Nixon, Shultz & Bull on Social Security and Fiscal Policy

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What else can we get out of today?

I get it, Bob.

It's tough to hear about Mr. McLaren.

He's the guy who threw out a fire.

It's probably a good example to recall again.

He just threw me in a coffin, so by God, he goes...

Now that gives us the opportunity, too, that we find somebody or somebody else.

I don't know what can be done about it.

All the like that just oughtn't to be in the job, that's all.

He may, he's a GF-16 career civil servant, so it's possible he'll appeal.

On the other hand, even if he appeals and there's a case about it, at least that even dramatizes a little more the fact that something's being done.

We won't really know that we tried to.

Well, I would say, I don't know, it's a little hard to tell from the data, but I should think probably that's right.

Well, we can see what it cost us.

He just, he was responsible for that.

We have a major economic decision to make.

Right.

Having to do with social...

No, it has to do with Social Security taxes.

There's a fair amount of money involved.

Help me explain the issue, and then I'll tell you how various people feel about it.

The Social Security tax in our budget, in your budget, was scheduled to go from a wage base of $7,800 to $9,000 January 171.

When the Social Security bill

went through, it changed that and made that 9,000 wage base effective January 1, 72.

It cost us almost $3 billion in the budget.

And you remember in your message, or signing statement, you complained about that.

Now, the impact of an increase in the wage base is that you have a set rate of taxation on payroll

and people have that rate deducted each month or each pay period until they hit that maximum of $7,800 or $9,000 or whatever the maximum is, and then they don't have it deducted anymore.

That's the way that works.

So the larger the wage base, the further on in the year the deduction takes place.

We're at the end of H.R.

1, and the committee is on this subject this afternoon, and I think they're ready to take advice, or at least we can make a strong one.

And there are two alternatives, and these are related to not only the benefits that have already been voted, which you signed,

But a variety of other things that we've talked about in here, the adult categories, various other things that increase the cost.

So the committee is committed to increasing the taxes to .

There are two alternatives being talked about.

One is to raise the wage base to $9,800 effective July 1, 1971.

That would have the effect, really, of canceling this $9,000 movement that they made and keeping the tax rates in effect even longer.

And it would, in other words, this tax take would come out of the last half of calendar 1971.

That would mean, in the 72 budgets,

and increased revenue of approximately $4 billion.

That's both revenue, and of course you have to think about it also as it's less money in the hands of individuals.

It would have the impact that that stayed in of an additional $2 billion in fiscal 73 over the $9,000 increase that they've already voted.

The other thing that they're talking about is to leave the year 1971 alone, and instead of increasing the wage base to $9,000 in January 172, to increase it to $10,200.

That would have its practical impact in the last half of calendar 1972.

in the sense that the tax deductions would continue on.

Well, that's not what Congress had to do.

It was just a version of fiscal century.

Yes, that's right.

Well, the reason it doesn't have any impact is that most people don't reach an income of $9,000 by the time half the year has gone by.

And that, if they did that in fiscal 73, that would have the impact of an additional $3.5 trillion as compared with the $9,000 level that they have in effect.

It would have no effect in fiscal 72, even though the change would be in effect for half of fiscal 72.

It wouldn't make any difference in terms of income or practically none.

because of the way the thing works.

Now, so that's the layout of the problem.

The Herbstein, Murray Weidenbaum level of economists are not as optimistic, I would say, as let's say I am, as it turns out that John Connolly is.

Paul McCracken is not quite as optimistic as John and I, but pretty much so.

That's sort of analytically.

John Connelly feels that we should go ahead and take the money, fly 171, stick with our budget.

And this is by way of his thinking that our problem in 72 is going to be, have we fought inflation hard enough?

Well, in many terms of the psychology of whether or not your budget is deficit of this or that size.

And the posture that we have.

And of course, it is essentially... Herb would leave it alone.

Paul would leave it alone.

Now, I've talked to Archer about it.

Archer thinks that it would be a mistake

to change the tax rates even in January 1971.

He would just leave everything the way it is, regardless of the additional expenditures involved.

In other words, Arthur has sort of completely let go as far as any concern about budget deficits and so forth are concerned.

He believes we should have a wage price for it, in other words.

Well, I think he believes there should be strong fiscal stimulus and let the monetary policy be tight.

And he also, I would judge from this, is not as impressed as, let's say, you and I and John Connolly are about what the economy is doing, of course.

We all have our uncertainties.

We have our oh, we are all trying to get somewhere out there.

How long are you going to think that?

We have to provide a signal.

I'm not saying we can swing it, but I think that your view will be registered.

Of course, the

What the administration does here, I'm sure will become known.

And so it does reflect back to the Social Security Bill.

Well, I certainly don't go with our view that we can not start with that.

The second point is that George Moore on the

expanding economy front and on the inviting inflation front, my opinion, when I consider the numbers, I would say that I'm inclined to go for the 72, I mean, the 10 other people.

Oh, the 10, too.

Well, I think also politically that's more feasible.

I think you're more likely to get that.

From the standpoint of our budget,

Our budget problem, in a sense, is more severe as we look at fiscal 73 than it is in fiscal 72.

We're holding the full employment balance in fiscal 71.

We're going to have a hell of a time doing it in fiscal 72.

The 10,200 doesn't.

The July 1...

9,800 would help us a great deal.

It would help us tremendously, in fact.

Morris was up to two.

Yes, sir.

Why do you relate to doing that?

Well, I don't, I wouldn't, I wouldn't want to urge that because I, well, I think the economy is expanding all right.

I think it's, there's plenty of question marks around.

Sure, and Harker's Federal Reserve policy is not a known quantity either.

Thank you.

He said to tell you that he's worked out a secret deal, by the way, that will help our dollar situation, and he'll tell you all about it.

He didn't tell me what it was, but that you'll be very pleased.

That's great.

Thank you.

Okay.

Well, we can.

And even if we

And the position we take will be noted, even though these meetings are off the record, or not off the record, but they're not public meetings.

It's a record committee of ways and means.

What we can say is that we, fiscal 73 looks like a commendance problem to us.

If we're faced with a choice, we'll take as much revenue as we can get in fiscal 73, and we'll just have to

...beluckedly swallow it in 72.

All right.

Since the Congress has done its thing.

All right, good.

Let's do that.

Here is this, here is a draft of this talk.

Good.

If you wanted to glance through it, I'd appreciate any, any, uh, thoughts that you have.

It's not all that profound.

But I'll ask you, if you could, I'd, you know, go through things that make for amazing things.

The ladies aren't going to be there?

No, it's a black tie evening thing.

Is this the Eaton Mountain Club or the Commercial Club?

The Eaton Mountain Club.

The Commercial Club, well, she has black... Yeah, well, it's smaller.

The Eaton Mountain Club meetings are about 1,200 people.

They're much bigger.

I know that.

I didn't.

I've usually done that.

I've done that at Club 5.

They're always at noon.

I'm going to meet with the executive committee of this club at noon on Thursday, and then meet with various business groups in the afternoon.

The story of the economy has been a mile and a half.

When you really come down and they write the period of this time, a lot of them are going to look back at the television reports and the newspaper reports and all the rest and say, well, what in the hell was all the hysteria about?

Compared with other periods, compared with 54, compared with 58, you know, that's not, or is this, it's not really what you have to say.

It's a recession.

It's the mildest one we've ever had.

Well, I submit it is, but I wouldn't go here.

I'm certainly opposed to this.

I wouldn't say it would be pessimistic about it.

Well, this is in the stock market report.

It's pessimistic about the economy.

It's the EP record.

It's very, very short.

It's all on the stock market.

I have to.

The young people today are not interested in material things, therefore they do not become young people continuously.

They're just born crap.

Now understand, understand, there are some that are, we know there are some, the avant-garde and the rest and so forth, you know, who go around, you know, and they want to go higher than this and that, but they get pretty damn tired of that after a while, too.

But they're pretty much already unlike material things.

i never saw my young people want an automobile they like the car sure of course this one had a radio and if you want a little bit why not i mean just because they say because the young people are liberal that they're which most young people are therefore they aren't going to be interested in trivial things the hell they aren't i don't i don't buy that they're not supposed to according to the

We have a very high quarter over quarter wage change of 9%.

for that same period, which is partly the shift, the relative importance of auto work, which is highway work, but it's still a troublesome number.

That's right.

I guess that, you know, the steel thing, if you do anything, jawbone a little more there, it's a very loose-worthy thing.

and you're rockin' on that, I would not hesitate to

I mean, you could say that we've discussed it, and I've discussed it, and I'm concerned about it.

You know what I mean?

This is one of our concerns.

And this is the decision made, and I think everything is absolutely fine.

I just think a way to get a lead into this thing will be very important to those of these people.

And if we didn't care, God is going to have it.

I realize some of this may be a little longer, maybe a little less.

But to say that the web reading, web readings have hit me is an irresponsible settlement.

Ways of leading to excessive price increases is agreed to in Sweden.

It will ricochet the shock waves that we thought, or it will ricochet the shock waves, or a word like that, all over the American economy.

will be the, could well be the mortal blow, an arrogant mortal blow to the strength of this industry which is so basic to any industrial society.

And I think something on that point, this steel industry is in a watershed.

The idea is not that you say how much it ought to be or something like that.

If it's a watershed and it's stealing, you've got to back down the hatches and clean up.

Or it can be, it can not only hurt itself, everybody knows that the reef cushions around the rest of it.

I really feel that

A lot of people then will pick that up.

I mean, I don't think it's particularly, I don't think it's labor.

You know, they'll know that it's coming to you particularly.

We're concerned about it.

And that's why this job all the time indicates one thing.

Is that all right with you?

All right.

In fact, I've taken it in hand.

is to emphasize productivity.

Even if they have no wage increase, they still have a problem.

And I happen to know these two guys, Clint Logan and Joe Scanlon, who were vice presidents of the Steelworks Union.

They were very constructive people.

Well, what I was going to say, I think this is exactly right.

I could hype it a little in terms of rhetoric, just a little in terms of rhetoric, so that they'll pick up the quote.

I hope the audience is worthy of it.

I have a little stuff on trade there.

That's all there is.

Perhaps we can talk a little bit about that.

I might even have a session that you intend in this new council to see if the U.S. interests are...

We've got to strengthen representation.

In our diplomatic missions abroad, we've got to strengthen our economic

people are economic.

Well, the personnel.

We've got to upgrade the economic personnel so that they can more vigorously and actively and intelligently represent the position of American private enterprise.

You might say that in talking to me that I have traveled or that I have paid on my travels right back in 1947.

That's not 24 years of traveling to 67 countries.

One thing that I have, one of the reasons we set up the Peterson Committee is that I have been concerned by the inferior quality, and just say this, this will shake the state up a little bit, by the inferior quality of our economic representatives abroad.

I mean, of our, I mean, as compared with some nations with whom we are in competition.

And that I have determined that one of the major goals of this administration

improve, upgrade the quality of the economic representation so that American business, when it goes abroad, will be vigorously, its interests will be vigorously defended and vigorously advocated and presented and so forth.

Do you sound okay?

There you go, that's very good.

A colleague of mine at the University of Chicago said the recent things got to prove him right.

Mr. Godsakes, let's do something.

You're right.

No, I don't know.

You know, I have to talk.

I have to talk bearishly.

I mean, both of us.

But George...

Those Barnabas up there in Wall Street, I still say, I know those guys just like they've lived with me for six years.

They don't make decisions.

They usually aren't that far wrong for that long a time.

They're 11 months now, but they're betting on the future, and they're betting bullish, you know?

They study these things over and over and over again.

Now, they are always right.

I mean, sometimes they overreact.

Maybe they're overreacting now.

But I think, I'll argue, I just kind of feel, my own feeling is more an intuition of gut reaction.

We sit here in Washington, New York, and we depress ourselves.

by all the rhetoric and the political talk and all the rest of it.

It's basically negative pessimism.

You can watch us lose.

But around the country, I have a feeling that the psychology, consumer psychology, has significantly changed.

I'm not basing it on which university, which school, which center, because I've seen those centers.

I'm sure what they say.

But that psychology,

I think it's really changed significantly in the last month, starting about the first of March.

Something has happened in Georgia.

That's my belief, and also that if the kind of budget that's in place, say a strong monetary policy, those policies will produce results.

You know what's happened in the past?

Well, in the future, it's the same thing.

to loosen them before they had a chance to work.

Well, that's the reason they don't change the plan.

I mean, after all, it's only that we're not going to the... We've been through the first quarter.

Maybe we haven't scored a touchdown yet, but they haven't either.

So if you change the plan, if you curl the names off... Well, that would be a lot of ridicule.

No, I'm not worried about it.

I'm worried about it.

But I have told you that I want it.

We have told you this all along.

This morning, I sat with Senator Morgan and I, and I think the word would come to say that the integrity of the United States of America has been violated.

I did not find that.

I did not.

The will of the United States of America has been violated.

So how do you, Mr.

Senator, how do you have to think about it?

Well, the sentence is ours.

that one thing about our economy is that it never moves on an exact course.

The first one, Kirsten, you pressed for a minute.

Yeah, okay.

On Broadway, that you ran...

That's right.

Nixon, Shultz & Bull on Social Security and Fiscal Policy

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Nixon Library Finding Aid

Also recorded on April 20, 1971

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