provide reserves for emergency
situations in the world. The questions in agreeing to details of a grain
reserve system include:
What countries should share in the costs of maintaining stock
and where should they be held?
Should U.S. reserves, if any, be in government or in private
hands?
Is the goal of food reserves to alleviate shortages or also to
stabilize prices?

Although there are many details to be worked out in the future,
we favor the following principles regarding any system of international food reserves.
We feel that all participating countries, both food exporters
and food importers, should share in the storage ard cost of food
reserves. Reserves could be internatiorally coordinated, but
should be nationally heid. The main focus for any U.S. reserve
system should be on providing a cushion for emergency Peeds at
home or abroad, not on having a reserve to stabilize prices. We
feel that any U.S. reserves should be maintained in private hands
rather than in strictly government reserves. Some mixed system
might be possible. Along with a reserve system there should be

great emphasis placed on technical assistance to other countries,
particularly food deficit areas to improve agricultural production
to help the world meet its food needs on a nation by nation basis.
Technical assistance and information on population stabilization
measures should also be an important part of such a program
to enable countries to become food self-sufficient.
Exports of agricultural commodities are vital to American farmers
in order to increase their income and to the Nation as a whole with
regard to its balance of payments. We need overseas outlets for a large
part of our crop production. In fiscal year 1974 the United S&ates exported $21.3 billion of agricultural commodities which had a net favorable impact on the balance. of payments of $11.8 billion. For fiscal
year 1975 agricultural exports are projected to be $22 billion with
again an over $11 billion favorable impact on the U.S. balance of
payments. To say this country needs this balance of payments surplus
is obviously an understatement.
Uncertainties in the past 2 years regarding U.S. policy toward
agricultural exports have led to great turmoil in the agricultural sector of the American economy and have led to fears that farmers would
not be able to export freely. Major actions of the past 2 years have
included the soybean export embargo imposed in 1973, the October,
1974 government cancellation of grain sales to the Soviet Union, and
the setting up last fall by the Department of Agriculture of an advance
approval system for export sales above a certain level. All of these
actions tend to disrupt world agricultural produce trade, give the
United States the reputation as an unreliable supplier and reduce the
revenues generated from foreign sales. Even the talk of export controls can be price depressing at home and disrupting abroad. Fortu-

107
nately, the Department of Agriculture recently eliminated the prior
approval system and will now allow, without prior approval, grain
export sales.
Agricultural exports are vital for income to the American
farmer and to balance the United States payments abroad to
badly needed imports such as oil and other vital raw materials.
Assuming that our recommendations on foodstock reserves are
adopted, we cannot see the need for a comprehensive system of
export controls as a principle of U.S. policy. However we do favor
full disclosure of export sales and encourage continuation of the
Department of Agriculture monitoring system for informational
purposes. We applaud the elimination of the prior approval
system.
The price spread between the farm value of commodities and their
retail cost increased 18 percent during 1974, with milk and bread price
spreads up to 17 percent. Though nonfarm costs of beef and pork remained fairly stable over the year, the farm value and retail price of
*pork continued to climb in the third quarter as beef prices and beef
farm values steadily declined. Thus, though retail prices to consumers
increased around 15 percent during 1974, benefits to farmers were
uneven and unreliable. The major contributing factor to the higher
retail prices was the increase in labor costs throughout the nonfarm
handling process. Additional increases were due to escalated transportation, processing, packaging and slaughter expenses. Also contributing to the consumer price increases were a variety of government
regulations, such as Occupational Safety and Health regulations which
add further inefficiency between the farmer and the marketplace. It
would seem that a close look needs to be taken at the many Federal
regulations to which food processors and transporters are now subject,
and an eye toward streamlining these controls as much as possible.
With good weather and some amount of inflation control in 1975,
the USDA predicts a more moderate retail increase for farm products
;of 7 to 8 percent. Due to decreasing production, specific commodity
price increases will probably be seen in poultry, eggs and pork. Conversely, sugar and beef prices should continue to decline gradually.
Since nonfarm costs now claim 60 cents of every consumer
dollar spent on food and accounted for 80 percent of food price
rises in 1974, we fully support the research efforts of the Agricultural Research Service to reduce nonfarm costs. USDA should
examine areas such as beef transportation from slaughterhouse
to retail stores, the handling and processing of frozen foods, and
the sanitation and handling methods for highly perishable farm
products for possible cost reductions. Labor-management contracts in many cases could also be reevaluated for more efficient
use of personnel in retail stores. Additionally, such innovations
as electronic check out, systems should be fully evaluated and
consumer-tested for possible retail savings.
According to a Committee Print of the Senate Agriculture and
Forestry Committee in December 1974, "the U.S. food and fiber sector
accounts for about 13 percent of the total energy consumed in the
United States today." (The U.S. and World Fertilizer Situation.)
Thus, the current energy supply problems are of particular concern

108
to the agricultural sector. Though there will be spot shortages of some
farm fuels, the Federal Energy Administration forecasts no shortages
of major fuels in the first half of 1975, assuming moderate conservation. FEA has also corrected some fuel supply problems encountered
earlier in 1974 in the agricultural sector. Though the shortfall in petrochemical feedstocks is expected to be around 8 percent during the first
half of 1975, increased oirrefinery capacity should improve this supply
situation in the long run.
Overall agricultural fuel use is predicted to rise only 4 percent by
1980, even though we expect and encourage much greater food and
fiber production. The savings in fuel is accounted for by predicted
yield increases as new technology comes onstream. The use of herbicides alone has accounted for a reduction in cultivation of 50 percent
on 160 million acres of farmland in the United States, which provides
a fuel savings of between 94 and 170 million gallons of fuel. Unfortunately, herbicides and the other essential farm chemicals such as
insecticides, fungicides and pesticides were reported in tight supply
in approximately a fifth of all agricultural counties in 1974 and will
continue to be tight in 1975 due to low inventories and a continuing
shortage of the raw materials on which these chemicals are basedpetrochemical feedstocks, intermediates, emulsifiers and solvents. A
survey by the National Agricultural Chemical Association indicated
that additional production of these materials will not be forthcoming
for the most part until 1976 and that currently available supplies are
being allocated based on historical marketing and not on any type of
end-use priority system, which would take into account the vital need
for farm chemicals.
Ninety-five percent of our domestic ammonia capacity uses natural
gas as the hydrogen source for fertilizer production. Over half of the
interstate pipelines reported to the American Gas Association on curtailment of gas deliveries last year and indications are that 12 percent
of their firm requirements will not be met during the 197475 winter
season. Natural gas is also a major.heat and power source for input
supply and food processing firms. Crop-drying and irrigiation pumping are other major agricultural needs for natural gas. Conversion to
alternate fuel forms, where possible, will be costly and contribute significantly to retail commodity prices. Consequently, the Senate adopted
S. Res. 289 in February 1974 expressing the wish that the fertilizer
industry be given the highest priority for allocation of natural gas.
As a result of this Resolution, the Federal Power Commission established a hearing docket on this matter but concluded that its present
system of priorities and emergency relief procedures were sufficient to
protect the needs of the agricultural sector.
We propose a more reliable natural gas allocation to the agricultural sector and increased coordination between the FEA and
FPC to meet agricultural energy demands voluntarily as the
highest priority user. Stronger leadership and initiative with
State regulatory bodies for intrastate end-use priorities is also
a desirable goal. Additionally, we must make suppliers of agrichemical feedstocks more aware of the high priority needs of the
farm sector for their materials.
The inexpensive food policy which we have enjoyed for so many
years has been greatly aided by the expanded use of fertilizer. Over the

109
past 25 years, corn and soreghum yields have tripled, with cotton and
rice yields more than doubling. Unhappily, the supplies of fertilizer,
raw materials, nitrogen and phosphate-were short in 1974, creating
record high prices at all marketing levels. Since 9 percent more fertilizer was used in the fiscal year 1974 than in the previous year, inventories were drawn- dangerously low. Though new production
facilities were in operation, existing facilities had to be operated without adequate maintenance in order to provide the needed increase over
the past year in total supplies of primary plant nutrients.
During 1975 ammonia production capacity will increase 5 percent
due to the completion of seven additional facilities, but this capacity
for phosphate fertilizers will be raised a total of 28 percent by the end
of this year due to five new plants coming onstream at various times
in the year. Much of the additional 1.3 million tons may be exported,
however, due to existing contracts and the higher prices foreign purchasers are paying. Potash imports in 1974 roughly equaled 75 percent of U.S. domestic use. The principal supplier, Canada, is subject
to a costly system of production due to rents, royalties and taxes,
though, and new potash mines are slow to develop and fill the need for
this material.
No new production facilities are foreseen for 1975. Though inventories of potash in North America are dangerously low, resistance
to high prices of phosphate and nitrogen fertilizers may rebuild the
depleted inventories of these fertilizers.
USDA forecasts that 1975 fertilizer prices will continue upward,
as a result of high demand due to high production of grain prices and
with prices stimulated by high grain. With normal weather conditions and the expected increased acreage, demand is likely to push
fertilizer prices 10 to 15 percent above September 1974 levels. Consequently farmers will spend an estimated $6.5 billion on fertilizer during 1975, which reflects an 18 percent increase over the estimated 1974
figure of $5.5 billion.
We feel it is vital to maintain high yields through the use of
chemical fertilizer. This can only be done if fertilizer is available
at reasonable cost. Consequently we support the additional research into the use of methane gas for fertilizer production and
we feel there should be Federal encouragement to bring on line
additional North American potash mining operations.

49-768 0 - 75 - 8

SUPPLEMENTARY VIEWS OF SENATOR JAVITS
Our economy is suffering from its worst decline since the Great
Depression. Already a debate is underway on whether our economic
plight should be labelled a severe recession or actual depression. There
are no magic number of unemployed that will tell us when we have
crossed the threshold, but it is certain that only honest recognition of
how far we have already
`id w muc` -worse Hie situation
could get will lead us to act to prevent a depression. The gravity of
our current economic crisis demands a unified and nonpartisan
approach. One thing is certain we are at war against a depression.
It is in this spirit that I am writing supplementary views this year. I
strongly believe that what is needed is an attempt. which I make here,
towards a meeting of the minds between the minority members of
the JEC, who deplore the budget deficit and the large sum of fiscal
stimulation necessary to pull the economy out of the current recession in a shorter period of time than projected in the President's
Economic Report; and the Majority, who insist on deficit spending
of such magnitude that although stimulus will be achieved, an even
greater risk of renewed inflation is probable.
The Majority, in a number of ways, has made significant and largely
useful changes in' the President's program. But in some cases it has
failed to recognize that the totality of its approach, which would
provide short-term recovery, may undermine the longer-term stability
of our economy.
Clearly, a greater amount of stimulus will be necessary than that
proposed in the President's economic program. That program is barely
stimulative, and as Alan Greenspan, Chairman of the President's
Council on Economic Advisers admitted during the Joint Economic
Committee Annual Hearings, there would be no stimulus after the
third quarter. This would result in an unemployment rate of 7.9
percent in 1976 and 7.5 percent in 1977, figures which are wholly
unacceptable.
Our urgent need is to prevent a slide from severe recession into
real depression and to provide for prompt recovery and materially
reduced unemployment.
The only rationale that has been offered during the hearings for
a slow recovery is the fear of renewed inflation. Yet the President's
energy program alone-if implemented-adds between 2-4 percent to
the rate of inflation next year.
The special factors that contributed so heavily to our current rate
of inflation, such as the fourfold increase in OPEC's oil prices, the
world food shortage, the increased prices of raw materials and the
devaluation of the dollar are unlikely to recur, especially simultaneously as they did over the past 2 years. Evidence of this is seen
in the most recent Wholesale Price Index in which prices actually
declined for the third month in a row. In addition, the economy is now
operating at less than 70 percent of capacity and unemployment can
1en

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be expected to soften wage demands, factors which should guard
against a resurgence of inflation. This combination of circumstances
points strongly to the fact.that inflation is abating and will continue
to drop below double-digit levels unless the policies adopted force it
upwards.The fear of budget deficits by the Minority-in view of the fact that
we still have a Full Employment Budget Surplus annually of over $30
billion-is excessive. In fact, unless we act promptly to provide greater
stimulus, this full employment deficit is likely to increase. The slow
path of recovery advocated by the Minority will further erode our tax
base and cause huge outlays for unemployment compensation and public service jobs. This excessive concentration on current budget deficits,
although rightly feared by the Minority in principle, will in fact
exacerbate the recession and create larger deficits later. One estimate
shows that the loss to the economy by 1980 from continued recession
and unemployment over 43/4 percent to 5 percent would amount to a
total of one-half trillion dollars in excessive unemployment and lost
real output.
The Minority has expressed great alarm as to our capacity to
finance the large deficit the President assumes. However, I believe
these fears are unfounded because shrinking private credit demands
will free additional funds for expanded government borrowing. Leading investment institutions indicate that an orderly matching of public
and private credit needs can be accommodated without a financial
crunch.
It is entirely possible to accommodate increased Federal borrowing
and the additional financial requirements arising from the larger
output that the tax cut is designed to generate so long as the Federal
Reserve Board allows the money supply to grow at an adequate; i.e.,
increased, rate. It is not an exaggeration to say that the Federal Reserve
Board has the power to choke off economic recovery if monetary policy
does not move in tandem with fiscal policy. It would be counterproductive to cut taxes unless the Federal Reserve Board permits a sufficient
increase in the money supply to push interest rates lower and keep
them there for a time.
Congress therefore has a major stake in ensuring that the Federal
Reserve Board policy does not lag behind the increased demands for
money generated by the taxcut.
While I am in agreement with the majority proposals that the Federal Reserve Board should follow a policy which would result in the
reduction of both long and short term interest rates and keep them low
through 1975, and that it accommodate Federal borrowing requirements, I do not feel that Congress is adequately equipped to dictate to
the Board the precise increase required or the mechanisms it should
use to achieve its targets. If the Board follows the policy recommendations of Congress igenerallv to increase the money supply, a mandated
system of credit allocation will not be needed. Such a mandatory system of credit allocation would be a step of last resort, but Congress cannot shrink from it if an adequate growth in the money supply is not
forthcoming.

One major aspect of this problem may be the mechanisms that the
Board uses to increase the money supply. Rather than trying to control

112
monetary growth through the Federal funds rate the Board could
calculate the necessary weekly additions to reserves required to achieve
the desired rate of monetary growth, and provide that amount. The
Board could allow for a period of monetary growvth of at least 8 percent
for a period of time without risking renewed inflation, and achieve
that target through the mechanism suggested. Although savings and
corporate purchases of certificates of deposits are both up, and thus
it is arguable that there is sufficient liquidity, there has actually been
a steep decline in M,. New funds must be injected into the system to
create additional stimulus.
Unemployment is the most painful product of the economic slump.
The national umemployment rate of 8.2 percent for February with
7 _5mil-lion- um.e~ployced, together with predictions 'l-Pv dilsrb
and other experts that the rate of unemployment will average over 8
percent into next calendar year and may well jump over 9 percent,
make positive action necessary.
To deal with the current crisis, and move toward a real full employment policy, I propose the following:
(1) The maintenance of at least one million public service jobs
through fiscal year 1976 under titles II and IV of the Comprehensive
Employment and Training Act of 1973 (CETA), as compared with
the Administration's plans for 310,000 public service jobs for the same
period. To provide standby authority to maintain the one million job
level, Senator Williams and I have introduced S. 609, the "Emergency
Public Service Employment Extension Act of 1975."
(2) Protection of the health care needs of the 7.5 million unemployed workers and their families. Toward that end, Senators Williams, Kennedy, Schweiker, and I have introduced S. 626, the Emergency Unemployment Health Benefits Act of 1975" which would provide that unemployed workers would continue to participate in the
health insurance program under which they were covered at their last
place of employment. The premiums for this continued protection to
be paid by the Federal Government.
(3) Continued income maintenance for workers who suffer from
long-term unemployment. Under two bills I have introduced workers
who had exhausted their rights to unemployment compensation under
existing unemployment insurance programs (including the "Special
Unemployment Assistance Program" enacted by title II of the "Emergency Jobs and Unemployment Assistance Act" passed last December), would be eligible for an additional 13 weeks of unemployment
compensation payments. This program would be funded entirely from
Federal revenues.
(4) A supplemental appropriation of $680.2 million to provide at
least 1.1 million summer youth jobs for poor youth for the coming
summer-together with related transportation and recreation activities-the level documented by the National League of Cities and the
National Recreation and Park Association as the minimum necessary
and useable. For these efforts the Administration has requested a supplemental of only $412.0 million, for approximately 760,000 summer
youth jobs.
(5) The establishment of a "Federal Full Employment Board" as
an independent agency in the Executive Branch to spearhead efforts

113
toward full employment, as proposed in S. 472, the "Full Employment
and Job Development Act of 1975," which Senator Williams and I
have introduced.
The energy crisis has dealt our economy a particularly severe blow at
the worst possible time. It is argued that efforts to achieve energy conservation and a lower level of oil imports are in conflict with the need
to restore economic health to the economy, especially to sectors such as
automobile manufacturing which is directly affected by energy conservation measures. The President's proposals have at least had the
virtue of bringing the conflicts sharply into focus, since his proposals
in energy, if enacted, would have raised the overall rate of inflation to
unacceptable levels. We must not shirk the painful choices posed by
these dilemmas, and pretend that we can ignore the urgent need for
greater energy conservation and ultimate self-sufficiently until our
economy has been restored to health. At the same time I believe a better way exists to achieve energy self-sufficiency within the next decade
than the program proposed by the President.
We must recognize that the era of cheap fossil fuel resources-with
the possible exception of coal-is over. Cheap energy over the past
20 years has bred inefficiency and waste and slowed increases in productivity. Until advanced energy systems are developed-gasification
of coal, nuclear fusion, solar, oil shale-the United States and the
world must use its energy resources more wisely and.sparingly. This is
a reality which must 'be accepted and on which major changes of
energy use must be based.
T believe we should enact an emergency energy development program to be instituted on a crash basis. We must do whatever needs
to be done to assure ourselves of alternative energy sources within a
period of 3 to 5 years-instead of the presently planned 10 years. We
cannot permit ourselves or the rest of the industrial and developing
world to be without such alternatives and at the mercy of one of the
most oppressive "political" cartels the world has ever known.
Rationing, which has been proposed by many, and which is appealing from a price viewpoint, could help to alleviate our balance of
payments difficulties and may be needed in an embargo or other crisis
situation. But there is a limit to how much energy the Government
can ration without creating even a worse economic drop and a limit
even to how much energy use can be cut by gasoline rationing. For,
in World War II there were 30 million cars on our roads, now we
have more than 100 million.
Hence, as to the near term-1975-77-it is unrealistic to believe
that anything we can do will free us of dependence on imported oil.
Assuming achievement of the President's optimisticegoals, oil imports
-at the end of 1977 will be 5.8 million barrels a day-and that figure
includes a cut of 2.2 million barrels a day, 1.6 million of which is
based on projected decreased consumption resulting from increased
prices. Cuts of greater than that amount will necessarily cut into our
economic muscle.
It is to the midterm that most of our critical current actions must
be geared. By 1985, we should develop a storage capacity to insulate
us from a prolonged oil embargo. The turning point for the United
States is around 1980, when our oil storage will be increasing and our

114
imports will have leveled off to near 5 million barrels per day. But,
equally important as supply is the price of oil. When 1985 rolls around,
oil and gas prices will have to be high enough to protect the massive
investment which is necessary in synthetic fuels and other new sources.
With immediate price increases, such as has been proposed by the
President, all marginal production that might not be brought on line
until later will be expedited, and all marginal conservation that
might not take place until later will be accelerated. But tremendous
economic dislocations will occur if a price rise is effected entirely in
1975 including disastrous inflationary pressures. If the price rise is
phased in over a 3- to 5-year period, these dislocations and inflationary
pressures could be greatly lessened. Individuals and business will have
some time to adjust. Moreover, the conservation potential of the program will not be seriously diminished and the acceleration of new
supply will not be impeded if this phase-in is accompanied by other
interim incentives. The short-term price elasticity of almost all energy
consumption is very low. The fourfold increase in oil prices over
the past year has produced only very small cuts in consumptionand very little immediate increases in production.
But petroleum has a much greater long-term price elasticity. Industry and individuals can adjust to higher energy prices over time by
changing methods of production, durable purchases and lifestyles.
We would lose some amount of conservation at the margin, which
could be made up by mandatory allocations and other mandatory conservation programs. But we would gain the major economic and social
benefits resulting from a phase-in of the increases.
I specifically propose the following action program for energy:
First, an alternative energy development program funded at whatever level necessary to achieve results in 3 to 5 years.
Second, no increase in the import tariff. Prices are already up to $12
to $13 per barrel on imports and most of, the near term slack has been
eliminated. This will eliminate about $4 to $5 billion from the price
increases and reduce regional inequities.
Third, phase in the $2 domestic oil tax and the corresponding tax on
natural gas over 3-S years and tilt the oil tax towards gasoline.
Fourth, continue to control the price of old crude, but raise the controlled price by not over $1 a barrel each year for 5 years before considering total decontrol. Prices would increase about $2 billion each
year, rather than the $14 billion-without ripple effect-that could
result from immediate and permanent decontrol. The domestic oil industry would still generate substantial profits to give it all it can
reasonably and prudently invest.
Fifth, for the same reasons, legislate a phased decontrol of new natural gas prices analogous to the decontrol of old crude over a 5-year
period to determine if development is spurred.
Sixth, use the existing mandatory allocation system, import quotas
and simplified gasoline rationing, if necessary, to guarantee achievement of a 1 million barrel per day reduction of oil imports in 1975
and a 2 million barrel per day reduction by 1977.
Seventh, enact a windfall profits tax with a limited plowback provision to recapture excess-windfall-profits caused by the price increases of oil and gas.

115
Revenues from all these proposals would reach approximately $5-$8
billion this year, compared with the $30 billion figure under the President's proposals. However, the Treasury's annual intake would rise to
approximately $25 billion by 1980. As a result, the inflationary effects
of the tax would be spread through a longer period, and the shock to
the economy of such a large shift in spending would be minimized.
An essential aspect of this program, however, would be a system to
redistribute the revenues in a way that accords with what the tax
system would look like. And in this regard, -I strongly urge that we
use this occasion to enact major tax reform which works to redistribute
income toward the lower income levels-under $15,000 per year. Included in this- tax reform effort should be provisions for imparting
some progressivity to the social security tax.
The program should also include:
Eighth, immediate enactment of standby gas rationing authority,
ready to be implemented on 30 days notice.
Ninth, emergency development of a strategic oil storage capacity
of enough for 1 year.
Tenth, enactment of an auto fuel consumption tax on cars with low
fuel economy combined with a tax credit on purchases of high fuel
efficient cars to encourage automobile buyers to purchase energy efficient cars.
Eleventh, nationwide peak power pricing and establishment of a
national power interchange system to increase efficiency of utility
energy use.
Twelfth, congressional reform of Government regulatory agencies
to increase energy efficiency of regulated industries.
Other legislation is also required, but I view these elements as the
comprehensive energy program designed to
principal components of Ma
achieve midterm self-sufficiency with the least possible disruptive
impact.

SUPPLEMENTARY VIEWS OF SENATOR PERCY
Alternative Energy and Economic Proposals
I realize that to stimulate the economy. additional government
spending will be necessary in fiscal year i975 and -fiscal year 1976.
However, to keep Federal deficits within manageable limits. J feel
strongly that we should look for additional sources of revenue to pay
for new programs. We should look for revenue sources that will generate substantial revenue but have the least possible effect on economic
activity.
Further, I think that energy conservation in and of itself is highly
desirable and many steps can be taken by the Federal Government
to stimulate energy conservation.
Although the Report addresses these problems, I would like to spell
out in greater detail ideas for raising revenue and energy conservation,
many of which I have already framed in legislation this year.
The theory behind the President's energy program, announced in
his State of the U~nion address, rests on the fundamental presumption
that the world oil price rise of 1973-74 was too sudden and too drastic
for the world economy to absorb. and- that therefore the world price
of oil must come down, or at least not 'be permitted to rise further.
In the next few years major new oil supplies for the United States
and the rest of the developed world can only come from the Middle
East, and increased reliance on that source would only exacerbate the
present tensions over price. Alternative sources of energy will not be
available in significant quantities until the 1980's. Thus the only bargaining chip 'we have in negotiating for a price reduction or stabilization with the Organization of Petroleum Exporting CountriesOPEC-is energy conservation. But this can be a powerful chip.
Regardless of the outcome of our negotiations with OPEC, energy
conservation will have a clear, positive payoff for the energy-consum-.
ing nations. If the price comes down, world monetary strains will be
eased. If imports are reduced, trade balances and balances of payments
will improve. If the OPEC cartel is weakened, the price of oil will become less arbitrary and more responsive to the market. If energy
growth rates are reduced, our resources will last longer and our environment will improve.

This is a sound and workable theory based on energy conservation,
and I subscribe to it. Because the United States uses far more energy
per capita than any other industrial nation, our contribution to the
conservation effort must be proportionately greater. We in the United
States should reduce our consumption of oil by 1 million barrels per
day or more in 1975 and strive to permanently reduce our overall
energy growth rate from 4 percent to 2 percent annually.
The President is right in concluding that mandatory energy conservation programs are now needed to supplement the still voluntary
(116)

117
programs of the past year. In the months following the Arab embargo
last year, voluntary efforts to conserve resulted in only about a 2-percent reduction in U.S. oil consumption, compared with the same period
in 1973. Over the long term, voluntarism is ineffective and inequitable
because the sacrifice is shared only by those who volunteer.
The President is also right in rejecting gasoline rationing as a solution to our dependence on imported oil. Gas rationing is really a supply
restraint rather than a demand restraint mechanism, and thus it would
not efect a permanent change in our energy consumption habits.
Rationing would lead inevitably to cheating and demands for exemptions, even if a "white market" coupon system were instituted to
make additional fuel available at a higher price. Gas rationing would
be inequitable because those who live closest to work and thus contribute the most to conservation would be entitled to the least gasoline,
while those who conserve the least would require the most fuel. General
administrative rules governing the distribution of gasoline among
consumers could never take into account all the special individual circumstances and these, too, would lead to inequities.
There are many components of the President's energy package which
conform to the conservation theory and should be supported. For
example, the President has asked Congress to provide a tax credit for
homeowners who insulate their homes or install storm windows, and
to provide direct grants to low-income families and elderly persons who
insulate their dwellings. Another program would set mandatory standards for heat efficiency in new homes and commercial buildings. Appliances would be required to use 20 percent less energy by 1980 and to
be labeled according to their energy efficiency.
All these mandatory energy conservation measures which the President has proposed should be enacted promptly into law. Congress has
already provided by law that the uniform national speed limit of 55
miles per hour, which helped to save about 10,000 lives and 50 million
barrels of fuel last year, must be adequately enforced or Sittes could
lose their Federal aid to highways.
On the supply side, Congress should also support the President's proposal to explore and develop Naval Petroleum Reserve No. 4 in Alaska.
Elk Hills Reserve in California, the only immediately available source
of new domestic energy supply, should now be opened for development
as the President recommended.
Other parts of the President's program need to be strengthened. For
example, the President obtained commitments from automobile manufacturers voluntarily to increase the average fuel efficiency of new cars
to 19.6 miles per gallon by 1980, but this commitment was in exchange
for a 5-year delay in achieving the exhaust emission standards already
required by law. I am deeply disappointed by this. The Federal Government's own studies conclude that the same improvement in fuel
efficiency can be achieved by 1980 with current technology and without
any impairment of air quality standards.
Instead of trading mandatory pollution requirements for a voluntary
commitment to better fuel efficiency, we need a much stronger incentive
program. Purchasers of new cars which deliver 15 miles per gallon
or less should pay a stiff sliding-scale tax based on the car's fuel
efficiency. Conversely, buyers of new cars that deliver better than 17

118
miles per gallon should receive a cash payment from the Federal
Treasury financed from the tax. The standard for fuel economy in new
cars should be increased 1 mile per gallon every year until it reaches
24 miles per gallon in 1983. This would be a further incentive for the
manufacturers to design and produce more efficient American cars.
The heart of the President's economic and energy program, however,
is the system of revenue increases and tax relief. These tax changes
attempt to solve several problems at once by transferring income from
one segment of the economy to another. The amounts of dollars transferred are staggering and the system is complex. Trying to predict
accurately the total impact of this program on the economy will occupy
economists for months to come.
iJ xuiiSidering bhe Presideni's proposals, tne Congress must try to

assess the impact on consumers of the energy taxes and price increases
and their corresponding tax cuts. The President's plan calls for the
following new energy taxes and deregulation of prices:
First. An import fee on foreign crude oil and refined petroleum products ultimately stabilizing at $2 per barrel. This would raise the price
of imported crude oil from about $11 to about $13 a barrel.
Second. Removal of price controls from "old" domestic crude oil and
and excise tax of $2 per barrel on all domestic crude oil. This would
have the effect of raising the average price.of domestic oil from about
$8 a barrel to about $13 a barrel. This means that the average price of
American oil will rise as much-about $5 a barrel-through deliberate
action by our own Government as it did in 1973-74 through deliberate
action by OPEC.
Third. Elimination of regulated prices on "new" natural gas and an
excise tax on all natural gas of 37 cents per thousand cubic feet. This
will have the effect in the first year of increasing the price of new
natural gas contracts in interstate markets from about 45 cents to at
least $1.37 per thousand cubic feet to equal the current average intrastate rate plus the excise tax.
Fourth. A tax on all domestic crude oil to capture the windfall
profits resulting from price decontrol. The tax would initially take 88
percent of the windfall profits on crude oil and would phase out over
several vears.
The President anticipates that the import fees and excise taxes will
bring in $18 billion and the windfall profits tax will capture another
$12 billion in the first year.
The President's program thus relies heavily on an enormous price
increase to achieve the energy conservation goals of the United States.
The assumptions are that demand for oil and gas will be cut markedly
by these price increases and that the burden of sacrifice will be shared
equitably throughout the economy.
In order for these assumptions to work, a further assumption must
be made-that demand for all petroleum products is equally elastic.
We know that this is not the case. Demand for heating oil and petrochemical feedstocks, for example, is much more stable, and thus
less dependent on price, than demand for gasoline. But a tax on crude
oil would likely drive up the price of all refined products.
In the absence of Government controls or incentives, refiners would
be expected to pass on their tax burdens more heavily to consumers

119
of the products with the least elastic demand; namely, heating oil and
petrochemical feedstocks. This is only good business sense.
The effect would be that gasoline consumers. who could contribute
the most to conservation by eliminating nonessential driving, would
sacrifice the least. Conversely, homeowners and renters of homes
heated with oil and gas would sacrifice the most. There is a limit to the amount of energy that can be conserved in a
home in winter. Once the thermostat is turned down and the dwelling
is insulated, then higher prices just translate into being cold. For low
income persons, unbearably high heating bills can mean freezing to
death.
To counter the effect of fuel taxes being passed on to the customers
least able to pay, the administration has established a system of regulations and incentives for refiners to encourage higher price increases for
gasoline than for other products. The President's advisers have expressed the hope that retail gasoline prices will increase by about 15
cents a gallon, and other products, about 10 cents a gallon.
It is reasonable to ask: If the real purpose of the President's tax
program is to raise gasoline prices, why not simply tax gasoline at
the pump? This would prevent the highly inflationary effects of a
$5 per barrel increase in average crude oil prices spreading throughout
the economy. It would avoid the problem of higher home heating
costs. It would avoid the added bureaucratic tangle of applying in*ceitivesto refiners. Most importantly, it would concentrate on cutting
consumption of the product most susceptible to conservation; namely,
gasoline.
In place of the complex series of import fees, excise taxes, decontrolled prices and windfall profits taxes, the Congress should enact
a retail sales tax on gasoline of 20 cents per gallon the first year and
30 cents per gallon in subsequent years. So that the tax will not be
recessionary, the equivalent of the tax on the first 450 gallons purchased the first year and the first 400 gallons purchased each subsequent year should be rebated to individuals as an income tax credit, or
as a cash refund for those who do not pay Federal income taxes. Four
hundred gallons is the amount consumed by a car traveling 8,000 miles
and delivering 20 miles per gallon.
A gasoline tax would generate sufficient revenues to permit flexibility for applying either fiscal stimulus or restraint. If the tax on the
first 450 gallons is rebated to each individual the first year, a 20 centa-gallon gas tax would still produce over $6 billion in revenues. In
future years, a 30-cent-a-gallon gas tax would produce over $10 billion
above the rebated amount.
tnder the President's program, the import fees, excise taxes, and
windfall profits taxes imposed on producers will tend to multiply as
they are spread through-the economy. Consumers will pay higher direct
fuel prices for gasoline, heating oil, diesel oil, and natural gas. Consumers will also pay higher indirect fuel costs for air travel, train
travel, electricity, and petrochemical products, as well as higher product prices due to increased fuel costs paid by industrial and commercial
users.
A study conducted by the Library of Congress concludes that this
ripple or multiplier effect could result in total costs to consumers of

120
up to $50 billion this year, $20 billion more than the Administration's
estimate. The Library of Congress also believes that the direct fuel
costs alone will add 3 percent to the inflation rate, and that indirect
costs could possibly add another 3 percent to inflation.
The Federal Energy Administration has conceded that its original
estimate of $250 per year in additional costs to the average family was
too low. It now estimates that combined direct and indirect fuel
costs will add at least $275 to the average family's annual expenses,
and could add up to $345. Other estimates have ranged up to $1,000
per family.
A simple rebatable gasoline tax would, I believe, conserve as much
fuel as the Presidents plan, cost consumers less and avoid both the
-- inltcaJan
~~~~~
~ oeta
-ioar
ui the
Jfe Irresiimmediate
~
.
rece=sinr
effcts of
dent's program. The rebatable gas tax I have proposed would cost the
average family about $160 the first year and $210 in subsequent years
in increased fuel costs, and more than half of those amounts would be
rebated directly.
Although I disagree with his crude oil tax approach, the President
cannot be faulted for proposing a bold and comprehensive program
to attack the triple headed monster facing our economy-inflation,
recession, and energy dependence. The Congress has not lived up to its
obligation to develop an equally comprehensive alternative program of
its own.
Until the Congress enacts a gasoline tax or some other serious alternative energy conservation proposal, I shall oppose any effort to delay
the implementation of the President's proposed import fee. A vote for
delay is a vote for inaction and for continued dependence on highpriced foreign oil. The time for rhetoric about energy conservation is
past. The time for action is now.
Another part of my alternative energy conservation package is
abolition of the highway trust fund, which every year earmarks billions of dollars of Federal gas tax revenue primarily for highway
construction whether the highways are needed or not.
The highway trust fund has outlived its usefulness. It has discouraged the development of other modes of transportation which are far
more energy-efficient than cars. This money should be channeled into
general revenues where it could be used to help finance various types of
transportation or other national needs.
In addition to the energy conservation tax measures I outlined above,
the program I have presented includes several proposals to achieve
greater equity in our tax system and lay the basis for long-term
economic growth.
I agree with President Ford that a temporary economic stimulus of
$12 billion is called for at this time, but Congress must insure that the
money we rebate is actually poured back into the spending stream, not
just tucked away, by giving the bulk of the rebates to low-income
groups who need it to combat inflation.
I strongly support the President's proposal to enact a permanent
reduction in tax rates, particularly for low income individuals, and to
increase the standard deduction. This $16.5 billion in tax relief will
help mitigate the effect inflation has had on real wages in recent years.
I also favor increasing the business investment tax credit for all

121
industries to 12 percent for a 1-year period and then setting it at 10
percent permanently. Capital investment is vital to our real long-term
growth.
Small businesses have been particularly hard hit by inflation and are
generally less able to take advantage of the investment tax credit.
Under existing law, corporations pay a 22 percent tax on the first
$25,000 of income and a 48 percent tax on income in excess of $25,000.
T propose raising this base to $100,000.
The revenue-raising measures in my package will make our tax laws
more equitable and raise the necessary revenue to fund these tax
relief proposals.
First, I have introduced legislation to increase the Federal tax on
alcohol by 50 percent and on tobacco by 100 percent. These luxury
taxes have not been increased for 23 years and would raise an estimated
$5.8 billion.
Second, tax reforms are necessary in the area of energy production
and use. The following measures, which will raise over $5 billion a year
in revenues when fully effective, should be adopted immediately:
Repeal the Federal income tax deduction for State and local gasoline
taxes.
Limit the credit against U.S. taxes for taxes paid to foreign countries on oil production income.
Repeal the domestic depletion allowance this year, with longerphase-out provisions for independent producers and stripper wells.
Repeal the foreign depletion allowance.
Require foreign'oil and gas extraction income to be figured on a
country-by-country basis and prohibit the use of excess tax credits on
that income to be used to offset taxes due on other types of income in
the same country or to offset taxes in other countries.
Dye heating fuel oil to deter tax fraud in its use as a diesel fuel.
Nonenergy related tax reforms in my proposal include repealing the
special tax advantages allowed *Western Hemisphere Trading Companies and increasing the effectiveness of the minimum tax by including additional items of preference income and raising the applicable
tax rate. These two reforms would increase Federal revenues by nearly
$1 billion per year.
As shown on the chart below, this program will pay for itself. The
revenue disbursing measures are funded by the revenue raising measures. I believe this is a must for any comprehensive program. In our
efforts to fight recession, we must not form the basis for ever-increasing
budget deficits in the future.
In conclusion, I oppose any effort to delay the implementation of the
President's program of import taxes without a consistent proposal to
replace it. That is why I have offered my own alternative. The
keystone of a correct economy-energy program is in my view a gasoline
tax. It will have an immiiediate impact on consumption, and can be administered in ogder to have a selective, quantifiable, controllable effect
on the economy and American families, and can be rebated through the
tax system without unusual difficulty. However, until Congress sees
fit to proceed with a comprehensive program to deal seriously with
our economic and energy problems, I will not oppose implementation
of the President's plan. It is far more important now to have a concrete
plan of action than to delay and have none.

122
Following is a chart showing the fiscal impact of my energy conservation and tax reform proposals, a summary of the bills I introduced today, and the texts of these bills.
S. 635
Be it enacted by the Senate and House of Reprenentatives of the
United States of America in Congre-s assembled, That chapter 36 of
the Internal Revenue Code of 1954 (relating to certain other excise
taxes) is amended by inserting at the beginning thereof the following
new subchapter:
QUDi7LATIDER A A U-VCDM FuzzCN6ErLC
"SEc. 4451. Imposition of tax.
"(a) IN GENERAL.-There is imposed on each new automobile sold
to a final purchaser a tax in the amount determined under subsection
(b). The tax imposed by this subsection shall be paid by the final
purchaser.
" (b) AMOUNT OF TAx.-The amount of tax referred to in subsection
(a) is determined in accordance with the following table:
If the fuel consumption rate
(in miles per gallon) of the
new automobile is:

The credit is:

$0
-----------------Over 15____--..-___________$__________________
$20…
Over 13 but not over 15… ________________________________________
$420
Over 11 but not over 13_----------------------------------------Over 9 but not over 11___________________________________________-$680
Not over 9________________________________________._____________-$1,000

"(c) CREDxrr AGAINST TAX.-There shall be allowed as a credit
against the tax imposed by this subsection an amount determined in
accordance with the following table:
If the fuel consumption rate
(in miles per gallon) of the
new automobile is:

The credit is:

Not over 1_____________________________________------_-_----Over 17 but not over 19_------------------------------------------Over 19 but not over 21_-----------------------------------------Over 21 but not over 23_----------------------------------------Over 23_-------------------------_----------------------------

" (d) INCREASE IN TAX AND CREDIT.-

$0
$75
$150
$225
$300

"(1) 1977-1978.-Effective January 1, 1977, each fuel consumption
rate listed in the tables under subsections (b) and (c) shall be increased by 2 and, as increased, shall be the rate in effect for calendar
years 1977 and 1978.
" (2) 1979-1980.-Effective January 1, 1979, each such rate shall be
increased by 4 and, as increased, shall be the rate in effect for calendar
years 1979 and 1980.
" (3) 1981-1982.-Effective January 1, 1981, each such rate shall be
increased by 6 and, as increased, shall be the rate in effect for calendar
years 1981 and 1982.
" (4) 1983 and thereafter.-Effective January 1, 1983, each such rate
shall be increased by 8 and, as increased, shall be the rate in effect for
calendar years after 1982.

123
" (e) CoLLEcTIo OF TAX AND REFUNDS.-

"(1) CoLLEcTIoN.-Every person who receives payment for a new
automobile on which a tax is imposed under this section shall collect
the amount of the tax from the final purchaser making such payment.
"(2) REFUNDs.-Each person who sells a new automobile to a final
purchaser shall report to the Secretary or his delegate the amount of
credit,'if any, to which such purchaser is entitled under subsection
(c).
"(f) DEFINITioNs.-For the purposes of this section"(1) FINAL PURCHASER.-The term 'final purchaser' means the first
person who in good faith purchases a new automobile for purposes
other than resale.
" (2) FUEL CONSUMPTION RATE.-The term 'fuel consumption rate'
means the fuel consumption rate determined on the basis of the Automobile Fuel Consumption Schedule prepared by the Administrator
of the Environmental Protection Agency.
"(3) NEW AUToMoBILE.-The term 'new automobile' means an internal combustion engine vehicle, other than a truck or bus, which is a
highway motor vehicle as'defined in section 4482(a)."
SEC.

AUTOMOBILE FUEL CONSUMPTION SCHEDULE

(a) STuDIEs.-The Administrator of the Environmental Protection Agency shall, from time to time, study the fuel consumption rates
of automobiles which are subject to the tax imposed by section 4451
of the Internal Revenue Code of 1954 (relating to automobile fuel
consumption tax).
(b) CRITERIA.-The studies conducted under subsection (a) shall
include tests(1) of each automobile model subject to such tax equipped(A) with each available engine size (measured by horsepower);
(B) with standard accessories; and
(C) with standard tires;
(2) which shall be conducted(A) under driving conditions representative of average urban and
highway driving speeds and circumstances.
(B) with the fuel used being of the quality normally recommended
for use in such automobile, and
(C) with such automobile carrying the average weight load recommended for such automobile.
(c) REPoRTs.-Based upon the studies conducted tunder subsection
(b), the Administrator shall determine the fuel consumption rate of
each automobile with each available engine size, standard accessories,
and standard tires. The Administrator shall, not later than Januaiy 1,
1976, and by January 1 of each year thereafter, report to the Secretary of the Treasury a schedule of all such rates to be known as the
Automobile Fuel Consumption Schedule. The Automobile Fuel Consumption Schedule shall be published in the Federal Register each
year.
(d) Until the first Automobile Fuel Consumption Schedule is reported to the Secretary of the Treasury under subsection (c), the fuel
consumption rate shall be determined for purposes of section 4451 of

124
the Internal Revenue Code of 1954 bv reference to the harmonic mean
between the urban and highway test cycles as reported by the Environmental Protection Agency under the 1975 Federal Test Procedure.
SEC. 3. TECHNICAL AMFNDMENTS.
(a) AssEssmENTr Am oikr.- Section 6201 (a) 'of the Internal Revenue Code of 1954 (relating to assessment authority) is amended by
adding at the end thereof the following new paragraph:
"(5) ERRONEOUS CREDIT UNDER sEcTIoN 4451.-If on any claim for a
refund of excise taxes under chapter 36 there is an overstatement of
the credit allowable by section 4451 (relating to automobile fuel consumption tax) the amount so overstated which is allowed as a refund
may h.ssessed
he
by the qecrst+ rv nr his delegate in the same mnn+er as
in the case of a mathematical error."
(b) REruNDs.-Section 6401 of the Internal Revenue Code of 1954
(relating to amounts treated as overpayments) is amended by(1) redesignating subsection (c) as subsection (d). and
(2) inserting after subsection (b) the following new subsection:
" (c) ExcESS CREDIT UNDER SECTION 4451.-If the amount allowable
as a credit under section 4451 (relating to automobile fuel consumption
tax) exceeds the tax imposed by chapter 36 of subtitle D of chapter 1.
the amount of such excess shall be considered an overpayment."
(c) CLERICAL AMENDMENT.-The table of subchapters for chapter 31
of the Internal Revenue Code of 1954 is amended by inserting at the
beginning thereof the following new item: "Subchapter A. Automobile fuel consumption tax."
SEC. 4. LABELING.
Section 3 of the Aiutomobile Information Disclosure Act (15 U.S.C.
1232) is amended bv inserting "(a)" after "Sec. 3" and by adding at
the end thereof the following:
"(b) Every label required to be affixed under subsection (a) shall
include, in the case of any automobile on which a tax was imposed or
a credit allowed bv section 4451 of the Internal Revenue Code of 1954
(relating to automobile fuel consumption taxes) " (1) the fuel consumption rate determined to be applicable for such
automobile, and
"(2) the tax paid or credit allowed under such section 4451."
S. 636
Be it enacted by the Senate and House of Representatives of the
United States of Amerqca in Congress assernbled, That effective on
and after Julv 1, 1975(1) the IIHighway Trust Fund is terminated and the amount in
such Fund, including any obligations held in such fund, shall be covered into the general fund of the Treasury;
(2) any outstanding appropriations from, or obligations of, such
Trust Fund shall be made from such general fund;
(3) any authorizations for appropriations to be made from such
Trust Fund shall be considered to be authorizations for appropriations from such general fund; and
(4) section 209 of the Highway Revenue Act of 1956 is repealed.

125
S.- 637
Be it enacted by the Senate and House of Representatives.of. the
United States of America in Congress assembled, That effective after
December 31, 1974 (1) section 164(a) of the Internal Revenue Code
of 1954 as amended (relating to deduction of taxes not related to a
trade or business) is amended by striking out paragraph (5) (relating
to taxes on gasoline and other motor fuels);
(2) section 164(b) (5) (relating to separately stated taxes) is
amended by striking out "or of any tax on the sale of gasoline, diesel
-fuel, or other motor fuels."
S. 638
it enacted by'the'Senate and House of Representatives of the
| -Be
United States of America in Congress assembled,That this Act may
be cited as the "Revenue Act of 1975".
SEC. 2. (a) Subpart A of part III of subchapter A of chapter 32
of the Internal Revenue Code of 1954 (relating to manufacturer's
excise taxes) is amended by redesignating section 4084 as 4085, and by
inserting after section 4083 the. following:"SEC. 4084. ADDITIONAL TAX.
"There is imposed on gasoline sold by the producer or importer
thereof, a tax of" (1) 20 cents a gallon with respect to gasoline sold before January 1,
1976. and
"(2) 30 cents a gallon with respect to gasoline sold after December
31,1975.".
(b) (1) Section 4082(d) -of the Internal Revenue Code of 1954 (relating to definition of wholesale distributor) is amended by inserting
"or section 4084" after "section 4081" where it appears in paragraph
(2).

(2) Section 4083 of such Code (relating to exemption of sales to
producer) is amended by inserting "or section 4084" after "section
4081".
(3) Section 4101 of such Code (relating to registration) is amended
by striking out "section 4081 or section 4091" and inserting in lieu
thereof "section 4081. section 4084. or section 4091".
(4) Sect-ion 4221(d) (6) (C) is amended- by inserting "or section
4084" after "section 4081".
(5)Section 4226 (a) of such Code (relating to floor stocks taxes) is
amended by adding at the end thereof the following new paragraphs:
" (8) 1975 tax on gasoline.-On gasoline subject to tax under section
4084 which on the date occurring 15 days after the date of enactment
of the Revenue Act of 1975, is held'by a dealer for sale, there is hereby
imposed a floor stocks tax at the- rate of 20 cents a gallon. The tax imposed by this paragraph shall not apply to gasoline in retail stocks held
at the p1ace where in-tended to be sold at retail, iior to gasoline held -for
sale by -aproducer or importer of gasoline.
"(9) 1976 tax on gasoline.f-n gasoline subject to tax under section 4084 which, on January-1, 1976, is held by a dealer for sale, there

49-768 0 - 75 - 9

126
is hereby imposed a floor stocks tax at the rate of 30 cents a gallon.
The tax imposed by this paragraph shall not apply to gasoline in retail
stocks held at the place where intended to be sold at retail, nor to
gasoline held for sale by a producer or importer of gasoline.".
(6) Section 6421(b) (1) of such Code (relation to allowance for
local transit systems) is amended by inserting after " (A) " the following: "one-half of the tax paid under section 4084 for each gallon of
gasoline so used on which tax was paid under such section and".
(c) The table of sections for such subpart A is amended by striking
out the item relating to section 4084 and inserting in lieu thereof the
following:
"Sec. 4084. Additional tax.
44qpi%., 4nR.5 Prn.

m-ferpmep-Q-11

(d) The amendments made by this section apply to gasoline sold
on or after the 15th day after the date of enactment of this Act.
SEC. 3. (a) Section 5001 (a) of the Internal Revenue Code of 1954
(relating to imposition and rate of tax on distilled spirits) is amended
by striking out "$10.50" and inserting in lieu thereof "$15.75".
(b) Section .5021 of such Code (relating to imposition and rate of
tax on distilled spirits and wines) is amended by striking out "30
cents" and inserting in lieu thereof "45 cents".
(c) Section 5022 of such Code (relating to tax on cordials and
liqueurs containing wine) is amended by striking out "$1.92" and inserting in lieu thereof "$2.88".
(d) Section 5023 of such Code (relating to tax on blending of beverage brandys) is amended by striking out "30 cents" and inserting
in lieu thereof "45 cents".
(e) Section 5041 (b) of such Code (relating to rates of tax on wines)
is amended by(1) striking out "17 cents" in paragraph (1) and inserting in lieu
thereof "26 cents",
(2) striking out "67 cents" in paragraph (2) and inserting in lieu
thereof "$1.01",
(3) striking out "$2.25" in paragraph (3) and inserting in lieu
thereof "$3.38",
(4) striking out "$3.40" in paragraph (4) and inserting in lieu
thereof "$5.10", and
(5) striking out "$2.40" in paragraph (5) and inserting in lieu
thereof "$3.60".
(f) Section 5051 (a) of such Code (relating to rate of tax on beer)
is amended by striking out "$9.00" and inserting in lieu thereof
"$13.50".
(g) The amendments made by this section take effect 15 days after
the date of enactment of this Act.
Sv4C. 4. (a) Section 5701 (a) of the Internal Revenue Code of 19f54
(relating to rate of tax on cigars) is amended by(1) striking out "75 cents" in paragraph (1) and inserting in lieu
thereof "$1.50",
(2) striking out "$2.50" in paragraph (2) (A) and inserting in lieu
thereof "$5.00",
(3) striking out "$3.00" in paragraph (2) (B) and inserting in lieu
thereof "$6.00",

127
(4) striking out "$4.0'" in paragraph (2) (C) and inserting in lieu
thereof '"$8.00",
(5) striking out "$7.00" in paragraph (2),(D) and inserting in lieu
thereof "$14.00",
(6) striking out "$10.00" in paragraph (2) (E) and inserting in lieu
thereof "$20.00,"
(7)' striking out "$15.00" in paragraph (2) (F) and inserting in
lieu thereof "$30.00", and
(8) striking out "$20.00" in paragraph (2) (G) and inserting in
lieu thereof "$40.00".
(b) Section 5701(b) of such Code (relating to tax, on cigarettes) is
amended' by(1) striking out "$4.00" in paragraph (1) and inserting in lieu
thereof "$8.00', and
(2) striking out "$8.40" in paragraph (2) and inserting in lieu
'thereof "$16.80".
(c) Section 5701(c) of such Code (relating to tax on cigarette
papers) is amended by striking out ."/cent" and inserting in lieu
thereof "1 cent".
(d)' Section 5701(d) of such Code (relating to tax on cigarette
tubes) is amended by striking out "1 cent" and inserting in lieu thereof
"2 cents".
(e) The amendments made by this section take, effect 15 days after,
the date of enactment of this Act.
SEC. 5. (a) (1) (A) Subpart A of-part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1954 (relating to credit allowable) is amended by redesignating section 42 as 43, and by inserting
after section 41 the following new section:
"SSEo.42. EXCISE TAX ON GASOLINE.-1"(,a) IN GENMUiL.-There is allowed es a credit against the, tax
imposed by this chapter for the taxable' year, an; amount equal to 20
cents multiplied by the*number of gallfois of gasoline-purchased by
the taxpayer during the taxable year.
"(b) LIMrrATIONs."(1) AMOUNT.-The credit allowed by subsection (a) for any taxable year shall not exceed $90 ($180 in the case of a joint return under
section 6013).
"(2) APPLIoATIoN wri-oTHER CREDITS AND DEDtuToINs.-TIn determining the number of gallons of gasoline. purchased by,the taxpayerr
during the taxable year, any gasoline purebased with,respect to wilch
a credit or a deduction is claimed under this chapter for, the taxable
year shall be disregarded.".''"''"'';;-''ph apply to taxable
(B) The amendinents made by this pr
amount paid
trespeto
- years beginning after December '31, 1974, with
->;
~or incurred after such date.
(2) (A) Section 42 of such Code (as added by subsection '(a) of this
section) is amended(i) by striking out "20 cents" in subsection (a) 'andinserting inlien
thereof "30 centis" and
(ii) by striking out paragraph (1) of siibsection (b)r and inserting
in lieu thereof the following:

128
"(1) AmoulNr.-The credit allowed by subsection (a) for any taxable year shall not exceed $120 ($240 in the case of a joint return of
tax under section 6013).".
(B) The amendments made by this paragraph apply to taxable
years beginning after December- 31, 1975, with respect to amounts
paid or incurred after such date.
(3) The table of sections of such subpart A is amended by striking
out the item relating to section 42 and inserting in lieu thereof the
following:
"Sec. 42. Excise tax on gasoline.
"Sec. 43 Overpayments of tax."
(b) Section 6401(b) of such Code (relating to excessive credits)
is &taueuunde.

Ly-

(A) inserting after "(lubricating oil)" the following: ", 42 (relatihg to tax credit for excise tax on gasoline) ," and
(B) striking out "sections 31 and 39" and inserting in lieu thereof
"sections 31, 39, and 42".
I (3) Section 6201(a) (4) of such Code (relating to assessment authority) is amended by(A) inserting "or 42" after "Section 39" in the caption of such
section,
(B) striking out "oil) ," and inserting in lieu thereof "oil) or section
421 (relating to excise tax on gasoline) ,".
S. 639
Be it enacted by the Senate and 'Houseof Representatives of the
United State8 of America in Congress assembled, That effective after
December 31, 1974: ,
(1) section U1 (d) of the Internal Revenue Code of 1954 as amended
(relating to tihefcorporate surtax exemption) is amended by striking
out "$25,000" and inserting in lieu thereof '$100s000".
S. 64

'Be it'enacted''by tU Senate`and'House,of Representativees of the.
t/MdWtei States of America i' Congess -assembed, That the Act be
'orpurposeq of this Ac
-SEm. 101.

NIols.:,

.*flyr..puirposes of? this Act.7
-- 1) the term "`uiiber1 fuel oil" means ny distillate oil which meets
the following distillation requirements established- by the American
Society of Testing Materials under test nunibered D-86: the 10 percent
point is equal to 420 degrees Fahrenheit maximum, and the 90 percent
point' iseqtzaltori5 degrees Fahrenheit msXimum
- ,;
(2) the term "number 2 fuel oil" means any disftillate oil which
meets ;the -follow-in distillation -requirements (established by the
American Society of Testing Materials under. test numbered D86):
the 10 percent point is equal to 440 degrees Fahrenheit maximum, and

.129
the 90 percent point is eq~ua to 610 degrees Fahrenheit maximum; and
(3) the term "Administrator" means the Administrator of the Federal Energy Administration.
SEC. 102. LnuTAnON ON USE OF MARKc

Fue

OIL

(a) No person shall purchase or use any number 1 fuel oil or number 2 fuel oil which is marked in accordance with the provisions of
subsection (b) (1) for the purpose of providing fuel, which makes it
subject to tax under section 4041 (a) of the Internal Revenue Code of
1954 (relating to imposition of tax on' diesel fuel) for any dieselpowered highway vehicle.
(b) (1) Any person who sells or distributes number 1 fuel oil or
number 2 fuel oil shall provide for the marking of such fuel oil in
accordance with rules which the Administrator'shall prescribe under
this subsection, except that such fuel oil shall be marked if such fuel
oil is to be used in a manner which makes it subject to tax under section.4041(a) of the Internal Revenue Code of 1954 (relating to imposition of tax on diesel fuel).
(2) The Administrator shall, before prescribing such rules, conduct
and make available to the public a study to. determine(A). the appropriate oil soluble dye to be used for the marking of
such fuel oil, and the proportionate amounts of such dye to be used for
such marking;
(B) the appropriate point or points in the petroleum distribution
system at which such dye shall be added to such fuel oil in order to
carry out the marking requirements of this section; and
(C) effective means and procedures through which the Administrator may oversee the marking. of such fuel oil in accordance with the
provisions of this section.
(3) The Administrator shall prescribe such rules no later than 180
days after the date of the enactment of this Act. Such rules shall, to
the extent the Administrator considers practicable, take into account
the findings and conclusions of the study which the Administrator cony
ducts under paragraph (2).
-

SEC. 103. INSPECTION

The Administrator or his delegate may enter during business hours
the premises (including places of storage) of any person who sells or
distributes.number 1 fuel oil or number 2 fuel oil, and.the Administrator or his delegate may have access to any motor vehicle owned or operated by any such person, for the purpose of conducting an inspection-or
examination to determine whether such person is in compliance with
the provisions of this Act The Administrator or his delegate may provide for the inspection of .any other motor vehicle to insure the compliance with' the provisions of this Act.,
SEC.

104.

PENALTY

Any person who violates any provision of this Act shanl be fined
not more than $25,000 or imprisoned not more than 5 years, or both.

130
SEC. 105. EFEOTIVvB DAT)A-

The provisions of this Act shall take effect on the date of the
enactment.
Percy EnergV Conservationand Tax Reform Program-Fiscalimpact
1975 calendaryear

Batimated in
b4lWona

Revenue raising measures:
Gasoline tax of 20 cents a gallon____---------------- - $18. 00
Luxury taxes on alcohol and tobacco----------------------------5.80
Energy-related tax reforms_------------------------------------3 .48
0=-

tax

Total revenue raised---------------------------____________
Revenue disbursing measures:
Individual gasoline tax rebate (450 gals.)-----------------------Increased business tax deductions
____ ---------------Cut in individual rates -------------------- ---------------Credit for home insulation
____-__________----- --------------Subtotal revenue disbursed---------

------

-----------------------_

1976 calendar vear
Revenue raising measures:
Gasoline tax of 30 cents a gallon_________--____-------*
Luxury taxes on alcohol and tobacco-_5.
Energy-related tax reforms-- - --------------------------------General tax reforms___
--------- -________------Total revenue raised

12,00
4.00
44.70

25. 80
80
3. 78
.85
36.23

Revenue disbursing nmeasures:
Individual gasoline tax rebate (400 gals.) -----------------Increased business tax deductions------------------------------Cut In Individual rates ------------------_-----------------Credit for home insulation --------------------------------------.
Raise investment tax to 10 percent -------------------------Raise base for small business tax rate ---------------------------Total revenue disbursed_

9.00
2.70
16.50
0.50
28.70

One-time economic stimulus (Ford proposal):
Individual tax cut of 12 percent geared to low4neome individuals___
Raise Investment tax credit to 12 percent-----------------------Total revenue disbursed-__

2& 13

__-- _-- __- ____-____-_____-____-

12. 00
3. 87
16.50
50
2. 00
. 2.50
37.37

*Presumes a cut In gasoline consumption of 10% (750,000 barrels a day) at 20¢ a gallon
and of 14% (one million barrels a day) at 304.

1977 AND FETURE CALENDAR YEARS

Package will be in fiscal balance as of calendar 1978, at which time
revenues from phasing out the oil depletion allowance will be $417
million higher than in 1976 and the tax credit for home insulation will
be terminated. By calendar 1980, the oil depletion allowance phase out
will be raising another $1.1 billion above 19'78 revenues.

131
SUMMARY OF BILLS INTRODUCED BY SENATOR PERCY
REBATABLE GASOLINE TAX

Provides for a new fuel conservation tax on gasoline with rebates to
consumers for essential driving. The tax would be 20 cents a gallon in
1975 and would increase to 30 cents a gallon on January 1, 1976. Revenue raised would be paid into the general fund of the Treasury. An
annual tax credit for essential driving would be provided on the first
450 gallons of gasoline purchased-by an individual in the first year,
and the first 400 gallons purchased in subsequent years. A driver could
receive a tax credit of up to $90 in the first year (20 cents times up to
450 gallons used) and up to $120 in subsequent years (30 cents times
up to 400 gallons). The credit is obtained by filing a Federal income
tax return, whether or not a driver has any income tax liability.
AUTO EFFICrENCY TAX -INCENTIVE PROGRAM

Establishes an automobile efficiency tax incentive program by taxing
new car purchases on the basis of gasoline mileage. Based on an initial
fuel economy standard of between 15 and 17 miles-per-gallon, which
is the average gas mileage range for 1975 model cars, a new car purchaser would be subject to a tax or payment depending on fuel efficiency. A purchaser of a new car that delivers more than 17 miles-pergallon would receive a payment from the Federal Treasury on a sliding
scale, up to $300 for a car that gives 23 miles-per-gallon or mote. Conversely, -a purchaser of a new car that delivers 15 miles-per-gallon or
less would pay a tax that starts at $200 and increases in steps to a maximum of $1,000 on a car that delivers 9 miles per gallon or less. The
scale for taxes and payments would increase by 2 miles-per-gallon
every two years until 1983, when the standard for fuel economy would
reach the range of 23 to 25- miles-per-gallon. This progam would be a
strong incentive for consumers to purchase and manufacturers to produce more fuel efficient cars.
ABOLITION OF THE HIIGHwAY TRUST FUND

Abolishes the Highway Trust Fund and makes the billions of dollars
collected annually from the Federal gas tax available to help finance
various types of transportation or other national needs. A trust fund
designed for highway construction is anachronistic in our present economic condition. It has discouraged the development of other modes
of transportation which are far more energy-efficient than cars. The
fund now has a balance of $8 billion, but work has either been completed or is underway on 99 percent of the nation's 42,500 mile Interstate Highway System.
REPEAL OF DEDUCTIBILITY OF STATE AND LOCAL GAS TAXES

Repeals the Federal income tax deduction now allowed for state and
local gasoline taxes, retroactive to January 1, 1975. This deduction is
a Federal subsidy on gasoline sales. National policy now emphasizes
fuel conservation. The subsidy works against that policy. Moreover,

132
the income tax deduction for state and local gasoline taxes, like other
deductions, benefits only those taxpayers whose incomes are high
enough to warrant itemized deductions. Those taxpayers are the ones
least in need of selective tax benefits. Also, this deduction deprives the
Federal Treasury of about $600 million annually.
INCREASED LUXURIY TAXES

Increases tax on alcohol by 50% and increases tax on tobacco by
100%. These taxes, which have not been increased in over 20 years, are
levied on the producer. The current tax on alcohol varies with alcoholic
content: from 170 per gallon for spirits that are less than 14% alcohol
by volume to $10.50 npr gallon for nirits that are 50% alcohoel by
volume. The current tax on tobacco varies with type and size. The tax
on small cigarettes is $4.00 per thousand, the tax on large cigarettes is
$8.40 per thousand. The current tax on small cigars is 75¢ per thousand
and the tax on large cigars is from $2.50 to $20.00 per thousand depending on retail price.
REDUCE 44"SMALL BUSINESS"7 TAX RATE-

Increases the base on which the normal corporate tax is levied. from
$25,000 to $100,000. Under current law, a tax of 22 percent is levied on
the first $25,000 of corporate income and a tax of 48 percent is levied
on all incomes above $25,000. Small businesses have been particularly
hard hit by inflation and, because of the nature of their business, are
generally less able to take advantage of increases in the investment tax
credit. This measure will be of primary benefit to small corporations.
DYE HEATING FUEL OIL

Requires that number 1 and number 2 heating fuel oil be colored
with an oil soluble dye to deter tax fraud. Under existing law, diesel
fuel is taxed at the rate of 12¢ per gallon (4¢ federal and 8¢ state).
An extensive black market has developed in which untaxed heating
oil is substituted for taxable diesel fuel.1t has been estimated that up
to $500 million in Federal revenues are lost every year because of this
fraud. A similar program was instituted in Canada in 1973 and resulted in a 58.5%o increase in revenues in the first year of operation.

STATEMENT OF SENATOR TAFT
I have been recovering from a coronary attack since the first week
of the Committee's' 1975 economic hearings. While my staff.-has kept
me informed of developments in Washington, under the circumstances
I do not feel comfortable signing any of the detailed statements
presented in this report.
Very briefly, my general feeling is that additional economic stimuli,
in the form of a tax cut of about the magnitude proposed by the House
of Representatives ($20 billion for 1975) and temporary spending increases where essential to avert hardships caused by the recession or
to create productive jobs, are necessary now to turn the economy
around. While budget deficits of the magnitude the President is proposing are caused largely by falling tax receipts due to the recession,
as a practical matter the deficits obviously will be greater because of
the enlarged tax cut and Congress' refusal to make some unwise
spending cuts proposed by the President. For example, we will not
cut back on governmental support to the incomes of the elderly and
the poor in the name of fighting inflation.
In view of the considerable slack in financial markets which will
reduce the strains caused by heavy government borrowing, the need
to reduce the $200 billion of unused productive capacity and the need
to avert a disastrous further economic slide, I fee that the inflationary risk inherent in deficits of a magnitude implicit in the House tax
action is reasonable. The recovery effort will also require an expansion
of the money supply at a greater rate.
Nevertheless, the government's budget situation should be a charge
to Congress to eliminate unessential government spending where possible and to search for economically and philosophically justifiable
new sources' of revenue. I believe there is a real danger that Congress
could go overboard in its attempt to stimulate the economy and thus
cause a devastating inflation problem a few years hence. I am also
extremely concerned about the impact of our actions on the government's long-run fiscal position.
;With respect to energy, I believe that mandatory conservation
'measures are essential to combat both the $26 billion annual drain
'on our resources and the potential for political blackmail resulting
from our present level of dependence 'on foreign crude oil. We must
make a major effort to this effect immediately; it would be a mistake
to use' our present economic woes as an excuse for procrastination
or virtual inaction. Nevertheless, in view of the fragile economic
situation, the conservation measures should be phased in more gradually than the President has proposed. The conservation effort also
should be tilted more toward gasoline, because that is the'area of
greatest energy waste. It must include measures with teeth to curb
the unessential use of gasoline.
I am pleased to be a new member of the Committee. In these difficult
economic times, I look forward to participating in Congress' efforts
to minimize our people's immediate and future economic hardships.
(133)

SUPPLEMENTARY VIEWS OF SENATOR FANNIN
I concur basically with the tone and substance of the Minority Views.
The persistence of inflation and increasing recession are serious economic issues. However, they are short-term problems of a cyclical
nature which should be dealt with both expeditiously and in a manner
which does not risk their recurrence.
My own convictions encourage me to discuss further one particular
Of this nority report which I feel is ot particular importance to our society. It is my belief that our most pressing long-term
problem is that of adequate capital formation to meet the needs of the
future. However, this essential problem is receiving neither the attention nor the action necessary for a successful solution.
This nation's policy of promoting the free enterprise system through
our almost 200-year history has brought the average American an unprecedented standard of living. This achievement required the accumulation of of an equally unprecedented volume of capital in every segment of the economy.
The amount of capital investment necessary for the continued vitality of our economy and standard of living is nothing short of staggering. Yet, developments in recent years indicate that not only will
we not meet those increased demands, but we may regress from the
economic position we presently enjoy. Department of the Treasury
figures vividly illustrate this claim. In 1965 American business
showed $20 billion in retained earnings. By 1973, after 8 years in
which real GNP rose by 36 percent, the retained earnings of nonfinancial corporations had dropped 70 percent to $6 billion; 1974 data reveals that undistributed earnings were a minus of $15.6 billion.
Retained earnings are an essential component in the financing of
new production capability. Other sources include borrowing in the
financial markets. The availability of adequate funding is stifled
here by massive governmental borrowing to meet current expenditures.
Therefore, these two principal sources of risk capital are incapable of
meeting the Nation's investment needs.
Our free enterprise system cannot survive this decrease in actual
capacity. The choice is clear: Either accept direct government support
of private business or restructure our tax system so that incentives are
clearly present and rates are not confiscatory. It is my belief that the
average American recognizes and respects the ability of the free enterprise system and wants to see it prosper. I represent that viewpoint.
The time is ripe for basic changes in our tax structure. I commit
myself to the task of a complete reexamination of that structure in
order to assure the necessary investment which is so essential to our
future economic prosperity.
(134)

SUPPLEMENTARY VIEWS OF REPRESENTATIVE
ROUSSELOT
The position taken, in the Minority Views 'on the 1975 Economic
Report of the President that, ". . .(T) he'lesson of the past two hundred years is that what made this country great was not the ability
of government to solve its problems but the ability of individual
Americans to create the largest free market economy in the world..."
is a good one. However, it is disappointing that in several instances
the solutions recommended contradict this philosophy, and instead
of phasing down' the Federal role, a continued increased reliance on
massive Federal participation is recommended.
I do not believe that the economy can tolerate increased or sustained Federal deficit spending under any circumstances. As a matter
of fact, the goal should be to rapidly move toward a balanced budget
by reducing Federal expenditures. The primary role of deficit spending as a factor in causing inflation must be recognized and the trend
reversed if we are to achieve economic stability in the long run.
Increased Federal deficit spending is not a solution to unemployment, and does not treat the causes of unemployment. The emphasis
must be placed on less Federal involvement, thereby allowing the
private sector to stimulate production-this, in my estimation, would
be a job producing program. The majority of jobs are in the private
sector, and "maximum employment' without inflation can only be
achieved by creating an atmosphere that will allow private industry
to expand. It is through this expansion that we can realize our National goals in housing, transportation, development of alternative
sources of energy, and the many other critical areas that must be
developed to move us toward a healthy economy.
A very important area of the President's 1975 Economic Report is
regulatory reform, and the minority views do not give this concept
the priority position it requires. To stimulate production and jobs,
it is absolutely necessary that private industry be freed from unnecessary Federal controls 'and regulations which have pushed up prices
and industry costs. Prompt Congressional action is needed to identify,
and then repeal or substantially amend those laws which have given
excessive powers to the Federal regulatory agencies. This would 'be a
positive step that would have a chain reaction-consumer prices
would be eased, stimulating demand which in turn stimulates production and expands employment. In addition. less Federal control
means less Federal spending, and a further lessening of the inflationary burden.
Another subject in the minority views which in my opinion is not
given adequate treatment are the workable alternatives to revenue
sharing. The fact remains-as it did in 1972 when the State and Local
Fiscal Assistance Act was approved-that the Federal Government
has no revenue to share-only debt. The solution to State and local
(135)

136
budgetary deficits is not increasing the Federal deficit. Less Federal
spending and control would encourage State and local governmentsthe levels of government closest to the people-to set their own priorities and finance their own programs, and with greater public scrutiny
than the average American has over the spending of his Federal tax
dollars.
The Federal taxpayer is not getting his money's worth. In return
for his tax dollars, he is, getting inflation fueled by increased deficit
spending and govermental controls and regulation of almost every
phase of his lifge. If we are able to reverse this trend, it would be the
greatest service we could possibly render to our constituents.

COMMITTEE AND SUBCOMMITTEE ACTIVITIES IN THE
PAST YEAR
Public Law 304, 79th Congress, directs the Joint Economic Committee to report to the Congress by March 1 on the main recommendations of the President's Economic Report.-Due to the late filing of the
President's Economic Report, the Joint Economic Committee's filing
date was extended to March 30th. The, Committee is also required by
the law to make a "continuing study" of the economy. This report is intended to serve as a guide to the several committees of the Congress
dealing with legislation relating to economic issues.
The work of the full Committee and the Subcommittees for the past
year is summarized below:
FULL COMMITEE

February1974 Economic Report of the President
The Committee conducted 12 days of hearings during February
in its-annual review of the President's Budget and Economic Report.
Witnesses included the Chairman and members of the Council of
Economic Advisers, official Administration spokesmen, the Chairman
.of the Board of Governors of the Federal Reserve System, and distinguished members of the academic, business, and labor communities.
The rise in the unemployment rate was given particular attention,
along -with continuing high interest rates, lags.in-production, persistent inflation, and the-decline in real income.
1974 JointEconomic Report
The Committee's Annual Report (H. Rep. No. 93-927) was filed
with the Congress on March 25, 1974, the March 1 deadline having
been extended. The report included a-statement of Committee agreement as well as minority and supplementary views. The fifth and
final volume of the -printed hearings contained invited comments
commenting on the President's Report from leaders of agriculture,
banking, business, labor, and private research groups.
Economic Problemsof Women
Senator Javits chaired hearings in June in New York City' centered
on economicdiscrimination against women. These hearings continued
an inquiry begun by the Committee in 1973. The focus of the hearing
was to determine how existing antidiscrimination legislati6n ifight
be improved and better enforced, as well as solicitation of ideaslfor
possible new legislation.
Reorientation and Commetrrial Relations of the
Economies of EasternEurope
A compendium of papers submitted to the Joint Economic Committee continued a long series on- economic conditions in Communist
countries. The main focus of this. study in August was to assess the
between the United
possibility of improving commercial
-relations-

(137

138
States and the countries of Eastern Europe and to explore the notion
that increased trade, may provide a way for the United States to improve European security.
Examinationof the Economic Situation and Outlook
The deterioration in the economic situation made it especially important to review the economy in August. In six days of hearings, the
Committee heard from economists and Administration officials on
the immediate economic outlook and on the adequacy of current policies, especially in regard to the control of inflation. The hearings
served as initiation of the emergency study on inflation which was
pursued during the remainder of 1974, pursuant to S. Con. Res. 93
of August 7, 1974. Committee activities pursuant to Senate Coneurrent Resolution 93 appear as Appendix B to the Committee's Report
of December 30, 1974, entitled "Achieving Price Stability Through
Economic Growth." These activities are repeated at the end of this
chapter.
In September a special Interim Report was prepared at the President's request, in which recommendations were made for immediate
action on the inflation problem. This interim report, entitled "An
Action Program to Reduce Inflation and Restore Economic Growth,"
was distributed by the President to all participants in the White
House Conference on the Economy on September 27 and 28, 1974.
The Committee's December report stressed the need for a healthy
rate of economic growth in reducing unemployment and achieving
the productivity gains essential to the fight against, inflation. Specific
recommendations were made for fiscal, monetary, and price-incomes
policies, as well as recommendations for the housing, agriculture, and
energy sectors of the economy.
Additional hearings were conducted following publication of this
report as a part of the Committee's continuing study of the areas
investigated under S. Con. Res. 93.
A Reappraisalof U.S. Energy Policy
Three Subcommittees of the Joint Economic Committee-Consumer
Economics, International Economics, and Priorities and Economy in
Government-issued a combined report in March urging a rollback
of oil prices and elimination of tax loopholes for the oil industry. The
report reviewed a wide range of domestic economic issues, from allocation and price controls to long-run efforts for conservation and output expansion. It also examined conditions in the world oil market.
The Committees held extensive hearings on energy during the 12
months preceding the issuance of the report. The report advocated
rationing as an allocative device for gasoline during periods of intense
oil shortages and called for various measures to permit greater competition in the oil industry, such as more effective antitrust laws and
enforcement.
SUBCOMMUTEE ON ECONOMIC PROGRESS
Conducted a comprehensive study of credit flows and interest costs.

This study, which was published on March 17, 1975, provides a detailed analysis of credit flows and interest rates over the past five years,
including comprehensive analysis of sources and uses.
Members of the Subcommittee on Economic Progress were:
Representative Wright Patman, Chairman, Representatives
Henry S. Reuss, Martha.W. Griffiths, Clarence J. Brown, and Ben

139
B. Blackburn; Senators William Proxmire, J. W. Fulbright,
Lloyd M. Bentsen, Jr., James B. Pearson, and Richard S.
&hweiker.
SUBCOMMITTEE ON PRIORITIES AND ECONOMY IN GOVERNMENT

Employment-Unemployment
The Subcommittee held monthly hearings on employment and
unemployment at which Mr. Julius Shiskin, Commissioner of the Bureau of Labor Statistics, discussed with the Subcommittee the statistics on unemployment and possible future trends. Other distinguished
individuals were invited periodically to discuss the impact of government programs on employment, the causes of rising unemployment,
and related matters.
The Economic8 of Federal Subsidy Programs-Part8
The final volume in a series of eight containing studies of Federal
subsidies was released by the Subcommittee in July. The study of food
subsidies recommends the unification of all food subsidies into a
single program, and changes to enlarge food subsidies for school meals
and provide expanded educational progams. The study of media
regula~tion concludes that theFederal Communications Commission
protects the profits of the large networks at the expense of consumer
welfare. Other studies contained in this. volume discuss oil import
quotas, subsidies for water pollution abatement, and health insurance.
An additional staff study released in October estimated the total
cost of Federal subsidy programs from 1970 to 1975, and concluded
that present subsidies taken as a whole are economically inefficient,
act to distort market operations, and redistribute income to the affluent.
Energy Statistics
Senator Proxmire, Chairman of the Subcommittee, chaired hearings
in January exploring the statistical bases used in projections of energy
shortfalls and for oil allocation. The problem of obtaining reliable
information from oil companies necessary in the formulation of
equitable pricing policies was discussed with Administration officials
and energy experts.
National Prioritiesand FederalResearch and Development Programs
Hearings were held in May to look into the possibilities for
producing low-cost ethanol and single-cell protein through a -new
technology developed at the U.S. Army in Natick, Masachusetts; The
new technology might possibly be used to help solve worldwide energy
and food shortages. Scinetists, Administration officials, oil company
representatives, and public interest advocates appeared to discuss
the implementation of the new technology and the relative costs of
production.The 1976 Current Services Budget
A staff study was released in December estimating the size of the
Federal deb~i~it in fiscal vear 1976 based on projections of the spendmng necessary to maintain a constant level- of government services.
'The study forecasts a substantial Federal deficit for 1976. and placed
the ,-es'onsihility for increased deficits on the economic policies fol-''
lowed during the last two years.'

140
In April, the Subcommittee held hearings on the "Allocation of
Resources in the Soviet Union and China." The hearing was in executive session in order for the Director of Central Intelligence to present
classified information on the way in which the Soviet Union and
China determine their plans for the use of resources. Later, it published the part of those hearings which could be made available to the
public.
Members of the Subcommittee on Priorities and Economy in
Government wele Senator William Proxmire, Chairman, Senators John Sparkman, J. W. Fulbright, Hubert H. Humphrey,
Charles H. Percy, James B. Pearson, and Richard S. Schweiker;
Representatives Wright Patman, Martha W. Griffiths, William S.
oorhcad, Hugh L. Carey, Barber B. Conable, Jr., Clarncne T.
Brown, and Ben B. Blackburn.
SUBCOMMITTEE ON INTER-AMERICAN ECONOMIC RELATIONSHIPS

The subcommittee continued its study of the effect of economic conditions and developments in South America on U.S. policy toward
Latin American countries.
Members of the Subcommittee on Inter-American Economic
Relationships were: Senator John Sparkman, Chairman, Senators
J. W. Fulbright, Abraham Ribicoff, Lloyd M. Bentsen, Jr.,
James B. Pearson, and Richard S. Schweiker; Representatives,
Martha W. Griffiths, William S. Moorhead, Barber B. Conable,
Jr., and Ben B. Blackburn.
SUBCOMMITTEE ON INTERNATIONAL ECONOMICS

Kissinger-Sinmon Proposalsfor Financing Oil Imports
Hearings were held in November pursuant to S. Con. Res. 93 at which
testimony was taken from Administration officials from the Treasury
and State Departments and from the Chairman of the Board of Governors of the Federal Reserve System relating to official recycling
mechanisms as a result of the Kissinger-Simon $25 billion "safety net"
proposal.
Members of the Subcommittee on International Economics
were: Representative Henry S. Reuss, Chairman, Representatives
William S. Moorhead, Hugh L. Carey, William C. Widnall,
Barber B. Conable, Jr., Clarence J. Brown; and Senators John
Sparkman, J. W. Fulbright, Abraham Ribicoff, Hubert H.
Humphrey, Lloyd M. Bentsen, Jr., Jacob K. Javits, Charles H.
Percy, and James B. Pearson.
SUBCOMMITTEE ON FISCAL POLICY

The Subcommittee on Fiscal Policy competed its 3-year study of
public welfare programs in December 1974. During the last year of the
study nine papers were completed, including a final report with recommendations for welfare and tax reform.
Paper No. 13, How Income Supplements Can Affect Work Behavior,
contains three papers examining the effects of income maintenance
programs on work incentives. The authors review the impact of cash
aid on work behavior, and also in-kind assistance. Comparisons are
made of negative income tax, wage subsidies, and earnings subsidies.

141
The three papers address the majorissues in transfer programs and
work incentives with varying degrees of technicality. (100 pages. February 18, 1974)
Paper No. 14, Public Welfare and Work Incentives: Theory and
Practice,was prepared in chart book form as a short, nontechnical summary of two previous subcommittee papers, numbers 4 and 13, in the
series Studies in Public Welfare. Paper No. 14 examines the theoretical
impact on work incentives of such program features as benefit levels,
benefit-loss rates, income accounting periods, and work and training
requirements. Research results. as to actual impact are also reviewed.
Examples are used to depict the problems faced, and the authors conclude with an overview of policy choices. (55 pages, April 15,1975)
Paper No. 15, Welfare in the 70'8: A National Study ofBenefits
Available in 100 Local Areas, presents findings and analysis of a staff
survey of 100 nationally representative local areas. This study reveals
what welfare benefitF, are available to eight family types in the 100
counties, and affords an overall look'at the national operation of welfare programs. The analysis includes an examination of combined
benefit levels, their gross earned income equivalent, and their comparison with median area earnings; benefits-loss rates; child-bearing
and family formation incentives; and administrative implications of
a multi-layered program world. (300 pages, July 22, 1974)
Income Security for Americans-Recommendations of the Public
Welfare Study is the Report of the Members of the* Subcommittee on
Fiscal Policy based on their three year study of public welfare programs. It analyzes the various components of our public welfare system and the policy issues raised. The Report presents recommendations
for tax and welfare reform to enhance equity and adequacy, to achieve
greater administrative control and simplicity, and to preserve incentives for work.
Paper No. 16, A Model Income Supplement Bill, presents in bill
form the recommendations of the, Subcommittee on Fiscal Policy as
contained in its Report. Also included is' an overview and section-bysection analysis and rationale for the bill. (62 pages,' December 20,
1974).

. - .

Paper No. 17, National Survey of Food Stamp and. Food Distribution Program'Recipients: A Sumvmary of Findings on Income Sources
and Amounts and Incidence of Multiple Benefits, contains a summary
of a survey conducted by the Department of Agriculture at the request
of the Subcommittee Chairman. This study shows who receives food
stamps, what other programs they benefit from, and their total incomes. This study explores the interaction of food programs with other
public welfare programs. (47 pages, December 31, 1974)
Paper No. 18, Issues in FinancingRetirement Income, contains four
papers with respect to programs providing retirement income. The
principal focus is on social security anrd private plans, with secondary
mention of the supplemental security income program: (200 pages,
December 31, 1974)
Paper No. 19, Public Eniployment and Wage Subsidies. contains
five papers. Historical experience with public employment is examined
as well as the utility of public employment in dealing with a variety
of current objectives. (162 pages, December 30, 1974)

49-768 0 - 75 - 10

142

Paper No. 20, Handbook of PublicIncome TransferPrograms:1975,
is an updated version of Paper No. 2 in the series Studies in Public
Welfare. This publication furnishes basic program information on a
variety of cash and in-kind public income transfer programs, as well
as costs and caseloads. It serves as a basic reference document.
HEARINGS: On September 11 and 12 hearings were held on
Federal contract compliance and affirmative action plans.
Members of the Fiscal Policy Subcommittee were,: Representative Martha WVT.
Griffiths, Chairman, Representatives Richard
Bolling, Hugh L. Carey, William B. Widnall, Barber B. Conable, Jr.; and Senators William Proxmire, Abraham Ribicoff,
Lloyd M. Bentsen, Jr., Jacob K. Javits, and Richard S. Schweiker.
SUBCOMMITTEE ON URBAN AFFAIRS

Productivityin Urban Transportation
Subcommittee Chairman William S. Moorhead conducted a series
of hearings throughout the year on the effectiveness of urban transportation expenditures. It was felt that these hearings were necessary
to begin to provide guidance to State and local officials faced with
important transportation-related decisions. The hearings focused on
methods of dealing with the transportation problems faced by State
and local governments throughout the country. Recent developments
and projects, such as the Bay Area Rapid Transit System in the San
Francisco area were examined in order to determine the feasibility of
such systems for other cities in the Nation. Organizations were called
upon to advise the Subcommittee on the viability of mass transit and
the incentives necessary to make these systems succeed.
\Members of the Subcommittee on Urban Affairs were: Representative William S. Moorhead, Chairman, Representatives Richard Bolling, Martha W. Griffiths, Hugh L. Carey, William B.
Widnall, Clarence J. Brown, and Ben B. Blackburn; Senators
Abraham Ribicoff, Hubert H. Humphrey, Lloyd M. Bentsen.
Jacob K. Javits, and Charles H. Percy.
SUBCOMMITPEE ON CONSUMER ECONOMICS

Resignation of the Directorof the Ofce of Consumer Affairs, Federal
Energy Administration
Hearings in August concentrated on the resignation of the FEA
Director of the Office of Consumer Affairs, attempting to shed light
on why and how the consumers' interests are disregarded in dealing
with energy matters.

Gasoline Distribution
Subcommittee Chairman Hubert H. Humphrey conducted 2 days
of hearings on gasoline distribution during March. The allocation
system in effect at that time was reviewed to see what changes might
be made to make the system more equitable. Testimony was heard from
individuals representing groups intimately involved in or affected by
the allocation system as well as Administration officials and energv
experts.

Gas and Electric Rates
Large increases in gas and electric rates during the last three years
were investigated by the Subcommittee in a set of hearings conducted

143
-in March. The Subcommittee heard testimony from the Chairman of
the Federal Power Commission, an Economics Professor at the University of Wisconsin, and the Commissioner of the New York Public
Service Commission.
Current Assessment of the Economy
In hearings before the Subcommittee May 10, 1974, the Chairman
of the Council of Economics presented the Administrations case on
current economic policy and the Subcommittee considered what to
expect in the months ahead, whether there were any significant signs
of recovery, and whether the rate of inflation could be expected to
abate.
Inflation
The Subcommittee, invited the Director of the Cost-of-Living Council to testify on the adequacy of the Nation's efforts to deal with
problems of inflation. Additional testimony was received from the
Chairman of the Council of Economic Advisers on the Administration's assessment of the state of the economy and the immediate economic outlook.
Food Retailing and Processing Practices
Hearings were held in May to examine food processing and retailing
practices that unnecessarily increase the. price or lower the quality of
food for the consumer. Testifying before the Subcommittees were officials from the Department of Agriculture, the Federal- Trade Commission, and the Agribusiness Accountability Project.
The FEA and Competition in the Oil Industry
The status of independent oil refiners and markers under the Emergency Petroleum Allocation Act was investigated by the Subcommittee in a set of hearings conducted in June. The hearings were prompted
by apparent inequities in the allocation system which worked to the
disadvantage of the independent firms. The Subcommittee heard from
representatives of the independent firms and from the Administrator
of the Federal Energy Administration.
Members of the Subcommittee on Consumer Economics were:
Senator Hubert H. Humphrey, Chairman, Senators William
Proxmire, Abraham Ribicoff, Jacob K. Javits and Charles H.
Percy; Representatives William Moorhead, Martha W. Griffiths,
Henry S. Reuss, Hugh L. Carey; William B. Widnall, and Clarence J. Brown.
SUBCOMMITTEE ON.ECONOMIC GROWTH

The Subcomniittee on Economic Growth was created in 1974 by tie
Joint Economic Committee to look into the uncertainties surrounding the Nation's long-term economic growth. Senator Lloyd Bentsen,
'Jr., was appointed Chairman of ithe new' Subcommittee..
Long-Term Economic Growih
The new Subcommittee started its investigations in May with hearings on the prospects for economic growth over the next decade.
Public officials, business leaders and .academic experts were invited
to give their perspectives on this issue. Senator Mike Mansfield pre-

144
sented his recommendations for improving the government's ability
to foresee and head off economic problems.

Outlook for Prices and Supplies of Industrial Ra'w Materials
In hearings held in July, the Subcommittee focussed in on recent
reductions in raw materials prices as a possible key to slowing down
the rate of inflation. The Subcommittee sought to determine whether
these reductions would be permanent and how they would affect supply conditions. The stockpile policy of the government was reexamined
in light of these developments.

FinancialShortages
Senator Lloyd M. Bentsen, Jr., chaired hearings on methods for
easing the financial shortage affecting construction, farming, and
other basic U.S. industries. The hearings pointed out the need to
expand supply as well as dam pen demand in attacking inflation. Testimony was received from academic experts, industry representatives,
bankers and the Chairman of the Federal Reserve Board during four
days of hearings held during October.
Members of the Subcommittee on Economic Growth were: Senator Lloyd M. Bentsen, Jr., Chairman, Senators William Proxmire, Abraham Ribicoff, Hubert H. Humphrey, Jacob K. Javits,
and Charles H. Percy; Representatives Henry S. Reuss, William
S. Moorhead, William B. Widnall, and Barber B. Conable, Jr.
COMMITTEE ACTIVITIES PURSUANT TO SENATE CONCURRENT
RESOLUTION 93
In order to carry out the mandate given to the Joint Economic Committee by Senate Concurrent Resolution 93, the Committee held approximately 30 days of hearings, has sponsored approximately 12 special studies which will be published during the next few months, and
has prepared an interim and a final report. In addition, the Committee staff held several seminars with invited experts, attended a number of conferences, and consulted widely on an individual basis with
leading researchers in economics and related disciplines. Several Committee members participated in the White House Conference on the
Economy on September 27 and 28 as wvell as in most of the preparatory
meetings held prior to that conference.
REPORTS
The Committee has published two reports. The first, or interim,
report is entitled "An Action Program for Reducing Inflation and
Restoring Economic Growth." It was prepared in response to the hope
expressed by President Ford in his address to Congress on August 12,
1974 that the Committee could report within six weeks. The Report
was presented to the President and the Congress on September 21 and
was subsequently distributed to participants in the White House Conference on the Economy on September 27 and 28. The Report contained recommendations for actions which could be taken immediately
in four areas: fiscal and monetary policy; price-incomes policy; policies to help those hurt most by inflation; and policies to restore market
efficiency.

145
The Committee's final report under S. Con. Res. 93 is entitled
"Achieving Price Stability through Economic Growth" and is dated
December 23, 1974. Longer and more comprehensive than the earlier
report, the final report assesses the prospects for economic growth,
prices and employment over the next several years and outlines a
comprehensive program for ending .the recession and initiating renewed progress toward full employment and price stability.
HEARN~hGS

As part of its study conducted pursuant to S. Con. Res. 93, the
Committee held approximately 30 days of hearings on 11 individual
subjects related to the study. Each of these 11 sets of hearings is described briefly below.
.
Mid-Year RevieW'o
Rampant inflation, declining real incomes, and the failure of output
to grow at all in the second quarter demonstrated that current policies
were not adequate to deal with the serious economic situation which
confronts us. Therefore, on July 29, 30, August 1, 2, 6, and 14, the
Joint Economic Committee scheduled a thorough mid-year review of
the economy which served not only as an assessment of the immediate
outlook, but also as: the initiation of the emergency study of inflation.
InflationaryImpact of Pricinq by ConcentratedIndustries
The Joint Economic Committee held three days of hearings on the
inflationary impact of pricing by concentrated industries. During the
first two days of hearings (September 4 and 9) academic and government witnesses presented background material. A follow-up hearing
was held on October 7, with the top decision makers'of three major
steel companies (U.S. Steel Corporation, Bethlehem Steel, Inland
Steel) testifying. In addition to the hearing, questionnaires were sent
on October 2 to the major steel companies (including those who testified on October 7) asking them to submit data on their raw steel capacity and capacity'utilization rates for the past five years, including 1974.
As a result of the information gathered by the questionnaires, Senator
Proxmire released information on steelmaking capacity and its uitilization. This survey marks the first time in 15 years that the steel industry
has made capacity and utilization data available to the public. A table
summarizing the questionnaire data is available from the Committee.
The complete responses of each company is to be published with the
record'of the October .7, 1974, hearing on administered pricing.
Inflation Outlook
Mr. Alan Greenspan, Chairman of the Council of Economic Advisers, testified before the Joint Economic Committee on September 26,
1974. The purpose of this hearing was to assess the implications of
recent price statistics for inflation an'd the economic outlook. The hearing looked into the following points: whether inflation was likely to
continue to accelerate in the months ahead; why any price acceleration
is occurring in a slack economy in the midst of a recession; and whether
this recent acceleration in inflation is likely to throw the Nation into
a much more severe recession. This hearing was held just after the

146
August price statistics were released. The August increase in wholesale
prices of 3.9 percent, coming on top of the 3.7 percent increase in July,
had accelerated wholesale prices m the three months previous to an
annual rate of increase of 37 percent. Consumer prices had also showed
some acceleration, jumping 1.3 percent in August alone, which meant a
13 percent annual rate of increase in the three months previous.
Financialand Capacity Need8
On October 1, 2, 3, and 10, the Joint Economic Committee held hearings on methods for easing a financial shortage that is driving up prices
and aggravating unemployment in construction, farming, and other
basic U.S. industries. Business and industry have been especially hard
hit by the financial crunch. The lack of financing is curtailingJ needplP
plant expansion in basic manufacturing. High interest rates have sent
the homebuilding industry into a virtual state of depression. Contractors can't borrow money for building, nor customers for buying.
Former Treasury Secretary Henry Fowler led the list of witnesses.
T'Ihe hearings concluded on October 10-with testimony from Arthur
Burns, Chairman of the Federal Reserve Board.
PresidentFord'sEcownomic Proposals
Three days of hearings were held on October 11,16 and 18, to evaluate the economic proposals presented by President Ford on O5 ctober 8.
The witnesses included Treasury Secretary William Simon; Arthur
Okun and Joseph Pechman of the Brookinges Institution; John Kenneth Galbraith of Harvard University, Robert Nathan (Robert Nathan Associates) and Albert iRees, Executive iDirector of the Council
on Wage and Price Stability.

la~rket Pow~er, FTCJ, and Inflation
The November 18 hearing inquired into the reasons for the relative
ineffectiveness of the Federal Trade Commission and the problem
generally of market power, the abuses of market power, and how they
contribute to the inflation we are experiencing today. Chairman Lewis
A. Engman and Commissioner Mayo J. Thompson of the FTC and
Gardiner C. Means testified.
The Economnic Imnpact of EnvironmentalRegulations
Three days of hearings were held evaluating the economic impacts
of compliance by industries and local governments with environmental
regulations. The hearings held on November 19, 21 and 22, 1974,
focused on whether or not there is any merit to the argument that
compliance with environmental regulations has contributed to the
recent severe inflation. The hearings also seeked to determine what
employment effects may have resulted from such compliance.
InternfationalFinancialProblemrsRelated to High Oil Prices
On November 25, 27, and 29 the Committee held hearings onl the
financial problems created by sharply higher world oil prices. Particular attention was devoted to the proposals recently put forward by
the Secretary of State for a new international financing facility administered through the Organization for Economic Cooperation and
Development (OECD) and for consumer nation agreement on oil
price maintenance. Witnesses included the Chairman of the Federal

147
Reserve Board, the Secretary of the Treasury, the Undersecretary of
the Treasury for Monetary. Affairs, and the Assistant Secretary,'of
State for Economic and Business Affairs.
Public UtilityIndustry
t
The hearing on December 4 examined recent developments in the
'electrical utility industry which have caused hardships for both consumers and the utility industry. The following points were discussed
at this hearing: development of more efficient methods for converting
primary fuels to electricity; examining more efficient use'of our generating capacity, thus reducing the per unit costs of generating electricity; examining more carefully the propriety of charging small
residential users twice as much as large industrial and commercial
users; carefully examining the huge increases in the cost of constructing generating capacity, particularly nuclear plants in an attempt to
reduce the huge cost of capital equipment which is passed through
to the consumer; discussion of the feasibility of coal and nuclear fuel
playing a large role in the generation of electricity.
Recent Development8 in U.S. Energy Policy
Secretary of Interior Rogers C. B. Morton testified at the hearing
on December 5 which focused on recent developments in U.S. energy
policy and the impact of these developments on our major urban areas.
Questions that the Committee examined included: (1) What mandatory conservation program is the Administration prepared to propose
if voluntary measures fail? What impact will this mandatory conservation program have on the poor, the commuting worker, the construction industry and other important groups in our cities? (2) Will
the Administration support a significant rise in the gasoline tax if voluntary measures fail and how will the Administration cushion the impact of this increase on various sectors of the economy? (3) What
policy options in the Project Independence report is the Administration likely to implement and what will be the economic impact of these
proposals?
Food Chain PricingActivities
On December 9, 12, 16, and 17, the Committee held hearings on
food prices and pricing policies of the major food chains. The Committee, as part of its inquiry into the causes of inflation in various
sectors of the economy, has subpoenaed records and documents from
the 17 largest food chains. A preliminary analysis of most of this data
has been completed. However, at the time of these hearings some of the
chains had not yet complied with their subpoena. The Committee's
interest is in the structure of the food retailing industry and the
resulting impact on prices.
SPECIAL STUMIES

The Committee has initiated about a dozen studies of special topics
related to the problems which S. Con. Res. 93 instructed the Committee to investigate. Some of these studies. are being conducted by the
Committee staff, some by experts in'various government agencies and
some by outside consultants. Time has not permitted the completion
and publication of all of these studies prior to the December 31, 1974,

148
filing deadline for the Committee's final report. However, many of the
studies were available to the Committee in preliminary form in time
for some of the most important conclusions to be included in that report. The Committee expects that most of the studies can be completed
and published within the next few months.
Among the subjects expected to be covered in these studies are the
following:
(1) The differential impact of inflation by income class, with
special attention to the impact on the poor,
(2) The contribution of exchange rate changes and international commodity price movements to inflation in the United
States,
(:3) A review and analysis of German economic policy,
(4) A simulation of the effects of various possible fiscal policies
during 3 periods in the recent past,
(5) An analysis of problems with the use of the full employment budget concept in an inflationary period,
(6) An analysis of the factors which have contributed to the
rising cost of residential construction,
(7) An analysis of concentration of ownership in retail food
marketing and its effect on prices,
(8) An assessment of the outlook for food prices and supplies,
with particular attention to the effect of the poor 1974 feed grain
harvest on meat prices and supplies,
(9) An analysis of information needs in agricultural commodity markets, especially of the need for information relating to
international transactions,
(10) An updated history of price patterns and policies to
achieve price stability since the enactment of the Employment
Act of 1946.
STAFF PARTICIPATION IN MEETINGS WITH OUTSIDE GROUPS

In addition to conducting formal studies and arranging hearings
for the Committee and Subcommittees, the staff participated in discussions of economic problems and research techniques with outside
groups. The following list illustrates the nature of these activities in
which the staff took part in 1974:
American Economic Association Convention, San Francisco.
American Enterprise Institute.
American Political Science Association Annual Meeting.
Atlantic Institute Conference on Energy, Paris, France.
Brookings Institution.
Carnegie-MIellon University Conference on Floating Exchange
Pates.
Center for Applied Economics, New York University Conference
on Bidding and Auctioning for Procurement and Allocation.
Columbia University.
Conference of Local Legislators, St. Paul, Minnesota.
Cornell University.
Data Resources Conference-in New York, Boston, and
Washington.
Eastern Economic Association Annual Meeting.

149
Harvard University.
Library-of Congress Conference on Urban Growth.
Massachusetts Institute of Technology.
National Association of Tax Administrators Conference on Revenue Estimating, Juneau, Alaska.
Natural Resources and Recreation Conference on Inflation,'Dallas,
Texas.
Friedrich Naumann Foundation Conference on Cooperation and
Conflict-the Tension Between Nationalism in the Americas
and Western Europe, Ottawa, Canada.
North American Conference on Labor Statistics.
North American Study Group of the Middle East, Columbia
University.
Summit Meeting on State and Local Governments, Washington.
Summit Meeting on Transportation, Los Angeles.
Urban Institute, Land Use Seminar.
Wharton Econometric Forecasting Associates Conference on the
Economic Outlook.
White House Labor Conference on Inflation.
World Food Conference, Rome, Italy.
The Executive Director and other professional staff members addressed or presented papers to the following:
AFICIO.
American Planners 57th Annual Conference, Denver, Colorado.
American University Washington Seminar.
Brookings Institution.
Civil Serviee Commission Executive Training Seminar.
Douglas College of Rutgers University.
George Washington University.
Kenyon College, Gambier, Ohio.
National Economists Club.
National Restaurant Association;'
National War College.
Naval War College.
New York State Savings Bank Association.
Southern Economic Association.
University of Kentucky.
'
Executives of the YMCA, Denver, Colorado.
The Executive Director participated in meetings of the World Economic Congress in Budapest and Venice. In the course of that participation, briefings were given to United States Embassy staff in Budapest and Belgrade. Also, a lecture was given to graduate students at
the Institute of International Politics and Economics in Belgrade. He
also participated as a staff member at a meeting of the United States
Delegation to the Inter-American Development Bank.
A Senior Staff Economist for the Joint Economic Committee interviewed staff at the Bank of England and Italy and at the Bank for
International'Settlements in Switzerland on the'state of the economy
in various countries in Europe.

150
CHANGES IN COMMITTEE MEMBERSHIP

The new Members of the Committee in the 94th Congress are:
Senators Edward M. Kennedy of Massachusetts, Robert Taft, Jr., of
Ohio, and Paul J. Fannin of Arizona; and Representatives Lee H.
Hamilton of Indiana, Gillis W. Long of Louisiana, Garry Brown of
Michigan, Margaret M. Heckler of Massachusetts, and John H. Rousselot of California.
Representative Barber B. Conable, Jr., has left the Committee to
assume other committee duties. Other Members who are no longer with
the Committee are: Senators James B. Pearson and Richard S.
Schweiker and former Senator J. W. Fulbright; and former Representatives Martha W. Griffiths, Hugh L. Carey, William B. Widnall,
and Ben B. Blackburn.
CHANGES IN COMMITTEE STAFF

Leaving the staff during the year were Kathleen B. Watters, receptionist; Anne Waggoner, secretary; and Walter B. Laessig, Minority
Counsel. Additions to the professional and administrative personnel
staff include Cheri Boothe, secretary; Gregory C. Church, messenger;
Marie H. Cunningham, secretary; Jeanine Drysdale, secretary;
Robert D. Hamrin, economist; Kathleen MacArthur, secretary; Cathy
Pennock, receptionist; Carl V. Sears, research assistant; and George R.
Tyler, economist.
Professional staff members of the Subcommittee on Fiscal Policy for
some portion of 1974 included: Alair Townsend, James R. Storey,
Irene Cox, Robert Lerman, Vee Burke, Sharon Galm, Jon Goldstein,
Katherine Conroy, Alexander Korns, and Martha Grundmann.
Professional staff members who were hired for some portion of the
period between July 1 and December 31, 1974, under authority of S.
Con. Res. 93 included: William Donnelly, Albert J. Eckstein, Thomas
P. Graves, Peter D. 1H. Stockton, and Irene Till.
DISTRIBUTION OF COMMITTEE PUBLICATIONS

In 1974 the Joint Economic Committee distributed over 300,000
copies of current and previous year's publications to individuals,
libraries, and organizations the world over.
Since the time of our last Annual Report the committee has released
18 reports and studies and has printed 24 sets of hearings, for a total
of 42 publications.
Also during the past year the Superintendent of Documents sold
over 125,000 copies of current and previous year's publications.
Economic Indicators, which are sold by monthly subscription
through the Superintendent of Documents, were received by almost
12,000 subscribers in 1974.
In addition there are over 700 depository libraries in major universities throughout the country that are mailed by the Government
Printing Office the committee prints that are released by the Joint
Economic Committee.

SUBCOMMITTEE MEMBERSHIP, NINETY-FOURTH
- CONGRESS
CONSUMER ECONOMICS
SENATORS

REPRESENTATIVES

Hubert H. Humphrey, Chairman Richard Bolling
William Proxmire
William S. Moorhead
Abraham Ribicoff
Gillis W. Long
Edward M. Kennedy.
Garry Brown
Jacob K. Javits
Margaret M. Heckler
Charles H. Percy
ECONOMIC PROGRESS
REPRESENTATIVES

Wright Patman, Chairman
Henry S. Reuss

Lee H. Hamilton
Gillis W. Long

SENATORS

William Proxmire
Lloyd M-. Bentsen, Jr.
Paul J. Fannin
Jacob K. Javits

Garry Brown
Margaret M. Heckler
PRIoRrrnEs AND ECONOMY IN GOVERNMENT
SENATORS

William Proxmire, Chairman
John Sparkman
Abraham Ribicoff
Hubert H. Humphrey
Edward M. Kennedy
Charles H. Percy
Robert Taft, Jr.

REPRESENTATIVES

Wright Patman

Lee H. Hamilton
Gillis W. Long
John H. Rousselot
Clarence J. Brown
Garry Brown

INTER-AMERICAN ECONOMIC RELATIONSHIPS
SENATORS

John Sparkman, Chairman
Lloyd M. Bentsen, Jr.
Edward M. Kennedy
Robert Taft, Jr.
Paul J. Fannin

REPRESENTATIVES

William S. Moorhead
Gillis W. Long
Lee H. Hamilton
Margaret M. Heckler
John H. Rousselot

INTERNATIONAL ECONOMICS
REPRESENTATIVES

Henry S. Reuss, Chairman
William S. Moorhead
Lee H. Hamilton
Clarence J. Brown
Garry Brown
John H. Rousselot

SENATORS

John Sparkman
Abraham Ribicoff
Hubert H. Humphrey
Lloyd M. Bentsen, Jr.
Edward M. Kennedy
.Jacob K. Javits
Charles H. Percy
Robert Taft, Jr.
(151)

152
FIscAL PoIOcy
SENATORS

REPRESENTATIVES

William Proxmire
Lloyd M. Bentsen, Jr.
Robert Taft, Jr.
Paul J. Fannin

Richard Bolling, Chairman
William S. Moorhead
Gillis W. Long
Lee H. Hamilton
Clarence J. Brown
John H. Rousselot

URBAN AFFAIRs
SENATORS

REPRESENTATIVES

Willimm S_Mnorhead- CheaitrmOr.

Ahrdham Ribieoff

Richard Bolling

Hubert H. Humphrey
Lloyd M. Bentsen, Jr.
Edward M. Kennedy
Charles H. Percy
Jacob K. Javits

Gillis W. Long

Garry Brown
Margaret M. Heckler
John H. Rousselot

ECONOMIO GROWTH
SENATORS

REPRESENTATIVES

William S. Moorhead
Clarence J. Brown
Margaret M. Heckler

Lloyd M. Bentsen, Jr., Chaifmia
William Proxmire
Abraham Ribicoff
Hubert H. Humphrey
Edward M. Kennedy
Jacob K. Javits
Charles H. Percy
0

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