Profits and Protection

Rising before a large public audience for the first time to answer questions about Phase II, President Nixon chose a friendly forum: the big wheels of the Detroit Economic Club. Outside Cobo Hall, about 3,000 pickets demonstrated. Some carried placards calling on the President to FREEZE WAR NOT WAGES or to free both Jimmy Hoffa and Angela Davis. Members of the crowd passed out phony dollar bills labeled "The Inflated States of America," with a portrait of Nixon captioned "Daddy Scorebucks."

Inside, Nixon spoke to an audience of 5,000 that included civic and labor Pooh-Bahs but was dominated by businessmen. The President noted that he was rather "like the preacher talking to the choir." Members of the choir liked the President's sermon--and no wonder. It put stress on protecting domestic industry and boosting profits.

Rewarding Success. Nixon reiterated that Phase II controls will be directed primarily at "major industries where there is the greatest possibility of inflationary tendencies." But, contrary to many of the sounds that had been coming out of his Administration for weeks, he emphasized that the new rules will cover "all of the economy" rather than just main segments--and that the coverage will last indefinitely. Thus any wage-price guidelines in Phase II will theoretically apply to everyone, even if enforcement is concentrated on large companies.

The President all but ruled out profit controls. Said Nixon: "I am for profits because I believe that profits mean more jobs. I think we ought to reward success rather than penalize it." However, the President hinted that interest rates may be regulated. He said that the level of interest rates during the rest of Phase I "will have a great deal of effect on whether we feel it is necessary to have the Federal Reserve move in, particularly at the consumer level, in Phase II."

Nixon also raised the possibility of creating export subsidies for U.S. industries that must compete against subsidized foreign companies. As he put it: "We have got to see to it that the American workman is not driven out of competition because an unfair advantage is obtained by a workman abroad."

Lift for Low Incomes. Other parts of Phase II took shape last week in the Congress. Wilbur Mills' Ways and Means Committee drafted a bill that over the next three years would give some $3 billion more in tax relief than Nixon requested. All of this would benefit individuals, particularly those with low incomes. One new measure, applying to all taxpayers, would raise the personal-income exemption this year from $650 to $675. The committee approved another important break for low-income families; it would permit a four-member household to earn as much as $4,300 in 1971 without paying any income taxes.

For businesses, the committee decided to recommend an investment tax credit of 7% on capital goods ordered after April 1. The measure allows corporations and individuals who make capital investments to deduct 7% of their cost from tax bills. Nixon had asked for credits of 10% for one year and 5% thereafter. The committee's action, when combined with such other modifications as the extension to small firms of the tax incentive on purchases of used equipment, does not alter the estimated total tax reduction--about $2.8 billion annually.

One provision that the Mills committee did not change was the rule that only U.S. goods are eligible for the tax credit. That is one part of Nixon's program that foreigners especially resent, since it raises a barrier against their products above and beyond those already imposed by currency revaluations and the import surtax. Unless Congress changes this petty "buy American" rule, it could further help to ignite retaliatory fires abroad.

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