Economy

--Overview--

President Ford, in his 1976 State of the Union Message--in the same forthright manner in which he first addressed the American people as President--talked about the difficulties that confronted the nation's economy in 1975:

". . . 1975 was a year of hard decision, difficult compromises, and a new realism that taught us something important about America . . ."

President Ford's realistic policies in 1975 were the right prescription for the nation's economic ills:

Last year's progress is continuing in 1976. Reduction in the rate of inflation is expected to coincide with a healthy recovery in the standard of living. Real gross national product is expected to grow by over 6 percent in 1976 and by another 6 percent in 1977.

Real GNP for the first quarter of 1976 grew at an annual rate of 9.2%, with a growth rate of 4.3% in the second quarter.

Some of the more important economic indicators are shown on page 6.

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THE PRESIDENT"S ECONOMIC PROGRAM

President Ford's economic policies, outlined in his State of the Union Message, are designed to keep the economy on an upward path toward two central long-term objectives:

SPENDING RESTRAINTS: TOWARD A BALANCED FEDERAL BUDGET BY 1979

"We all know from recent experience what runaway inflation does to ruin every other worthy purpose. We are slowing it; we must stop it cold . . .

"The way to a healthy non-inflationary economy has become increasingly apparent; the government must stop spending so much and borrowing so much of our money; more money must remain in private hands where it will do the most good. To hold down the cost of living, we must hold down the cost of government."

The President's budget recommended $394.2 billion in Federal outlays for FY 1977, a reduction of nearly $29 billion in the projected growth of Federal Government spending. As a result of this spending restraint, the Federal deficit would be reduced from an estimated $76 billion in FY 1976 to $43 billion in FY 1977.

Under President Ford's budget, the growth of Federal Spending would be cut in half, down to 5.5%. By further cutting this growth, the President will achieve a balanced budget by 1979. (See "Federal Spending")

The Congress has ignored the President's call for budgetary restraint, passing instead budgetary resolutions that are $15-20 billion over the President's target.

TAX CUTS

President Ford's budget reductions for FY 1977 allow him to seek further permanent tax cuts for the American people. The President has called for a total of $28 billion in permanent tax reductions. The President's proposed permanent tax reduction is $10 billion more than the temporary tax reduction (annualized) enacted in December. These tax reductions are firmly tied to budget reductions:

". . . My recommendations for a firm restraint on the growth of Federal spending and for greater tax reduction are simple and straightforward: For every dollar saved in cutting the growth of the Federal budget we can have an added dollar of Federal tax reduction . . ."

The President's permanent program has the following major features:

Again, the Congress has neglected to act on the President's recommendation for deeper tax cuts, tied to spending cuts.

JOB CREATION AND EMPLOYMENT

"One test of a healthy economy is a job for every American who wants to work.

Government--our kind of government--cannot create that many jobs. But the Federal Government can create conditions and incentives for private business and industry to make more and more jobs."

President Gerald R. Ford

State of the Union Message

1976

President Ford has undertaken a program which will put the unemployed back to work--not by creating "make-work" jobs the American taxpayer has to pay for--but by creating conditions and incentives for private business and industry to make more and better jobs. The President's approach to the unemployment problem has embraced three main concepts:

President Ford has proposed four new programs to promote additional investment and create real, permanent new jobs in the private sector:

OTHER AREAS: ENERGY

Taking a longer look at America's future, President Ford knows that there can be neither sustained growth nor more jobs unless we continue to have an assured supply of energy to run our economy. In his recent State of the Union Message, President Ford made this point:

". . . Domestic production of oil and gas is still declining. Our dependence on foreign oil at high prices is still too great, draining jobs and dollars away from our economy at the rate of $125 per year for every American.

He again urged the Congress to move ahead immediately on the remainder of comprehensive energy proposals to make America invulnerable to the foreign oil cartel.

SUMMARY

In summary, President Ford's economic plan has been comprehensive and compassionate. It has brought us out of the worst recession since World War II. More than two million more Americans are at work than at the bottom of the recession. Inflation has been slashed in half, to 6.9% for 1975. The cost of food is holding steady for the first time in years . . . the dollar is holding its value.

The President's policies have been aimed at accomplishing two primary goals:

His program of economic growth focuses on spending restraint in the Federal government--The President's budget for FY 77 is $29 billion less than projected. And the growth of Federal spending has been cut in half, to 5.5%. A balanced budget can be reached by 1979.

In creating jobs for those who seek work, President Ford has taken measures to:

And, the President has taken action to ensure the future health of the economy by:

JOB CREATION AND UNEMPLOYMENT

"One test of a healthy economy is a job for every American who wants to work.

Government--our kind of government--cannot create that many jobs. But the Federal Government can create conditions and incentives for private business and industry to make more and more jobs.

Five out of six jobs in this country are in private business and industry. Common sense tells us this is the place to look for more jobs and to find them faster.

I mean real, rewarding, permanent jobs . . ."

(President Gerald R. Ford

1976 State of the Union Message)

Last year, unemployment or the prospect of being unemployed, coupled with rising prices for food, fuel, energy, clothing, and goods and services in general brought hardship for many Americans. Recession and inflation in 1975 were associated with a number of unique circumstances, including

In September, 1974, the President convened an Economic Summit Conference to solicit the ideas of economists, businessmen and labor leaders on the state of the economy and the direction government policy should take. Few persons at that time foresaw the magnitude of the downturn; but as unemployment rose from 5.3 percent to 6.6 percent and the real Gross National Product fell at a $23.4 billion rate in the fourth quarter of 1974 the President took action.

By acting as promptly as information warranted, the government was able to contribute importantly to stemming the downturn and starting the economy steadily upward. Spurred by a strong increase in the production of goods and services and a marked improvement in the inventory positions of business, real GNP increased at an annual rate of growth of 8.6 percent during the third and fourth quarters of 1975. The number of jobs increased by over 2.6 million from the March low, and the unemployment rate fell from 8.9 percent in May, 1975 to 7.5 percent in March 1976. The employment gains coupled with a significant moderation in the rate of inflation produced significant gains in real disposable income over the last three quarters of the year.

Despite this progress in increasing the number of jobs, the task ahead is great.

President Ford has undertaken a program which will put the unemployed back to work--not be [by] creating "make-work" jobs the American taxpayer has to pay for--but by creating conditions and incentives for private business and industry to make more and better jobs. The President's approach to the unemployment problem has embraced three main concepts:

Proven Job Programs

The 1977 budget includes funding for a number of proven, job-related community programs:

And, in proven job-training programs including:

Promoting Investment to Create New Jobs

President Ford has proposed four new programs to promote additional investment and create new jobs:

1. Tax Cuts

The President proposed permanent reductions in individual and corporate income taxes and a permanent increase in the investment tax credit. Details of these proposals are outlined above.

2. Accelerated Depreciation for Construction of Plants and Equipment in High Unemployment Areas

To speed up plant expansion and the purchase of new equipment in high unemployment areas, the President proposed permitting very rapid depreciation for business constructing new plants, purchasing equipment, or expanding existing facilities in areas experiencing unemployment in excess of 7 percent.

The program would accelerate the construction of new industrial and commercial facilities in areas of high unemployment where new jobs are most needed. It would immediately benefit the construction industry--one of the most depressed industries in the economy--and would create productive, permanent, well-paying jobs in the private sector.

3. Broadening Stock Ownership

The President proposed tax incentives to encourage broadened stock ownership by low and middle income working Americans by allowing deferral of taxes on certain funds invested in common stocks. Widespread stock ownership will promote more stable financial markets; strengthen economic, social and political support for the free market system; and help employees build a reasonable estate.

4. Estate Tax Proposal for Family Farms and Businesses

The President proposed a change in the Federal estate tax laws to make it easier to continue the family ownership of a small farm or business. The proposed changes would stretch out the estate tax payment period so that Federal estate taxes can be paid out of the income of the farm or business. No payment will be required for five years and 20 years will be allowed for full payment of estate taxes at a 4 percent interest rate. This reform will help ensure the survival of smaller farms and businesses for future generations and allow them to expand their current operations.

And recently, President Ford called for an increase in the inheritance tax exemption, for all taxpayers, from $60,000 to $150,000.

TAX CUTS FOR INDIVIDUALS

"My recommendations for a firm restraint on the growth of Federal spending and for greater tax reduction are simple and straight forward. For every dollar saved in cutting the growth in the Federal budget we can have an added dollar of Federal tax reduction."

President Gerald R. Ford

State of the Union Message, 1976

President Ford believes that by holding down the growth in Federal spending we can afford additional tax cuts and return to the people who pay taxes more decision-making power over their own lives. In December, 1975, the President signed legislation to extend the 1975 tax reductions for the first six months of 1976 -- and in his State of the Union message, he proposed that, effective in July 1, 1976, the American taxpayer receive an additional tax cut of $10 billion -- for a total of $28 billion in tax cuts tor the individual tax payer and for businesses.

Calendar Year 1977 and Beyond

The President's permanent program has the following major features:

Calendar Year 1976

Since taxpayers compute their taxes on a calendar year basis, the President is proposing tax liability changes for calendar year 1976 that mesh his permanent proposal with the Revenue Adjustment Act of 1975 and approximate the effect of applying in 1976 the current temporary tax cuts for six months and the President's permanent tax cuts for six months. The President's full proposed tax liability changes will apply for 1977 and subsequent years.

The President's proposals would result in lower withholding tax rates -- and higher take-home pay -- effective July 1, 1976. The lower withholding tax rates would reflect the full impact of the tax cuts proposed by the President last October and would remain constant in 1977.

President Ford's tax reduction proposals mean that, for a family of four making $15,000 a year, there will be $227 more in take home pay annually -- extra cash that can really be used. Coupled with anti-inflationary measures that President Ford has taken over the last 18 months, which have cut inflation in half, the American taxpayer is finally getting something for his money.


Figure 1: KEY ECONOMIC STATISTICS

1. EMPLOYMENT

3.8 million more people were at work in June 1976 than at the March 1975 recession low.

Employment was at a historical high of 87.9 million persons in July.

Unemployment steadily dropped, from 8.9% in May, 1975 to 7.8% in January, to 7.5% through March and April. A sharp expansion of nearly 700,000 in the labor force caused the unemployment rate to increase to 7.8% in July from 7.5% in June and 7.3% in May, but the downward trend is clear.

2. INFLATION

The inflation rate for 1975 was 6.9%, half of its 1974 12.2% high.

The 12.2% inflation rate in the latter part of 1974 was cut by over half to 4.6% during the first six months of 1976. In July, the Consumer Price Index was up only 5.4% from July 1975.

3. WHOLESALE PRICE INDEX

The Wholesale Price Index (WPI) dropped .5% in February--the fourth straight month in which this key indicator either dropped or held steady. The WPI rose only .2% in March, and .8% in April for a total of only a .1% increase over the six months ending in April. In May the WPI rose .3%; in June .4% and in July only .3% again.

4. HOUSING

In July 1976, housing starts were at a seasonally adjusted annual rate of 1,387,000, up 14.9% from July, 1975.

5. TOTAL INDUSTRIAL PRODUCTION

In seasonally adjusted real terms, total industrial production in June 1976, was up .3% from the previous month, and up 11.6% from the same month in 1975.

6. RETAIL SALES

Retail sales, in current dollars, seasonally adjusted, were at $53.21 billion in July, 1976, up 8% from the same month a year ago.

7. GROSS NATIONAL PRODUCT

The Gross National Product (GNP), in constant 1972 dollars, increased at a 4.3% annual rate in the second quarter of 1976, after increasing at a 9.2% annual rate in the first quarter of the year.

8. PERSONAL INCOME

Personal income, in current dollars was at a seasonally adjusted rate of $13.9 billion in July 1976, up 1% from the previous month. It was the biggest monthly rise since August last year.

9. COMPOSITE INDEX OF LEADING INDICATORS

The Composite Index of Leading Indicators showed a gain of .3% for June, 1976 over the previous month, and has increased in 14 of the past 15 months.

10. NEW DOMESTIC CAR SALES

New domestic car sales through mid-August were up 19.1% over last year, with employment in that industry sharply up from last year.


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