The President's News Conference on the Tax Message

THE TAX MESSAGE

THE PRESIDENT. [1.] We have reached the day some of you have been expecting for some time. The tax message is going to the Congress.

We will ask for taxes that we expect to produce about $7 billion 400 million for the fiscal year beginning July 1.

We have reestimated our revenues and our expenditures. They run something like this: The deficit we went in with last January was $8.1 billion. We estimate now we will have $8.5 billion additional expenditures that were not included in this first figure. There are $8.5 billion in additional expenditures.

There will be $1.5 billion in funds we released last spring that had been impounded, you will remember. That will be spent the next fiscal year. That is like housing funds, public works projects, and some of those funds we impounded.

The Congress is considering a pay bill that will be $1 billion above the budget. We think prudence indicates that we ought to consider the possibility of that being enacted.

We recommended a 4.5 percent increase for Federal, civilian, and military employees. The bill which they have--the most popular one under consideration--would be another $1 billion.¹ We think we have to look at the facts of life there.

¹For the President's remarks upon signing the Postal Revenue and Federal Salary Act of 1967, see Item 546.

We asked for $4.4 billion in participation certificate sales. We think it will be $2 billion short of that at the moment.

In the light of the additional men we will have to send to Vietnam, which will be in the neighborhood of 45,000 or 50,000, and the allowance for extra expenses that we can best calculate, we estimate that to be in the neighborhood of $4 billion. That is $8.5 billion total.

Our revenues are down $7 billion-plus. I will give you the breakdown on that. Our tax bill of 6 percent, we had calculated, would give us another $4.7 billion.

If we don't have a tax bill, the interest will be an additional $700 million. $4.7 billion and $700 million will be $5.4 billion. There is where we start with the potential deficit. That is $29 billion.

What are we going to do about the $29 billion? We hope, first, that we can take $x billion off here by the pay bill if the Congress will stay with the budget estimates, and we so recommend.

We hope we can take $1 billion more off by giving us the authority to sell $2 billion PC's [participation certificates].

For every billion we take off, we will save 2 points on the surtax. If we have a pay bill of an extra billion dollars, we would have to have 2 points extra on our 10 percent surtax to take care of that extra billion. For every $1 billion you spend, it means 2 points surtax, so here we hope we can save 6 points on surtax.

That takes $3 billion off there.

We have a 10 percent surtax on corporations effective July 1st. We have a 10 percent surtax on individuals effective October 1st. We have to have our forms printed and the withholding. We think that is the earliest date possible--October 1st. They could make it July 1st if they were so disposed to, and we hope they will.

I made clear to Chairman Mills and the Democratic leadership, the members of the Ways and Means Committee, Mr. Byrnes,² and others, that we would like to have prompt hearings and have this measure voted. If they cannot vote it as we recommend it, then vote it as their best judgment indicates; at least take action one way or the other.

² Representative Wilbur D. Mills of Arkansas, Chairman of the House Committee on Ways and Means, and Representative John W. Byrnes of Wisconsin, ranking Republican member of the Committee.

There is nothing that is as hurtful as uncertainty in the economic community. Chairman Mills has indicated to me that he will try to start hearings on the 14th. When he gets his social security bill out, and it will be up in Congress, he hopes we can be ready for testimony on the 14th. I have instructed all of our people to be ready for that testimony.

Under that tax bill, that 10 percent surcharge that expires in 1969 or when the Vietnam problem is over with, plus the extension of the excises due to expire next April--and they will give you the details-that will raise $7.4 billion, so that will give us $10.4 billion, if we get everything that we are asking for, and we will not.

One billion dollars for the pay bill. Bear in mind, we can have a pay bill of 4.5 percent, but they are considering one that is $1 billion above the 4 1/2 percent. That is what we want knocked out. We are getting $2 billion in certificates, but they are cutting $2 billion in certificates. We are asking to add the $2 billion. We asked for it in the budget. We counted on it in the budget. We hope the Congress will put it in the budget. There is an indication they will. So that is $3 billion.

Take the $1 0.4 billion from your $29 billion. That gives you an $18.6 billion. Then we only have three appropriation bills. We expect to get another 10 or 12, probably 12 more. We will take each one of those 15 and see what we can cut out of there.

The tax message shows that really there is only about $12 billion that is within the discretion of the President. First the Congress will cut some of it, and we hope it will reduce this $18.6 billion. But we have about $12 billion in the nonmilitary. If we can cut $1 billion, $1.5 billion, 10 percent out of that, then we have the military. That will be some $79 billion, I guess, counting the atomic energy and the estimated $4 billion. We will try to squeeze any water we can out of that.

Whatever we can squeeze out will be deducted from the $18 billion. It could be as much as $4 billion. The deficit will likely be somewhere in the area of $14 billion to $1 8 billion, depending on the appropriations.

You cannot cut an appropriation that has not been appropriated. We have only had three of them, and they are the minor ones, not the big ones. If the bill comes to you that has $79 billion in appropriations, you can cut it more than you can with one that has $69 billion. We will have to see what happens there.

That is roughly the picture. Summarizing briefly, and the experts can take all of your questions, we see the potential deficit as $29 billion. We have to be realistic and face that budget.

What do you do with that kind of a deficit?

We could borrow it all, but with corporation profits, personal income, farmers' income, prosperity what it is, we don't think that would be a wise course. There is no one in the Government that recommends borrowing it all.

We could tax it all, but if you only get $7.4 billion out of a 10 percent surtax, you see it would take a 40 percent surtax, or maybe more, because part of that is excises, to tax it all. We don't think the economy would take that.

So without taxing it all, or borrowing it all, we have taken another alternative. We wish we had a balanced budget. We wish we didn't have any problems. I guess all of you do in your own lives.

But we will borrow a part of it, tax a part of it, and save a part of it. So we are going to tax--of the $28 billion or $29 billion, whatever it runs, $30 billion--we are going to try to tax $7.4 billion. We are going to try to tax $8 billion and try to save $8 billion and have the best of the $14 billion or $16 billion, somewhere in there, by taxing, by cutting, and by borrowing, instead of borrowing it all or taxing it all.

We may be off a billion or two. I don't want to affect your credibility by having you make speculations that didn't always come true. I am sure that happens once in a while. I don't want to get myself into a credibility problem any more than I already have.

I would warn all of you that these are "guesstimates" as best they can be. We have sent four State of the Union Messages, four Budget Messages, to the Congress since I have been President. We estimated our deficits in those 4 years would be $23.9 billion and it is $23.8 billion-plus.

So our estimate on the deficits we have had has been reasonably good. We want to try to make it as accurate as we know how. But in an $800 billion economy, $175 billion NIA [national income accounts] budget, $135 billion budget here, if you are off 2 percent you have a lot of serious trouble.

We hope we are not off 2 percent or 1 percent. We have not been on our 4-year deficits. This year we were off, but the first 3 years we had a plus.

So we took the plus the first 3 years and the minus the fourth year and we came out right on the nose, $23.8 billion. and we predicted a $23.9 billion deficit. That is what we are trying to guess now, just as sincerely and accurately as we know how.

We have looked at the economy. We have sent wires to 100 corporations to get their estimates. We have talked to labor leaders. We have talked to farmers. We have had economic advisers and Treasury estimators, as well as the Federal Reserve Board.

It is our best judgment that these are the best figures we can assemble. We know there will be an error somewhere. We think this $8.5 billion in additional expenditures can be cut quickly by $3 billion in these two items.³

³ Here the President pointed to a blackboard. The terns were "pay bill" and "participation certificates."

We know this other cannot be cut--the $1.5 billion--because it has already gone. We do not know what will happen on the $4 billion, but it is a prudent estimate at the moment. There are a lot of things that are not in this estimate.

The Forrestal was not in it--at $100 million. The supply facility yesterday was not in it. The Danang mortar shell the other day--$80 million--was not in it. We just cannot guess those things.⁴ Those things usually are not put in.

⁴ The President referred to disasters costly to the United States, including an accidental fire which badly damaged the aircraft carrier Forrestal in the Gulf of Tonkin near the coast of North Vietnam on July 29, 1967.

We have some contingency. There may be more of them. They may be different. But our hope is that we can get this $29 billion down to $10.4 billion quickly with these three items--tax, participation, and pay. That is $18 billion.

We hope that we can cut something out of this $12 billion that I can play with.

We have $61 billion nonmilitary expenditures in the budget. Of that $61 billion, there is $30 billion I cannot touch. $14 billion of it is interest. $4 billion of it is untouchable. There is $15 billion more that is in contracts; that is untouchable. That is $45 billion.

Then there are $8 billion more that is in salaries for Federal workers. That is $53 billion.

So, of the $61 billion, there is $53 billion-and in that $53 billion, $1 billion of it is pay--and that gets me down to just the few billions you can reduce.

If you reduce the 10 percent, or 20 percent, you would just be getting it bigger.

It is unlikely you can reduce Defense much, unless you had something you cannot calculate at the end. So we will cut that $18 billion, we hope, somewhere between $14 billion and $18 billion. We will cut everything we could hope for--or if we did not get any of it--somewhere between $14 billion and $18 billion.

That is what we are saying. Instead of borrowing it all or taxing it all, we are going to borrow part of it, tax part of it, save part of it, and cut part of it. Cut, tax, and borrow-none of it is pleasant.

I wish I did not have to tell you, but that is the fact. That is all I know about it. I will answer any questions I can. Then, you will get better answers from Mr. Fowler.⁵

Yes, Mr. Lisagor.⁶

⁵ Henry H. Fowler, Secretary of the Treasury.

⁶ Peter Lisagor of the Chicago Daily News.

QUESTIONS

[2.] Q. I thought I heard you say in passing that "in 1969 when the Vietnam problem is over"--did I hear that correctly?

THE PRESIDENT. No. I said that the tax would expire on a certain day in 1969, or it could continue. On the tax, I gave an expiration date, except for Vietnam.

TROOP LEVELS

[3.] Q. Mr. President, the mention of 45,000 and 50,000 troops over those presently authorized levels for fiscal 1968--what would that bring the total to of troops in Vietnam?

THE PRESIDENT. It is 525,000.

Q. In what period is that, sir?

THE PRESIDENT. Over this year--the fiscal year of July to June.

ATTITUDE OF WAYS AND MEANS COMMITTEE

[4.] Q. Does Congressman Mills support this proposal?

THE PRESIDENT. You will have to talk to Congressman Mills. He will start hearings on the 14th. We believe he will want to hear our justifications.

We have asked the Secretary of the Treasury, the Chairman of the Council of Economic Advisers, and the Budget Director to be available to him. I have briefed all of the leadership of the Ways and Means Committee on it--Mr. Mills and Mr. Byrnes.

I have talked to Mr. Mills several times. I talked to Mr. Byrnes at some length. I talked to all of the Ways and Means Committee earlier this morning. I have asked for no commitments from them, and I have received none.

I think they all realize the problem we have to face together. It may be that we have a better way of doing that than we are doing it. But the way we can see it is that if we had to borrow $29 billion, everybody said we cannot do that.

If we had to tax $29 billion, everybody said we should not do that. If you cannot borrow it, and can't tax it, what do you do? We are going to try to save as much as we can. We will give you that as soon as we get the bills.

We are going to try to tax $7.4 billion. That is laid on the line. Then we are going to try to borrow the rest. I do not know what Mr. Mills will do, or what the Ways and Means Committee will do, or what Congress will do.

I hope whatever they do, they will do it promptly. They indicated to me they will try to face up to it very quickly--on the 14th--just as soon as they get this social security bill reported.

SIZE OF SURTAX NEEDED

[5.] Q. Mr. President, you said every billion dollars means 2 points of surtax. Does that mean if they don't do any of this, and it is $29 billion instead of $18.6 billion, that is 5 more points of surtax for the man in the street?

THE PRESIDENT. Let us just take one illustration.

I don't follow your illustration as well as I follow my own. We are all that way, I think.

There is a $1 billion pay bill. If they vote the $1 billion more in pay than the budget request, if we were to offset that with taxes, we would have to raise the surtax 2 points.

If they voted $2 billion more, we would have to raise it 4 points.

If they voted $3 billion more, it would be 6 points.

EFFECTIVE DATE; OTHER POSSIBLE FORMULAS

[6.] Q. Mr. President, if Congress would give you the savings quickly that you are asking, would you be willing to scale down the surtax?

THE PRESIDENT. I think that this is the best formula. This is the most realistic. We do not think that you can get much before October 1st. We are asking that it be July 1st on corporations.

We have had that notice out since January. Most of them have figured it in their plans. Corporations can do that, but we cannot get out your forms and get withholding of your 10 percent surcharge on individuals before October, in our judgment.

This is the first of August, so it would give us just August and September. Even if they start the 14th and hurry it, we think that is the most realistic date.

We do not think any of these figures will be just exactly what we are estimating. There may be some fellow who has a better plan. But we can't borrow it all and we can't tax it all. We have to borrow part of it, save part of it, and tax part of it. That is what we are doing.

They may have to raise the tax more than the $7.4 billion out of the $29 billion. They may want to lower it. I would hope that they would not lower it.

They may want to borrow more than we think we should borrow. We impounded some of these funds to try to save some of this. They may not want us to do that. They did not here. That is why we had to release that.

They appropriated $1 billion for housing and we just spent a part of it. We impounded it, but they got us to release a part of it. This is in these figures.

We have asked for their judgment. We hope they will give their judgment promptly. This is our judgment. Then, as always, there will be a blending of the two, of course.

REACTION OF BUSINESS COMMUNITY AND OF LABOR

[7.] Q. Mr. President, what was the general reaction of the business community when you talked to these people?

THE PRESIDENT. I believe most of the responsible business people--and I think all of them I talked to are responsible--believed we ought to have a tax increase. There is a difference of opinion as to the amount. There is a difference of opinion as to the date. There is a difference of opinion as to the type.

That is true with both business and labor. But I would guess--and this is off the top of my head--if you took 100 top business executives, 95 of them would feel we should have a tax increase rather than borrow the $29 billion, or rather than think you could save the $29 billion.

We will have a lot of speeches on nonessential expenditures. We are going to try to cut out what we think are some nonessential items. But no one thinks you can cut Out $29 billion or $10 billion or $15 billion. Everybody thinks you have to raise some of it or borrow it all.

I would say 95 out of rod think you have to have a tax raise. I would say labor people would like it to be more on corporations than individuals. We have tried to meet that some by exempting a family of four that earns under $5,000 a year.

It means about $9 a month for a family that has an income of $10,000 a year. I don't have it on the $20,000 or $30,000 figure that would affect some of you.

REVENUE ESTIMATES IN THE TAX MESSAGE

[8.] Q. Mr. President, this might be a question for Mr. Fowler or Mr. Ackley,⁷ but on page 5, the revenue estimates, I am not clear about the dual reference to the loss of personal income tax, based on lower income.

⁷ Gardner Ackley, Chairman of the Council of Economic Advisers.

THE PRESIDENT. If you are through with me, I may go along.

ALTERNATIVE SUGGESTED BY REPUBLICAN COORDINATING COMMITTEE

[9.] Q. Could I ask your reaction to the Republican Coordinating Committee's call for you to withdraw your budget and send a new one to avoid any tax increase? Is that a practical alternative?

THE PRESIDENT. What committee is that?

Q. The Republican Coordinating Committee.

THE PRESIDENT. I have given you my reaction.

Reporter: Thank you, Mr. President.