Tax-cut pressure increases on Carter as economy sags

Political and economic pressures are pushing President Carter toward a tax cut or more government spending to create jobs, despite the danger that such moves might heat up inflation.

Without such stimulus, the US economy that Mr. Carter presents to voters in November may be marked by high inflation, rising unemployment, and deep recession.

So far the President, backed by powerful congressional leaders, insists that no tax cut should come until the fiscal 1981 budget is shown to be balanced.

Inflation, in other words -- not recession -- remains public enemy No. 1 in White House rhetoric.

Nonetheless, the President's political advisers warn that, given the present outlook, every economic statistic could be negative for Mr. Carter this fall.

* The consumer price index (CPI), even if it drops sharply this summer, will be much higher in November than it was four years ago, when Mr. Carter and former President Gerald R. Ford squared off at the polls.

That year the CPI climbed only 4.8 percent compared with the 18.1 percent annual rate recorded so far in 1980.

* The economy is dropping into recession, and its duration is likely to last through the election and possibly into next year.

The US Commerce Department reported May 20 that the economy grew only 0.6 percent in the first quarter of 1980, compared with the 1.1 percent originally estimated.

* Unemployment, now 7 percent of the labor force, will climb throughout the year. Some experts predict the jobless rate will peak in the 8 to 9 percent range.

Sen. Edward M. Kennedy (D) of Massachusetts says he will fight for a "liberal" Democratic Party platform this year, which presumably means more government spending to help the poor, jobless, and disadvantaged than Mr. Carter has been willing to accept.

To close party ranks, the President will be under great pressure to abandon, or at least to relax, the fiscal austerity he has preached to Congress.

Even without stimulus, many experts believe, the 1981 budget cannot be balanced if Mr. Carter's controversial oil import fee is killed by the courts or Congress.

The White House was counting on this fee, designed to raise $10.3 billion yearly in revenue, as a last resort to help balance the budget.

Mr. Carter told congressional leaders May 20 he would veto any attempt to kill the fee. This prompted House Speaker Thomas P. O'Neill Jr. (D) of Massachusetts to predict an "all-out fight in Congress" to override a veto.

The President's carefully crafted 1981 budget, as revised in mid-March, calls for a tiny surplus on the assumption that the developing recession would be short and mild and that unemployment would be 7.2 percent at the end of the year.

But events are outdating these assumptions, and the White House is expected to issue a gloomier forecast in July.

Given these factors, talk in Washington centers on the size, timing, and kind of tax cut that observers increasingly expect.

The prime aim of a tax cut would be to minimize the rise in unemployment by giving consumers more money to spend and business more money to invest.

Thus a larger-than-normal portion of any tax cut this year might be granted to business, on the theory that the shortest route to keeping people at work lies in brisker capital investment by corporations.

Families, too, will need tax relief to offset the sharply higher bite that social security taxes will take out of wages in 1981.

President Carter, buttressed by such notables as Federal Reserve Board chairman Paul A. Volcker and the chairmen of the House and Senate budget committees, will fight rearguard actions to stave off tax cuts as long as possible.