THE RECESSION: Ford's Risky Plan Against Slumpflation

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fuel prices from Feb. 1 on, but consumers would get no tax-rebate money until May at the earliest and would not get the full benefits of Ford's tax package until September. Thus Americans' purchasing power in late winter and early spring would be reduced by the amount of the oil-price rises, which could total $2 billion or more during those months. Of course, consumers might step up their spending anyway in anticipation of the tax rebates that they are almost certain to get. Still, February, March and April will be hard months.

When the rebate money does start flowing, it should perk up sales enough to create more jobs or at least prevent some layoffs. But how strong will the effect be? The Administration's own projections are not exactly enthusiastic. Unemployment will continue to rise but at a slower rate. One White House adviser estimates that with the Ford program, the unemployment rate by year's end would be half a point below what it would otherwise be. Economist Otto Eckstein, head of Data Resources, Inc., makes a similar forecast. He reckons that the unemployment rate next December would be a still shocking 8.1%, rather than an even worse 8.5% (it was 7.1% last month).

The U.S. could enter 1976 with unemployment at the highest rate since Pearl Harbor—and by then most of the stimulus of the tax rebates would be gone. At best, the Government would be putting into the economy only as much money as it was taking out in energy taxes. The Administration appears to be gambling that recovery will have picked up enough momentum by early 1976 to make further stimulation unnecessary. That could occur, but only if consumer confidence recovers, and early reactions to Ford's plans are not reassuring. Consumers seem to be more confused than anything else. A common view is that the President is giving them new money with one hand and taking it away with the other.

Veto Vow. Many economists feel that considerably more stimulus is needed: perhaps a net tax reduction of $20 billion or even $25 billion (see story page 22). Congressional Democrats agree: they are likely to enact a tax rebate quickly, but a larger one than the President asked and in somewhat different form. The Democrats aim to give more of the rebate to lower-and middle-income taxpayers, partly for reasons of equity, partly because those people can be more reliably counted on to spend the money rather than put it in the bank. Congress might, for example, make the rebate 16% instead of 12%, but set the maximum lower than $1,000.

Congress might also raise federal spending more than Ford plans, thus pumping still more money into the economy. Ford in his State of the Union speech vowed to veto any new federal spending programs that Congress might enact. But spending on several costly programs, including military pensions and Social Security payments, is tied to the movements of the consumer price index. Those outlays will rise automatically, well beyond the 5% limit that Ford proposes, unless Congress actively votes to hold them down, and there are few things that a liberal Democratic Congress would be less likely to do.

The risk remains that Ford's proposals would cause enough new price rises to wipe out all the benefits of his proposed tax cuts, leaving consumers with no more buying power than before, or even less. To be sure, the pace of price increases finally seems to