COMBINED FEDERAL CAMPAIGN OF THE NATIONAL CAPITAL AREA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00363R001002250003-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 28
• Document Creation Date: December 20, 2016
• Document Release Date: October 3, 2007
• Sequence Number: 3
• Publication Date: July 14, 1983
• Content Type: REPORT

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MEMORANDUM FOR: ~--Z'
1q-1
Ckj
FORM 4A4 USE PREVIOUS
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STAT
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? ?
MARTIN FELDSTEIN
JULY 14, 1983
THREE. SUCCESSES
0 THE ECONOMIC RECOVERY HAS SHIFTED INTO HIGH GEAR AND IS NOW PROCEEDING AT A VERY
SATISFACTORY PACE WHILE INFLATION HAS BEEN REDUCED DRAMATICALLY AND IS NOW AT A
VERY MODERATE RATE-
- THERE ARE HOWEVER SERIOUS. RISKS CAUSED BY THE HIGH REAL INTEREST RATES-
0 THE REAGAN ADMINISTRATION HAS MADE DRAMATIC PROGRESS IN REDUCING THE GNP SHARE
TAKEN BY GOVERNMENT DOMESTIC SPENDING-
0 THE REAGAN ADMINISTRATION HAS ALSO ACHIEVED SUBSTANTIAL REDUCTIONS IN MARGINAL AND
AVERAGE TAX RATES, REVERSING A TWO-DECADE TREND-
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THE RECOVERY
0 THE RECOVERY HAS SHIFTED INTO HIGH GEAR AND IS NOW PROCEEDING AT A VERY SATIS-
FACTORY PACE.'
EMPLOYMENT
UNE
- TOTAL-PAYROLL EMPLOYMENT UP 1.1 MILLION SINCE DECEMBER-
TOTAL UNEMPLOYMENT RATE DOWN TO 9.8 PERCENT FROM 10.7
PERCENT IN DECEMBER-
INDUSTRIAL PRODUCTION - UP 7 PERCENT IN 6 MONTHS, ALTHOUGH THE CURRENT LEVEL IS
(MAY) STILL 5 PERCENT BELOW THE 1979 LEVEL.
RETAIL SALES - UP 8.7 PERCENT SINCE FEBRUARY LOW.
(JUNE)
- CONSUMER CONFIDENCE VERY STRONG: THE MICHIGAN SURVEY.OF
CONSUMER SENTIMENT ROSE 14 PERCENT FROM MARCH TO JUNE.
REAL GNP - UP AT 6.6 PERCENT ANNUAL RATE IN THE SECOND QUARTER-
ND QUARTER) A
MOST OF THIS INCREASE REFLECTS THE ESTIMATE THAT
INVENTORIES ARE NO LONGER DECLINING. FINAL SALES UP AT
2?5 PERCENT ANNUAL RATE-
- ADMINISTRATION FORECASTS 5.5 PERCENT FOR 1983, 4.5
PERCENT FOR 1984 (IMPLYING T?4 PERCENT RATE FOR REST OF
1983).
CONSENSUS OF PRIVATE FORECASTS 5.1 PERCENT FOR 1983, 4.5
PERCENT FOR 1984 (IMPLYING 5.6 PERCENT RATE FOR REST OF
1983.)
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0 Now
INFLATION
0 INFLATION HAS BEEN REDUCED DRAMATICALLY AND IS NOW AT A VERY MODERATE RATE-
CONSUMER PRICE INDEX - UP ONLY 3.5 PERCENT FROM YEAR EARLIER-
AY
- UP 5.1 PERCENT ANNUAL RATE FROM 3 MONTHS EARLIER-
PRODUCER PRICE INDEX - UP ONLY 2.3 PERCENT FROM YEAR EARLIER-
AY
- LOWER IN MAY THAN IN NOVEMBER 1982.
UNIT LABOR COSTS
(FIRST QUARTER
UP AT 1.2 PERCENT ANNUAL RATE IN NONFARM BUSINESS SECTOR,
AS A RESULT OF STRONG PRODUCTIVITY RISE AND MODERATE WAGE
INCREASE-
- WILL HELP TO KEEP INFLATION LOW-
0 WAGES ARE NOW RISING FASTER THAN INFLATION, RAISING EMPLOYEES' STANDARDS OF'LIVING?
PERCENT CHANGE FROM'YEAR'EARLIER'- '' `''
HOURLY CONSUMER REAL HOURLY'
EARNINGS PRICES EARNINGS-
1978 8.1 7.7 0.5
1979 8.0 11.3 -31
1980 9.0 13.5 -4.0
1981 9.1 10.4 -1.0
1982 6.8 6.1 0.8
1983 MAY 4.8 3.5 1.4
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0
REAL HOURLY EARNINGS INDEX
(1977 = 100).
92 92
90 90
88 88
86-1
64 66 68 70 72 74 76 78 80 82
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INTEREST SENSITIVE SECTORS
0 THE RECOVERY IS UNEVEN AND THE INTEREST SENSITIVE SECTORS ARE LAGGING BEHIND-
INDUSTRIAL PRODUCTION IN THE INTEREST SENSITIVE INDUSTRIES-HAS NOT RISEN AS
MUCH IN THIS RECOVERY AS IN THE AVERAGE OF PAST RECOVERIES-
INDUSTRIAL PRODUCTION LEVEL AS PERCENTAGE OF LEVEL'AT PREVIOUS-CYCLICAL-PEAK
SAME STAGE IN
INDUSTRY CURRENT RECOVERY PAST FIVE'RECOVERIES
FOODS 100.3 102.3
TEXTILES 98.1 97.1
PAPER 103.2 100.1
PRIMARY METALS
FABRICATED METAL PRODUCTS
NONELECTRICAL MACHINERY
BUSINESS EQUIPMENT
75.6
83.4
82.9
81.0
92.0
93.5
92.2
92.9
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CAPACITY UTILIZATION RATES VARY SUBSTANTIALLY, WITH LOW CAPACITY UTILIZATION IN
INTEREST SENSITIVE SECTORS.
INDUSTRY CAPACITY UTILIZATION CAPACITY UTILIZATION
MAY 1983
1980
FooDS
80.9
85.2
TEXTILES
80.3
82.5
PAPER
86.8
88.4
PRIMARY METALS:
IRON AND STEEL
52.2
70.0
FABRICATED METAL PRODUCTS
59.1
73.0
NONELECTRICAL MACHINERY
62.8
77.7
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ALTHOUGH RESIDENTIAL CONSTRUCTION IS DOING VERY WELL, NONRESIDENTIAL
CONSTRUCTION IS LOWER THAN IT WAS BEFORE THE RECOVERY BEGAN.
PERCENT CHANGE IN THE REAL VALUE OF NEW CONSTRUCTION
FROM NOVEMBER 1982 TO MAY
RESIDENTIAL CONSTRUCTION +24 PERCENT
NONRESIDENTIAL CONSTRUCTION -12 PERCENT
INDUSTRIAL CONSTRUCTION -22 PERCENT
PUBLIC CONSTRUCTION -13 PERCENT
THE REAL VALUE OF TOTAL NEW CONSTRUCTION WAS THE SAME IN MAY 1983 AND NOVEMBER 1982.
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TRADE
0 HIGH REAL INTEREST RATES HAVE CAUSED THE DOLLAR TO RISE RELATIVE TO FOREIGN
CURRENCIES, HURTING U.S. EXPORTS AND INCREASINGIMPORTS.
- THE DOLLAR HAS INCREASED ABOUT- 40 PERCENT RELATIVE TO OTHER MAJOR CURRENCIES
SINCE 1980 AFTER ADJUSTING FOR DIFFERENCES IN INFLATION-
JUST SINCE JANUARY 1983, THE DOLLAR HAS RISEN AN AVERAGE OF 7 PERCENT RELATIVE TO
OTHER CURRENCIES-
- THE MERCHANDISE TRADE DEFICIT (EXCESS OF IMPORTS OVER EXPORTS) THIS YEAR IS
LIKELY TO SET A RECORD OF MORE THAN $60 BILLION, 2 PERCENT OF GNP.
EXPORTS DROPPED 10 PERCENT FROM JANUARY TO MAY AND IMPORTS'OF'MANUACTURED GOODS
ROSE MORE THAN 11 PERCENT-
SINCE THE FINAL QUARTER OF LAST YEAR, THE FALL IN NET EXPORTS REDUCED'THE'GROWTH
OF REAL GNP BY ONE-FOURTH, TO 4.6 PERCENT IN THE FIRST HALF OF THE YEAR INSTEAD
OF 6.2 PERCENT.
MANY KEY U.S. INDUSTRIES ARE HIT PARTICULARLY HARD BY THE FALLING COMPETITIVENESS
OF U.S. EXPORTS AND THE INCREASED ATTRACTIVENESS OF IMPORTS-
- THESE DEVELOPMENTS GREATLY INCREASE PRESSURE FOR PROTECTIONISM HERE WHICH WOULD
INVITE RETALIATION BY FOREIGN GOVERNMENTS-
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0 ow 10
INTEREST RATES
0
INTEREST RATES HAVE BEEN RISING SHARPLY FOR THE PAST 10 WEEKS; SHORT RATES HAVE NOT
BEEN SO HIGH SINCE LAST SUMMER AND LONG RATES SINCE LAST FALL-
TREASURY BILL
TREASURY BOND
WEEK ENDING
3 MONTH;'
30 YEARS "
JAN-
FEB.
MARCH
APRIL
MAY
JUNE
JULY
JULY
1
5
5
2
7
4
2
9
8.01
8.16
7.97
8.64
8.03
8.57
8.88
9.07
10.45
11.01
10.47
10.68
10.32
10.93
11.07
11.29
0
REAL INTEREST RATES ARE ABNORMALLY HIGH FOR THIS STAGE OFTHE'RECOVERY-
REAL RATE
COMMERCIAL
REAL RATE ON
FIRST YEAR
INFLATION
TREASURY
BILL
ON
TREASURY
PAPER
COMMERCIAL
OF RECOVERY
RATE
RATE
BILLS'
-RATE-
'"'PAPER-
1954
-0.5
0.9
1.4
1.6
2.1
1958
1.8
1.8
0.0
2.5
0.7
1961
0.7
2.4
1.7
3.0
2.3
1971
3.4
4.3
0.9
5.1
1.7
1975
7.0
5.8
-1.2
6.3
-0.7
1980
12.4
11.4
-1.0
12.3
-0.1
1983 JULY
4.0
9.1
5.1
9.3
5.3
IT IS THIS HIGH REAL RATE OF RETURN THAT CAUSES PROBLEMS FOR THE INTEREST SENSITIVE
INDUSTRIES AND FOR OUR INTERNATIONAL TRADE-
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0 THE' INCREASE IN SHORT-TERM MARKET INTEREST RATES IS LIKELY TO CAUSE BANKS TO RAISE
THE PRIME LENDING RATE-
THE PRIME IS NOW 10.5 PERCENT BUT IS USUALLY 2.5 PERCENT ABOVE THE T-BILL RATE?
BY THAT STANDARD, WITH THE T-BILL RATE NOW 9 PERCENT, THE PRIME SHOULD NOW BE
11.5 PERCENT-
0 THE FINANCIAL MARKETS ARE EXPECTING SHORT-TERM MARKET INTEREST`RATESTO-RISE`-FURTHER
DURING 1983 AND 1984-
- THE CURRENT PRICES IN THE FINANCIAL FUTURES MARKET INDICATE THAT BANKS AND OTHER
FINANCIAL INVESTORS EXPECT TREASURY BILL RATES TO EXCEED 10'PERCENT'BY"SEPTEMBER
1984.
- THIS WOULD PUT THE PRIME RATE BACK ABOVE 12.5 PERCENT-
0 IN CONTRAST, THE ADMINISTRATION'S FORECAST ASSUMES THAT? SHORT-TERM MARKET INTEREST
RATES WILL FALL NEXT YEAR TO 8 PERCENT BY THE END OF 1984.
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0 THE FUNDAMENTAL REASON FOR THE CURRENT HIGH LEVEL OF REAL INTEREST RATES IS THE
PROJECTED LEVEL OF BUDGET DEFICITS-
BUDGET DEFICITS OF $200 BILLION WOULD ABSORB ABOUT TWO-THIRDS OF NET PRIVATE
SAVING. TO REDUCE BORROWING BY PRIVATE INVESTORS TO THE REMAINING AMOUNT OF
FUNDS WOULD REQUIRE HIGH REAL INTEREST RATES.
LAST YEAR AND IN THE FIRST HALF OF THIS YEAR THE AMOUNT OF NET SAVING AVAILABLE
FOR INVESTMENT WAS LESS THAN 2 PERCENT OF GNP. IN CONTRAST, SINCE 1960 IT HAS
AVERAGED ABOUT 6 PERCENT OF GNP.
AS LONG AS THE FED FOLLOWS A PRUDENT MONETARY POLICY THAT AVOIDS RISING
INFLATION, LARGE OUTYEAR DEFICITS WILL INEVITABLY MEAN HIGH REAL INTEREST RATES.
NET SAVING AS PERCENT OF GNP
SOLID, HOUSEHOLD. BUSINESS. AND S 8 L GOVT SAVING
DOTTEDr NATIONAL SAVING
10
-r-9 .
J-7 Private Saving
@lus State and
Local Surpluses
5-1-
4-1-
5
-I--3
2
1-1
0
60 62 64 66 68 70 72 74 76 78 80 82
Net Saving
Available for
investment
11
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I
0 ALTHOUGH THE FEDERAL RESERVE COULD TEMPORARILY LOWER SHORT-TERM INTEREST RATES BY
EXPLICITLY ADOPTING'A POLICY OF'RAPID'EXPANSION'OF-THE-MONEY"STOCK;"THIS'WOULD
SUBSEQUENTLY LEAD TO HIGHER RATES OF INFLATION AND'HIGHER' MARKET' RATES' 0F' INTEREST-
- EXPERIENCE SHOWS THAT FASTER MONEY GROWTH LEADS TO HIGHER' INFLATION AND HIGHER
INTEREST RATES.
GROWTH IN MI MONEY SUPP RND
RVERRGE THREE-MONTH TRERSURY BILL RIRTE,7
g.o
3.0
0.0
MONEY'GROWTH,'INFLATION;-AND'INTEREST'RATES
AVERAGE AVERAGE AVERAGE
M1 CPI 3-MONTH TREASURY
PERIOD GROWTH INFLATION BILL RATE
1960-64 2.8 1.2 2.9
1965-69 5.0 3.8 5.0
1970-74 6.2 6.7 5.9
1975-79 7.1 8.2 6..7
Nt WWII
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RISKS TO RECOVERY
0 REAL INTEREST RATES THAT REMAIN HIGH OR RISE FURTHER WILL SLOW THE GROWTH OF THE
ECONOMY NEXT YEAR AND RAISE-THE'RISK`THAT A NEW-RECESSION'WILL'BEGIN'IN- OR'
1985?
- ALTHOUGH A CONTINUED RECOVERY IS MORE LIKELY THAN NOT NEXT YEAR EVEN WITH THE
CURRENT LEVEL OF INTEREST RATES, THERE IS PROBABLY ONE CHANCE IN'THREE THAT THE
RECOVERY WILL END IN 1984 IF THESE INTEREST RATES CONTINUE-
0 EXPERIENCE SHOWS THAT IT IS VERY EASY FOR ' A'RECOVERY'TO'RUN OUT` OF-STEAM''AND-DECLINE
TO A VERY LOW GROWTH RATE-IN-THE'SECOND'YEAR-
RECOVERY STARTING
YEAR QUARTER
1954
11
1958
II
1961
1970
IV
1975 '
I
1980
III
REAL-GNP'GROWTH......
1ST YEAR 2ND-EAR
7.4 2.6
8.4 1.7
7.0 3.3
4.7 7.0
6.7 4f4
3.2 -1.9
A GROWTH RATE OF LESS THAN 2.5 PERCENT WOULD PROBABLY CAUSE UNEMPLOYMENT TO RISE-
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GOVERNMENT SPENDING
0
0 THE REAGAN ADMINISTRATION HAS MADE DRAMATIC PROGRESS IN REDUCING THE GNP SHARE TAKEN
BY GOVERNMENT DOMESTIC'SPENDING?
- FOREIGN EXPERIENCE SHOWS HOW 'STRONG PRESSURES HAVE INCREASED THE SHARE OF GNP
TAKEN BY GOVERNMENT OUTLAYS.
OUTLAYS OF ALL LEVELS OF GOVERNMENT
PERCENT" OF GOP
15--t-
10
60, 62 64 66 68' 70
72
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IN THE 1970'S, NONDEFENSE OUTLAYS GREW MUCH FASTER THAN GNP IN SWEDEN, GERMANY
AND .JAPAN
THE RELATIVE GROWTH OF NONDEFENSE OUTLAYS WAS LOWEST IN THE UNITED STATES
BUT EVEN HERE NONDEFENSE OUTLAYS ROSE FROM 23 PERCENT TO 28 PERCENT.'
NONDEFENSE OUTLAYS OF ALL LEVELS OF GOVERNMENT
PERCENT OF GOP
55 55
50 r 'Sweden 50
45- / 45
40--t-
so4 . - - .. ,~ 6
125
/ Germany
0
-t- 40
Japan
20 20
15 .. -- ---- 15
to~~ Rio
70 71 72 73 74 75 76 77 78 79 80
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0 TOTAL FEDERAL GOVERNMENT OUTLAYS IN THE UNITED STATES HAVE GROWN FROM 19 PERCENT OF
6NP IN 1960 TO 2 PERCENT-THIS-YEAR-
ALMOST THET~,RE G,IH CAN BE ACCOUNTED FOR BY THE RISE IN SOCIAL SECURITY
PROGRAMS AND INTEREST ON THE NATIONAL DEBT-
INTEREST PAYMENTS AS A SHARE OF GNP DOUBLED -- FROM 1.4 PERCENT TO 2.7 PERCENT
- THE SOCIAL SECURITY AND MEDICARE SHARE TRIPLED -- FROM 2.2 PERCENT TO 6.9 PECENT
- OTHER DOMESTIC SPENDING ROSE 50 PERCENT -- FROM 5.8 PERCENT TO 8.8 PERCENT
- THE DEFENSE SHARE FELL BY ONE-FOURTH -- FROM 9.1 PECENT TO 6.7 PERCENT
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FEDERAL BUDGET OUTLAYS
PERCENTS OF GNP
30-1
25
30
25
15
-t-" 10
Social Security, includi g Medicare
3.8
~ I
2.0 2'?7
1. 5 Net Interest
i. 4
1960 1965 1970 1975 1980 1985
Forecast
(Current Services)
0
?
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0 THE REAGAN ADMINISTRATION HAS SUCCEEDED IN REVERSING THE DECLINE OF THE DEFENSE SHARE
AND THE RISE OF THE GENERAL DOMESTIC SPENDING SHARE-
DEFENSE OUTLAYS ROSE FROM 5.3 PERCENT OF GNP IN 1980 TO 66-7 PERCENT IN 1983?
- GENERAL DOMESTIC OUTLAYS (EXCLUDING OASDHI) FELL FROM 9.2 PERCENT OF GNP IN 1980
TO 8-8 PERCENT IN 1983.
0 THE EXTENT OF OUR SUCCESS IN SHRINKING DOMESTIC SPENDING`IS iiEN'BY-THE'RECESSION?
IN FY 1980, THE UNEMPLOYMENT RATE WAS 6.8 PERCENT- IF THE UNEMPLO RATE IN FY
1983 WERE ALSO 6.8 PERCENT, GENERAL DOMESTIC SPENDING WOULD NOW B 7.5 ERCENT OF
GNP, ABOUT ONE-FIFTH LOWER THAN THE 9.2 PERCENT SHARE IN 1980.
0 THE CURRENT SERVICES BUDGET SHOWS A REMARKABLE CONTINUING"DECLINE-IN'DOMESTIC
SPENDING OVER THE NEXT FIVE-YEARS-
WITHOUT FURTHER LEGISLATION, THE DOMESTIC-SPENDING'SHARE-(EXCLUDING`OASDHI) WILL
BE BACK TO THE LEVEL OF'THE-MID- S'IF-WE-CAN'HOL'D ONGRESS-TO-THE'CURRENT
SERVICES-'LEVEL-
- THE CURRENT SERVICES LEVEL OF DOMESTIC SPENDING IS 7.8 PERCENT OF GNP IN 1984 AND
6.5 PERCENT IN 1988.
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FEDERAL BUDGET OUTLAYS AS PERCENT OF GNP
SOLID: DOMESTIC SPENDING EXCLUDING OASDHI
DOTTED: NATIONAL DEFENSE
1960 1965 1970, 1975 1980
1985
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10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
--6.0
5.5
5.0
4.5
a
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0
0 UNFORTUNATELY THE PROGRESS IN SHRINKING GENERAL DOMESTIC SPENDING DOES NOT REDUCE THE NEED
FOR REVENUE BECAUSE OF THE GROWTH OF THE` SHARES TAKEN BY' INTEREST;' -AND DEFENSE?
THAT'S WHY EVEN WITH THE ADMINISTRATION'S SPENDING CUTS OUR BUDGET CALLS FOR THE
STANDBY TAX AS PART OF THE PLAN TO SHRINK DEFICITS-
201
18-1-
16-1'
14-t-
12-t-
10-h
OUTLAYS AS PERCENT OF GNP
Defense- Interest, OASDI1 Medicare
HUv:31 U J u 4:01:1.111111-.111 li, 9:~~3 a?11=1:11?i~=fE'si iii
vs _? ! {t Othes Domestic endiaq ??::;s;
! p
?1? ~s:sst(::.. :f s;=ii??'s :s;i:e.::::
6
1980 1981 1989 1983 1994 1985 1986 1987 1988
CURRENT SERVICES
;DOMESTIC
ISPENDING
(EXCEPT
1980 1988 CHANGE
CURRENT--TD-MINIS- CURRENT ADMINIS-
SERVICES TRATION SERVICES TRATION
OASDHI) 9.2
OASDHI 5.9
DEFENSE 5.3
INTEREST 2.0
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6.5
5.7
-2.7
-3.5
6.9
6.6
+1.0
+0.7
8.0
7.8
+2.7
+2.5
3.4
2.8
+1.4
+0.8
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TAXES
?
0 THE REAGAN ADMINISTRATION HAS REDUCED TAX RATES SIGNIFICANTLY, REVERSING A TWO-DECADE
TREND-
- THIS CHART SHOWS THE 'DECLINE IN THE AVERAGE TAX RATES -- THE SHARES OF INCOME
TAKEN IN TAXES -- SINCE 1981. THE ANALYSIS COMPARES FAMILIES AT THREE LEVELS OF
REAL INCOME SINCE 1965.
THE TAX RATES INCLUDE THE 5 PERCENT SURCHARGE OF THE STANDBY TAX AFTER OCTOBER
1985.
AVERAGE TAX RATES ON CONSTANT 1983. REAL
INCOMES OF $20,000, $30,000,.AND $50,000
..20
$50,000
14-
t
$30,000
$20,000
5
64 66 68. 70 72 74 76 78 80 82 84 86 88
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0 THE MARGINAL TAX RATES ON ADDITIONAL EARNINGS FELL EVEN MORE SINCE THE START OF THE
REAGAN ADMINISTRATION-
- THESE MARGINAL TAX RATES INCLUDE THE 5 PERCENT SURCHARGE OF THE STANDBY TAX AFTER
OCTOBER 1985.
MARGINAL TAX RATES ON CONSTANT 1983 REAL
INCOMES OF $20,000, $30,000, AND 150,000
CIS
40-t
150,000
$30,000
64 66 68 70 72 74 76 78 80 82 84 86 88
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0 ALTHOUGH SOCIAL SECURITY PAYROLL COLLECTIONS HAVE RISEN RAPIDLY OVER THE PAST TWO
DECADES, THE SHARE OF GNP TAKEN " IN' ALL-OTHERTAXES IS 'ACTUALLLY-LOWER-TODAY-THAW IN'"
THE PAST AND WILL REMAIN-LOWER EVEN-WITH-THE-'STANDBY-TAX;
RECEIPTS 'AS-PERCENTAGE OF-GNP
OASDHI
TAXES
1960 1970 1980 1983 " 11988'---
DMINISTRA-
TION-BUDGET
3.0 4.6 6.1 6.6 7.3
15.6 15.3 14.0 12.0 13.4
- THE 1988 ADMINISTRATION BUDGET INCLUDES THE FULL STANDBY TAX; THE CURRENT
SERVICES BUDGET EXCLUDES THE STANDBY TAX-
- THE DECREASING TAX SHARE OF GNP REFLECTS THE DECLINE IN THE AMOUNTS COLLECTED
INDIRECTLY AS EXCISE TAXES AND CORPORATE TAXES-
0 THE DISTINCTION BETWEEN OASDHI PAYROLL COLLECTIONS AND ALL OTHER TAXES IS IMPORTANT
BECAUSE FOR MOST INDIVIDUALS SOCIAL SECURITY IS NOT A TAX ON ADDITIONAL INCOME:
THE MAXIMUM TAX IS PAID ON INCOMES OF $35,700? INCREASES IN INCOME OVER THAT
AMOUNT ARE NOT-TAXABLE-
- FOR THE MAJORITY OF LOWER INCOME INDIVIDUALS, ANY INCREASE IN TAXES BRINGS WITH
IT AN'INCREASE IN BENEFITS OF EQUAL VALUE-
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0 THE PROJECTED DEFICITS REFLECT THE GROWING GAP BETWEEN GENERAL TAX RECEIPTS AND
OUTLAYS OTHER THAN SOCIAL ECURITY'AND'iEDICARE
PERCENT OF 'GNP ' " . "
CURRENT ADMINISTRA-
SERVICES TION-BUDGET
TAXES 15.6 15.3 14.0 12.2 13.4
OUTLAYS
(EXCEPT
OASDHI) 16.3 16.4 16.5 17.9
DEFENSE (9.1) (8.1) (5.3) (8.0)
16.2
(7.8)
DOMESTIC (5.8) (6.8) (9.2) 1 (6.5) (55 7
INTEREST (1.4) (1.5) (2.0) (3.4) (2.8) d rn,
GENERAL REVENUE
DEFICIT
0.7 1.1 2.5
5.6
2.8
OASDHI DEFICIT
-0.7 -0.8 -0.2
0.0
THE ADMINISTRATION BUDGET INCLUDES THE STANDBY TAX AFTER OCTOBER 1985.
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-0.7
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SUMMARY
0 THE ECONOMIC RECOVERY IS NOW PROCEEDING AT A VERY DESIRABLE PACE-
0 A RECOVERY WITH STABLE OR DECLINING INFLATION CAN ONLY BE SUSTAINED WITH SOUND
POLICY.
0 THE GREATEST RISK TO THE RECOVERY IS HIGH REAL INTEREST RATES-
0 AN EASY MONEY POLICY CANNOT PRODUCE A SUSTAINED LOW LEVEL OF INTEREST RATES BUT
WOULD RAISE THE INFLATION RATE-
0 THE KEY TO LOWER INTEREST RATES WITHOUT RISING INFLATION IS LOWER BUDGET''DEFICITS
IN FY 1986 AND BEYOND-
0 THE ADMINISTRATION HAS MADE DRAMATIC PROGRESS IN PUTTING THE DOMESTIC SPENDING
SHARE OF GNP ON A DRAMATICALLY DECLINING PATH-
0 THE ADMINISTRATION HAS ALSO ACHIEVED SUBSTANTIAL'REDUCTION' IN MARGINAL AND AVERAGE
TAX RATES.
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Summary Statistics
?
GNP
GNP in 1972 Dollars
GNP
Deflator
Level Percent Change
($ billion) YR/YR 4Q/4Q ($
Level Percent Change
billion) YR/YR 4Q/4Q
Level
($ billion)
Percent
YR/YR
Change
4Q/4Q
Calendar
Year
1982
3059.3 4.1
3.5
1476.9
-1.7
-0.9
207.14
5.9
4.4
1983
3298.8 7.8
10.4
,1522.4
3.1
5.5
216.68
4.6
4.6
1984
3635.9 10.2
9.7
1601.5
5.2
4.5
227.03
4.8
5.0
1985
3972.6 9.3
9.0
1668.5
4.2
4.0
238.09
4.9
4.8
1986
4321.8 8.8
8.7
1735.2
4.0
4.0
249.07
4.6
4.5
1987
4696.7 8.7
8.7
1804.6
4.0
4.0
260.26
4.5
4.5
1988
5101.2 8.6
8.6
1876.7
4.0
4.0
271.82
4.4
4.4
Unemployment Rate
(4th Quarter)
Calendar
Year
1982
10.5
1983
9.6
1984
8.6
1985
8.0
1986
7.3
1987
6.6
1988
5.9
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