By the time Johnson was finally prepared to ask Congress to raise taxes, he faced a much more hostile legislative environment than he had in the recent past. The conservative coalition, revitalized by the midterms, had already demonstrated its renewed strength in the first days of the Ninetieth Congress by mustering enough votes to eliminate the twenty-one-day rule. Emanuel Celler said, “The Republicans and Dixiecrats are going to kill all liberal legislation. They will be utterly reactionary.”4 Johnson told the civil rights leader Roy Wilkins, “Our whole damn program is dead as a doornail. I think the Republicans have taken over. I think they are in control. I think our own people have split up.”5
Confronting this new Congress, Johnson would have to pay a high price for the tax surcharge he had decided he needed. The conservative coalition was tentatively on board with a surcharge, but it also demanded steep cuts in discretionary spending—money Congress had not already committed to supplementary Vietnam budgets, payments on the federal debt, or Social Security and Medicare. The steep cuts the conservatives wanted would have to come out of money Lyndon Johnson wanted to spend for education and cities, for the poor and the disabled, for all those still struggling in the lower depths of American’s Great Society.
THE DRIVE TOWARD AUSTERITY
Zeal for deficit reduction was animating Washington politicians across the political spectrum. All politicians knew that voters generally believed warnings about the dire consequences of federal deficits when they were presented in terms of your family budget but with bigger numbers. In fact, the comparison was misleading precisely because the government, unlike your family, could stimulate the economy by going into debt and could, unlike your family, print more money if necessary to pay the interest. Deficits could result in bad consequences for various groups in the economy, but not always the consequences those who used the comparison intended voters to infer. In fact, budget deficits usually shrank when the economy, as intended, boomed in response to the stimulus they could provide; people and corporations paid higher taxes, social service costs were reduced, other government savings resulted, and deficits diminished. In short, a rising economic tide by itself generally lowered the deficit. Nevertheless, conservatives, and some liberals, persistently compared the federal government to a family, the federal budget to your family budget, and Lyndon Johnson to an irresponsible father. Senator Dirksen said, “Every American family knows that, while it can perhaps for a little while live beyond its means, it cannot do so for very long without finding itself on the short and rocky road to the poor house. A government—any government—is no exception . . . Like a family, a government cannot rely on hoped-for income nor can it endure economically for very long if needless expenditures which it can’t afford are permitted.”6
The president’s Council of Economic Advisers, all liberal economists who supported Johnson’s domestic agenda, were also looking to reduce the federal deficit, but from an entirely different perspective. Since 1965, they had been imploring the president to raise taxes to get enough money for his domestic programs and to put a brake on inflation. Johnson had refused to do so for more than a year, even though he was concerned about the impact of the growing imbalance between government expenditures and revenues; he believed the popular and political reaction against a tax increase could ruin whatever chances he still had to pass more domestic programs. The tight money policies the Federal Reserve had adopted in 1966 had created a credit crunch and slowed down the economy, and Johnson hoped that would be enough to quell passions for deficit reduction. He also remained concerned that an excessive austerity package could cause a recession. “I’ve been in this town for 35 years, and I’ve seen every President put the brakes on too long or too soon,” he said. “The result was recession. I am not going to make that mistake.”7
In January 1967, Johnson’s economic advisers said loud and clear that it was too risky to wait any longer. The Federal Reserve had eased its monetary policies, and the economy was booming again; unemployment was low, and wages were high. With the boom came signs of the potential for inflation. Consumer prices had risen by 4.5 percent in the past eighteen months, and things might get worse. Johnson and his advisers knew that the deficit would become significantly larger in the next few years because the administration had hidden the projected costs of the Vietnam War; the current deficits were just the tip of the iceberg. Johnson was fully committed to continuing the war, and the size of the troop presence at the start of the year made any immediate end to the conflict impossible. The economists were telling him that if the deficits ballooned as expected, the government would be putting a lot of money into the economy; the effect of that would be upward pressure on consumer prices that would outpace any growth in wages—an inflationary spiral.
Johnson understood that rising deficits were politically dangerous; he had seen it firsthand in the Republican campaigns in 1966. If he didn’t do something about the deficit, he would be allowing congressional conservatives to set the terms of the debate, and they would focus entirely on making big domestic spending cuts. Perhaps if he was proactive and persuaded Congress to pass a tax increase while he still had some political muscle left, he could prevent the conservative coalition from building support for an austerity package that decimated domestic spending.
Johnson’s economists recommended a temporary 6 percent surcharge on income and corporate taxes. The simple idea was that higher taxes would dampen inflationary pressure by lowering demand; consumers would have less money to spend. The taxes would affect 80 percent of the nation’s fifty-five million wage earners—Americans in the lowest income brackets would be exempted—but would be so spread out that the impact on any individual or family would be minimal.
Congressional conservatives in both parties had supported deficit reduction for both economic and political purposes. For decades, they had pointed to rising deficits as evidence that liberals were irresponsible and that their programs damaged private markets. They drew on technical economic arguments to prove how deficits hurt investment, and they claimed that balanced budgets were a sign that elected officials were good managers of the public trust that government represented. In numerous elections, including in 1966, conservatives had found that attacking deficits did not open them up to the same dangers as calling for cuts in specific government programs that often proved far more popular with voters than conservatives expected. Most conservatives accepted that a tax increase was necessary to balance the budget, but they wanted most of the deficit reduction to come from spending cuts.
There was also a business faction—primarily banking, investment, and housing industry interests—that was behind the drive for a tough austerity package.8 These interests subscribed to the conventional economic wisdom that large U.S. deficits created dynamics that would weaken American and international economies. To begin with, according to this analysis, the Federal Reserve usually responded to an overheated economy by raising interest rates. The housing sector was still trying to climb out of the hole caused by the Federal Reserve’s tight monetary actions in 1966. Total housing starts had fallen by 26 percent between September 1965 and September 1966.9 The Federal Reserve chairman, William McChesney Martin, was prepared to clamp down on the economy again; he believed there was a real danger of inflation, and he didn’t trust Congress to take the necessary actions. Higher interest rates meant fewer people could afford to borrow money for housing or any other consumption, and this meant less money in circulation. Higher interest rates also increased the expenses businesses incurred and generally passed on to consumers. Bankers and investors claimed that the expanding federal debt, which was funded through government bonds, diverted money from private investment—the stock market—which had already been suffering for more than a year. They warned that international confidence in the value of the dollar would decline because of the deficit and inflation. If European bankers started selling their dollars for gold, the international monetary system would collapse. That fina
ncial system, established in 1944 by forty-four allied nations led by the United States, revolved around the value of gold being fixed at $35 an ounce and the United States keeping enough gold in reserve to pay back governments and private investors overseas who wanted to redeem the dollars they had accumulated. Finally, those in the financial sector didn’t like inflation, because they didn’t want debtors to be paying them back for their investments in depreciated dollars.
The proposal for a tax surcharge found support in other parts of the business community. Although much more reluctant to support higher corporate and individual taxes, a sizable number of leaders from the manufacturing sector also backed austerity measures, based on the conventional belief that chronic deficits were bad for the economy. The conservative National Association of Manufacturers, an organization that normally had little love for the Johnson White House, agreed that Congress should enact a tax surcharge to reduce an “intolerable” deficit.10
Some liberals believed that all these arguments were based as much on mythology as on empirical economics. As the economist Walter Heller had reported to President Kennedy when JFK faced similar problems in 1962, “New York bankers tell the U.S. via the financial press that Europeans will lose confidence in the dollar unless we are good boys, i.e., cut spending, balance the budget, restrict credit, raise interest rates. The fact is that European bankers and financiers, who don’t worry about balanced budgets in their own countries, worry about U.S. budget balance only because their New York counterparts tell them they should.”11 But liberals like Heller were generally drowned out by Democratic politicians who were unwilling to let deficits grow indefinitely. Although a number of them had accepted deficits in 1964 as a Keynesian tool to expand economic growth, their embrace of this concept had always been tentative. Most liberals, including Johnson, still assumed that chronic large deficits were a bad thing, even if their fiscal habits were inconsistent with this belief. Regardless, even Keynesians had argued that in periods of inflation the federal government had to use a combination of tax increases and spending cuts to restrain the economy. This combination would also reduce the budget deficit.
THE BUDGET BATTLES BEGIN
It was no surprise that when President Johnson sent his budget proposal to the Ninetieth Congress on January 24, it landed with a thud. He had started his presidency with the frugal budget Harry Byrd demanded, but he had subsequently allowed the costs of Vietnam and domestic policy to expose him to the charges of being a free-spending Democrat he had been so desperate to evade. One year earlier, he had proposed a $112.8 billion budget. At $172.4 billion, his proposed budget for fiscal 1968 was the largest in American history. It was “guns, butter and a lot of fat,” in the opinion of the former House minority leader Charles Halleck.12 Senator Dirksen said that Republicans would accept a “reasonable” deficit to pay for Vietnam but that domestic spending—he emphasized the Great Society—would “get a hard look. That was the signal the people gave in the Nov. 8 election. They said they want reasonably sound financing of Government expenditures and not extravagant outlays on wasteful programs.”13 Johnson didn’t have much credibility left when it came to money. In the previous year, the budget had actually turned out to be more than $126 billion, not $112.8 billion, and Vietnam spending ended up at approximately $20 billion, rather than the $10 billion the president had promised it would be.14
Johnson announced to Congress he would soon ask it for a temporary 6 percent tax surcharge on individual and corporate income taxes. The tax surcharge was necessary to finance the war and the Great Society and to contain inflation. “While we have this problem [inflation],” Johnson said, “and this emergency in Vietnam, while we are trying to meet the needs of our people at home, your Government asks for slightly more than one-fourth of that tax cut [the tax cut of 1964] each year in order to try to hold our budget deficit in fiscal 1968 within prudent limits and to give our country and to give our fighting men the help they need in this hour of trial.” The federal government had traditionally raised taxes as a part of national mobilization during times of war, and liberal Democrats feared that voting for the tax would be equivalent to endorsing the undeclared war in Vietnam. By waiting to ask for revenue until so late in this conflict, Johnson had made things much more difficult for himself; by now, legislators were less motivated by talk about a military emergency and more attuned to the negative political fallout the war was emitting. Southern Democrats and Republicans said they would support a tax surcharge only if the president agreed to accept much deeper cuts in domestic spending, which the liberals argued would place too much of the burden of deficit reduction on the poor. The House Appropriations Committee chairman, George Mahon, a Texas Democrat, supported budget cuts; he said, “When we are in an inflationary period and the budget is in the red, it is especially imperative that we take a critical look at all the phases of the budget and cut everything as much as we can.”15 Public sentiment was on the side of Johnson’s opponents. A Harris poll found that to combat inflation, 75 percent polled supported spending cuts, with only 11 percent opposed to them. In the same poll, Harris reported that 65 percent of Americans opposed the 6 percent tax surcharge.16
Johnson heard the response to his tax surcharge idea and decided to postpone sending the request to Congress until the summer. He thought that strong economic conditions would lower the federal deficit and that political conditions would improve as the momentum conservatives were currently enjoying from the election faded. When those things happened, he would be in a better position to negotiate spending cuts with Wilbur Mills, whose committee had jurisdiction over income taxation.
THE RIOTS
Over the next few months, conditions on Capitol Hill only got worse. The political opposition to domestic programs grew more vehement when a summer of urban riots fueled conservative arguments for law and order and against the waste, inefficiency, and ineffectiveness they claimed infected the Great Society.
On July 12, two white policemen arrested an African American cabdriver in Newark. Residents of a public housing project across the street from the police station watched the arrest and congregated to protest what the officers had done. At 2:30 a.m., a day after the violence began, Governor Richard Hughes received a hysterical call from the mayor of Newark, who, according to the governor, said his “city was burning down” and that he needed help from the state police and the National Guard.17 Over the next six days, there were violent clashes between the National Guard, largely white, and the rioters. The situation in Newark was “hell,” the president confided to the U.S. ambassador to the United Nations, Arthur Goldberg, and he believed that if he sent in federal troops, or even cooperated with state authorities, it would look to rioters, who he believed were drugged up, like the “big white man on the top of the hill is coming after ’em.”18
The police action immediately tapped into the long-standing frustration of African American residents with brutal police treatment of people in their community. Residents of Newark had extensive experience with police routinely acting with violence against criminal suspects and randomly harassing law-abiding citizens. Most of the residents of Newark lived in dilapidated housing, traveled on filthy streets, and contended with crime daily in their neighborhoods; living in these conditions only aggravated their anger. When the Newark riots ended on July 17, twenty-six people were dead, and hundreds had been injured.
A week later, in the early hours of a hot and humid night of July 23, undercover police in Detroit raided one of the city’s many unlicensed bars, where a large crowd, almost entirely working-class African Americans, had gathered to celebrate the return of several veterans from Vietnam. Such raids were common and usually perfunctory, but this time the police rounded up all eighty-two people in the room. When the vehicles to transport the arrestees were delayed for about half an hour, a crowd of more than two hundred surrounded the police and yelled, “Black power. Don’t let them take our people away.”19 After the wagons finally ar
rived, loaded up, and departed, a small group of men shattered the windows of a clothing store, entered, and began to loot the place. The violence quickly escalated and spread to other neighborhoods, including downtown Detroit.
Lyndon Johnson followed the events from the presidential yacht in the Potomac, where he was finalizing the tax surcharge proposal he was about to submit to Congress.20 When he returned to the White House in the evening, bleary-eyed and anxious, he faced a situation that was deteriorating by the minute. Governor George Romney of Michigan spoke to Attorney General Ramsey Clark at three in the morning about the possibility that federal troops might be needed but had not requested them; he was reluctant to ask for help controlling his own state from the president he planned to run against the following year. National Republican leaders were making the most of the situation; they released a statement that warned, “The nation is in crisis, and this Administration has failed even to make a proposal to protect our people on the streets and in their homes from riots and violence.”21
At 10:00 p.m. Cyrus Vance, the former deputy secretary of defense whom Johnson had trusted as an adviser on numerous issues since the 1950s and who was monitoring events on the ground, told Joseph Califano that the president should federalize the Michigan National Guard and move it into Detroit. It would be the first use of federal troops to quell a riot since 1943, when another riot had taken place in the same city. In recent years, though troops had been used to deal with racial desegregation in the South, they had not been used when there were riots in northern urban areas. Johnson desperately wanted a different solution but concluded he had no choice if he wanted to restore peace to the city. “They have lost all control in Detroit,” the FBI director, J. Edgar Hoover, said. “Harlem may break loose within thirty minutes. They plan to tear it to pieces.”22
The Fierce Urgency of Now Page 28