Moribund Surtax

As Chairman Wilbur Mills impatiently twirled his cigarette holder and fired off barbed questions, seven leading economists trooped before the House Ways and Means Committee last week to support the Administration's call for a 10% surtax on personal and corporate incomes. Well over 300 academic economists mobilized by Walter W. Heller, former chairman of the President's Council of Economic Advisers, added their written endorsement. Then came businessmen declaring themselves fit to be tithed and a covey of Administration officials pleading for higher taxes.

They differed on details but demonstrated a remarkable consensus: prompt imposition of a surtax is vital to curb inflation in an overheating economy, reduce a Government deficit that may hit $29 billion this fiscal year and head off a repetition of the credit squeeze that rocked business in 1966.

Chaos & Catastrophe. "The economy is moving on a course of rapid expansion," said William McChesney Martin, chairman of the Federal Reserve Board and the man who most of all persuaded the President to seek the surtax. Listing rises in retail sales, personal incomes, housing construction and industrial production, an increase in inventories and order backlogs and a drop in unemployment, Martin found "clear and compelling evidence" of inflation. "An environment of rampant inflation," warned former Treasury Under Secretary Robert V. Roosa, "will afford little opportunity for the considered development of any national policy, domestic or foreign." Roosa forecast economic dislocation "bordering on chaos" unless action was taken soon.

"The combination of Government v. private borrowing," cautioned Walter B. Wriston, president of First National City Bank of New York, "already has caused interest rates for everyone to rise. It will get worse, much worse, in the absence of the tax surcharge." And Sidney J. Weinberg, a senior partner of Goldman, Sachs & Co., prophesied "catastrophic developments in capital and credit markets" without the tax.

Slow Motion. But as Chairman Mills prepared to lead his committee into executive sessions behind locked doors, the White House was ready to abandon hope for a new tax, at least for this year. "I think the boys are just going to stand around the campfire for a couple of weeks," said Republican Representative Herman T. Schneebeli, a member of Mills's committee. "It's going to be a study in slow motion." Ranged against the experts are Congressmen who must face the voters next year; even as Congress voted a record $70 billion appropriation for defense, they were showing no inclination to vote the taxes to pay for it.

Returning from the Labor Day recess, legislators reported an overwhelming feeling against the tax among their constituents; a clear majority of 240 House members is already on record against it. Even many liberals who are leary of thwarting the President are concealing their opposition by first pressing for reforms to plug tax loopholes. Laments a Democratic House leader:

"A tax bill would be defeated by 100 votes if we brought it up today."

The President's last hope is for a change of heart by Mills. So far, however, the chairman has had scarcely a kind word for the bill. Apart from the political hazards of voting an unpopular new tax, the Arkansan is innately skeptical of economic prognosticators and--despite the almost-unanimous verdict of his witnesses--far from persuaded by their predictions of an inflationary spiral. On the contrary, Mills fears that added taxes may have the opposite effect of stifling growth. And he is unconvinced that $6 billion raised by the surtax can make a real dent in the deficit or make it easier to manage.

Guns & Necessities. Instead, like many other Congressmen, the Ways and Means chairman argues that the President cannot afford to fight on two fronts, simultaneously battling the Viet Cong and domestic poverty, without making sacrifices. Johnson, echoed ranking Republican Committeeman John W. Byrnes, must tell the people: "We can't afford the gravy and the butter--we've got to get down to the guns and the necessities." Before he will change his mind, Mills insists that the President must slash billions from housekeeping bills and defer new projects, as the U.S. has always done in wartime.

But this is something that Lyndon Johnson cannot do. The cuts Mills de mands would not stop at trimming fat from Government spending. They would gouge deep into the muscle and bone of the Great Society, gutting programs that the President believes he must have to alleviate the nation's mani fold domestic ills. His reiterated as surance that the U.S. is rich enough to honor its commitments in Viet Nam and fight poverty at home reflects his conviction that regardless of the cost in treasure, the U.S. cannot afford to welsh on either.

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