CARTER ECONOMICS
Lekachman, Robert
Particularly at a time of slow growth and global economic disarray, a new president's first budget assumes even greater importance than usual as a statement of priorities and a forecast of policy...
...Carter's 45 minutes in the South Bronx are likely to conclude White House attention to its continued decay...
...The politics of growth are comparatively benign...
...One practical effect of increased dependence on payroll taxes is to increase workingclass opposition to enlargement of existing social programs or introduction of new ones...
...There is no money for welfare reform or a start on national health insurance, nor any provision for additional public jobs and implementation of Humphrey-Hawkins fullemployment pledges, even though a severely modified version of that measure finally won White House endorsement...
...Last session Congress "rescued" the Social Security trust funds by sharply increasing rates and enlarging the earned income base upon which they are imposed...
...As DuPont's Irving Shapiro, General Motor's Thomas Murphy, AT & T's John deButts, General Electric's Reginald Jones, and other pontiffs of the Business Roundtable troop in and out of the White House, the President and Congress are quietly dismantling the mildly progressive structure of income taxes, replacing it with heavier and heavier regressive payroll taxes to finance Social Security, Medicare, and Medicaid...
...Particularly at a time of slow growth and global economic disarray, a new president's first budget assumes even greater importance than usual as a statement of priorities and a forecast of policy for the remainder of his term...
...Next year a man or woman who earns $10,00 will pay $613 in Social Security taxes, far more than average personal income-tax liabilities in that bracket...
...Each year rates are to rise...
...Experts agree that the matching employer contribution is passed on either to customers in the shape of higher prices or to employees via smaller wage and fringe improvements...
...Apparently the only thing government can do is reduce taxes on incomes and profits...
...An executive with a salary of $170,000 will pay precisely the same sum as a moderate earner of $17,000, or one-tenth the rate to which his less affluent neighbor is subject...
...Since not even 139 Administration economists anticipate rapid growth in the remainder of this decade, Carter's $26 billion tax cut (Congress is likely to increase the figure) wipes out funding prospects for new social and urban initiatives right up to the 1980 election...
...For want of better notions, economists address new problems with old techniques...
...Since the 1978 ceiling on income subject to Social Security assessment is $17,000 the higher the income above that figures the lower the effective tax rate...
...different once present and prospective growth rates diminish...
...As commentators from the Wall Street Journal leftward to the New Republic have noted, Jimmy Carter's $500 billion Budget for the fiscal year 1979 differs remarkably little from the document that Jerry Ford might have prepared if that Daily News headline writer had been less inspired or more black voters had stayed home in 1976...
...Whatever the White House may say, this tax cut puts an end to welfare reform, health progress, and any but cosmetic attention to the chronic problems of the Northeast and the Midwest...
...q 140...
...Unemployment will at best continue to fluctuate between 6 and 7 percent overall, and the usual monthly regrets will be extended to women and to black teenagers...
...Thus, until Vietnam destroyed the hopes stimulated by LBJ's Great Society, it really was possible simultaneously to soothe Middle America with lower taxes and fund a variety of social programs...
...Then tax cuts become either/or rather than both/ and propositions...
...And although a new urban initiative is promised, the Budget seeks no dollars to support it...
...Finally, this is a tax that covertly curtails real wages...
...This emphasis upon the stimulation of aggregate demand at a time of severe structural strain between regions, and among young, old, black, white, male, and female workers, signals among other things the bankruptcy of mainstream economics...
...Unless civil disorders on the scale of the late 1960s recur, it appears depressingly safe to say that Congress will cheerfully concur in the President's new minimalism...
...Distribution of annual surpluses allows for the indulgence of altruism for the poor and unfortunate, at least if they are properly grateful...
...Unwilling to accept the glaring need for coherent, national economic planning or even the more limited interventions into "free" market allocations of resources and incomes implied by selective controls over key prices and collectivebargaining settlements, respectable economists, like squirrels in a cage, agitatedly race in circles, alternately yapping "inflation" and "unemployment...
...No wonder Howard Baker applauded: "He's singing our song . . . a Republican song...
...The impact of tax reduction is quite...
...At best such programs in the new reactionary tax climate redistribute income within the ranks of low- and moderate-income families...
...If all proceeds according to plan, parallel reductions in personal income taxes will encourage consumers to buy more cars, appliances, recreational equipment, and clothing...
...Tax reduction in the 1960s was reasonably effective because rapid economic growth in this country and other advanced, industrial societies was still possible...
...As fewer of the Administration's critics have pointed out, Carter's initial budget is very much in the mainstream of moderate Keynesian prescription for faster economic expansion...
...As in 1963 and 1964, tax reduction is the therapy of choice...
...For three reasons at least, payroll taxes are among the worst and least fair ways of financing government...
...By and large it is the rich not the poor who enjoy this loophole...
...The most that can be expected of the tax-cut strategy is a 12- or 15-month extension of the present mild and aging recovery from the 1973-75 minidepression...
...Smaller imposts on corporate profits and liberalization of exisiting investment-tax credits are designed in the 1970s as in the 1960s to encourage construction of new factories and office buildings and installation of new machinery to fill them...
...I COME FINALLY to a still more depressing phenomenon...
...OPEC was in the future...
...Just to make matters worse, income from interest, dividends, rent, and royalities is exempt from Social Security taxes...
...Energy and other raw materials were cheap...
...They cheered the passages in his State of the Union address that asserted with an air of discovery that "government cannot solve problems," "set our goals," "define our vision," "eliminate poverty," "reduce inflation," or "provide energy...
...The long post-World War II boom still had nearly a decade to run...
Vol. 25 • April 1978 • No. 2
