Nixon v. McGovern on Taxes, Prices, Jobs
ISSUES '72
More than crime in the streets or corruption in high places, more even than racial antogonisms or the general feeling of alienation, the domestic issue that rivets the attention of Americans in the economy. High taxes, higher prices, high unemployment-- these are the pocketbook problems that the voters are talking about. To solve the problems, Richard Nixon and George McGovern are presenting not just contrasting programs but fundamentally different visions of what American society should be like. In a second Administration, Nixon would strive for economic stability above all else and seek to interfere as little as possible price private enterprise, aside from maintaining wage and price controls for a while. A McGovern Administration would take an activist lead in aiming to redistribute income and wealth more equitably among all citizens. That philosophical dispute colors the two candidates' positions on every basic aspect of the economic issue:
> Nixon would try to trim federal non-military spending; McGovern would raise it by tens of billions yearly.
> Nixon says that he would oppose tax increases of any kind; McGovern would press for severe tax increases on corporations, investors and heirs.
> Nixon would give the highest pri ority to battling inflation, even if his policies would prolong an uncomfortably steep rate of unemployment; McGovern would drive to restore full employment even at the risk of more inflation.
As the campaign pulls into the final stretch, both the President and the Senator have sharpened their rhetoric. Nixon declares: "I consider the battle against higher prices and higher taxes to be the major domestic issue of this presidential campaign. This Government does not need any more of your income, and it should not be allowed to take any more of your salary and wages in taxes."
For his part, McGovern last week repeated his promise to spend $10 billion on an emergency program to hire unemployed people and put them to work building housing, public-transit and sewage-plant projects. He also pledged again to spend additional billions for new education and welfare programs. "The choice," he asserted, "is between Mr. Nixon's large increases in military spending, accompanied by substantial cutbacks in education, health care and the like, and the McGovern program to move in the opposite direction -- to cut defense spending, close tax loopholes and use precious public funds to meet our needs here at home."
Though voters are deeply, personally worried about these is sues, TIME correspondents' interviews across the country indicate that few people are listening to the fine points of the candidates' debate. The voters are choosing not only between two philosophies but between two men -- and between the sometimes annoying known and the vaguely frightening unknown.
In part that is because Nixon, aside from his generalized pledges to hold down spending and taxes, has refused to let himself be smoked out on many economic subjects. He has yet to enunciate a tax-reform program, or to say how long he might continue wage-price controls or to indicate what level of unemployment he believes might be consistent with reasonable price stability. This strategy of silence hardly contributes to public enlightenment, but it is effective politically. Voters think that they know where Nixon stands, even though the President who now decries fedral deficits will have run up by the end of this fiscal year a cumulative budget deficit of at least $74 billion since he took office.
McGovern, as the propounder of new ideas, has made himself the focus of discussion--disastrously for his presidential drive. For many voters the campaign as far as economics goes has resolved itself into a single issue: Can McGovern produce a sound and consistent policy for managing the intricate, delicate, complex U.S. economy? From high-salaried executives to modestly paid clerks, many believe that he cannot. They have concluded that McGovern is a fuzzy thinker who listens to bad advice from ultaliberal economists, changes his mind too often (Nixon's dramatic turnabouts on foreign policy and economic controls seem to be ignored), and makes promises that cannot be fulfilled.
By talking during the primary campaign of giving what his advisers called a $1,000 "demogrant" to everybody--even though the proposal was meant to replace some existing welfare programs-- McGovern excited the social reformers, who are a minority in America, while deeply offending multitudes who thought it contradictory to the work ethic (see THE ESSAY, page 96). As economist Arthur Okun, a McGovern adviser , puts it. "The things that helped him win the division pennant have hurt him in in the World Series." When McGovern belatedly buried the demogrant idea in August, he alienated many more people, who decided that in the realm of economics he simply does not know what he is talking about.
What is surprising is that voters who are loudly and sometimes angrily dissatisfied with Nixon's economic management are at the same time often anti-McGovern. "The whole economic situation is bad. " says Wendell Rushton, a mechanic in Miami. Still, Rushton will vote for Nixon because "McGovern is wishy-washy, and his ideas are too far out." Stuart Silver, a construction superintendent in Chicago, frets that "there are too many people out of work." But Silver is hesitated to vote for McGovern because "his plans are just not realistic, and he keeps changing his position."
Resentment against McGovern's spending and welfare plans is also widespread, and it is by no means confined to people who are affluent or white or both. Christine Trice, a black who is a dressmaker in Los Angeles, asserts: "There is so much fraud in welfare and no incentive to get a job. Welfare needs cutting down, but McGovern seems to want to add to it. Paying for it will come out of the pockets of working people." In Miami, Leonard Lang, a student and part-time clerk says: "I'd very much like to know what happens to the one-third of my paycheck that's taken in taxes every week. Just for once, people want to feel that Uncle Sam is taking his hand out of their pockets."
Economically as well as socially, Nixon is effectively appealing to rising conservative feelings. Yet to the extent that there is a pro-Nixon vote on economic issues--as distinct from an anti-McGovern vote--it reflects not so much conservative ideology as an "I'm all right, Jack" attitude among the many voters whose tunes have improved during the exuberant upturn of the past year. "The farmer is going to vote Nixon." declares William L. Lanier, who raises soybeans and tobacco in Georgia. "For the first time in years, the farmer is making profit." Indeed, the Administration in the past year has lifted from subsidies by $1 billion, to $4 billion, helping increase fam income by 15%. Alex Harkness, a construction worker in Knoxville, Tenn., says complacently: "I have a new home, I have a new car. I'll stick with Nixon and hope the situation will just stay status quo for another four years."
The economy certainly has not shaken clear of all its problems. The Government reported last week that consumer prices in September rose one-half of 1%--more than double the August increase--and the growth of gross national product slowed, as expected, to an annual rate of 5.9% in the third quarter, from an unsustainable 9.4% the previous quarter. But the overall record is good. Prices this year have risen less than pay, so the real income of workers is increasing, and G.N.P. for all 1972 is still expected to show a record rise of $ 100 billion. Even his Democratic critics concede that Nixon has done a remarkable job of turning the economy around--and turning the economic issue to his favor--since he clamped on price and wage controls in August of 1971. "Nixon has learned a lot about managing the economy," says Economist Otto Eckstein. "Unemployment is high, but the inflation and jobless rates have gone down. People can see an improvement." Eckstein, a Harvard professor, reckons that his own grading of Nixon on economics has risen in the past 14 months from D to Aminus.
The most important Nixon-McGovern differences, though, are not about the economic record but about policy for the future. Their major points of dispute:
SPENDING. This is the area of clearest-cut contrast. The American Enterprise Institute, a Republican-leaning thinktank, figures that by fiscal 1975, a Nixon Administration would be spending $301 billion a year, but the budget of a McGovern Administration would be almost $85 billion more than that. Under Nixon's budget, military spending would rise from $76.5 billion now to $84.5 billion in fiscal 1975, even assuming an end to the Viet Nam War. The rise would be necessary to cover retirement-pay costs and the expense of new weaponry. The rise in civilian spending would be held to only the automatic increases in the cost of present Nixon programs and plans. McGovern would vastly expand nondefense expenditures while struggling to slash the defense budget by $30 billion. In fact, he has probably underestimated the cost of his own defense plans. The A.E.I, economists guess that he might actually hold Pentagon spending $21 billion below what Nixon would allow.
These estimates are best read as guides to the candidates' intentions rather than as hard predictions. Nixon last week lost his fight to have Congress impose a $250 billion ceiling on spending in this fiscal year. He can achieve the same result now only by refusing to make expenditures that Congress has ordered, in such areas as manpower training and pollution control. Treasury Secretary George Shultz promises that Nixon will try to withhold enough appropriated money to limit spending to $250 billion, but the President's legal authority to do so is already being challenged in the courts. The President and his aides have been maddeningly vague about which programs they would cut how much in future years to offset the rise in military spending. In a recent TV interview, White House Assistant John Ehrlichman specified elimination of only the eleven-man tea-taster program, which costs the Government all of $100,000 a year.
Given the legal or political untouchability of rising outlays for Social Security, veterans' benefits, unemployment compensation, interest on the national debt and myriad other items, there are only a few areas where Nixon could cut deeply. The biggest is grants-in-aid. These grants, amounting to $43 billion this fiscal year, go to states and cities for school and hospital construction and services, mass-transit, urban renewal and many other programs. Reducing them would rouse angry opposition from Governors and mayors, who might lose more than they would gain through revenue sharing. Whether a re-elected Nixon really cuts severely depends in part on the size of his majority at the polls. The bigger it is, the freer he will feel to take an ax to social spending.
The prospective McGovern budget also contains as many uncertainties as a stock market forecast. No less than $63 billion of the amount that the American Enterprise Institute calculates that he would spend in fiscal 1975 represents the estimated cost of a Senate bill that he co-sponsored to have the Government take overpayment of most hospital and doctor bills. But McGovern has been notably silent about just who would pay how much to finance his health-care plans. Beyond that, the Senator has a confusing habit of mentioning the same figure in different contexts, leaving doubt as to whether he is proposing a series of programs or merely applying several names to the same ones.
Still, his goals are clear enough. He is committed to his emergency employment program and to a $15 billion increase in federal aid to education that would enable states and cities to reduce property taxes. He also wants a $14 billion welfare program that would give an annual $4,000 in cash and food stamps to a family of four that has no other income. Other families would get enough to raise their income to $4,000, if they do not already earn that much. (Nixon's rhetorical attacks on McGovern's "welfare ethic" notwithstanding, the President himself did a great deal to make the idea of an income guarantee politically respectable by proposing one of $2,400 for a family of four, but he made no effort to stop Congress from killing the plan.)
In addition, McGovern would spend liberally on a long list of other programs, including mass-transit rehabilitation, pollution control, an expanded G.I. Bill of Rights for Viet Nam veterans and even, regrettably, higher farm-price supports. He has promised farmers supports at 90% of parity v. 75% now. The exact amounts of new expenditures would depend on how much he could pare defense outlays and how much new revenue he could raise.
TAXES. This is really two issues: revenue and equity. On the revenue side, oddly, Nixon and McGovern come out at the same point. Though McGovern's budget would be much higher than Nixon's by 1975, each would be spending around $20 billion more than his tax policy would bring in, even at full employment. That large a "full-employment deficit" could ignite a rapid inflation.
Though Nixon vows to cut spending enough to eliminate the full-employment budget deficit, chances that he can do it are almost nil. The American Enterprise Institute calculates that he will have to put a walloping 11% surcharge on individual and corporate income taxes by 1975, or find some other way of raising $20 billion. The Administration once toyed with the idea of a value-added tax, a kind of national sales levy, but Herbert Stein, Nixon's chief economist, now says that the President will not recommend one. Nixon is already struggling to pin on the Democratic donkey the tail of blame for some other type of tax increase. In a pledge that has greatly impressed voters, he vows that there will be "no presidential tax increase"--but he adds that there may be a "congressional increase" forced by Democratic spenders. And unless McGovern reduces his spending programs or countenances swift inflation, he has little chance of fulfilling his pledge that "no American whose income comes from wages or salaries would pay one penny more in federal taxes than he does now." If McGovern stuck to all his spending plans and got them all through Congress--two unlikely assumptions--his tax increases would have to exceed Nixon's.
On the equity side of the issue, McGovern is quite precise. He proposes tax reforms that would raise $22 billion a year from affluent people and corporations. Major changes:
> Raise the capital gains tax on the sale of securities or property to the full rates levied on ordinary income. At present, capital gains are usually taxed at half those rates. As an offset, the top income tax rates of 50% on salaries and 70% on dividends, interest and rent would be lowered to 48%.
> Tear down tax shelters for real estate investors.
> Repeal the depletion allowances of 22% for oil and gas and lesser amounts for other minerals.
> Reduce the 7% investment tax credit.
> End the fast depreciation write-offs on plants and machines. The aim is partly to raise revenue, but much more to force companies and well-to-do individuals to pay what McGovern calls their "fair share." In the most memorable line of his campaign, McGovern thundered: "Money made by money should be taxed at the same rate as money made by men." This has touched off a great controversy over capital gains taxes. Supporters of the present tax structure insist that money made by money deserves preferential treatment, in part because it represents the reward for capitalist risk taking. They add that McGovern's tax policy would hinder investment that is vital to economic growth. There would indeed be some danger of dampening investment, but McGovern has at least produced a tax program that is logically consistent and that would obey the principle of levying taxes in accordance with people's ability to pay.
The Republican platform also pledges Nixon to tax reform, but what that might consist of is a mystery. The President once talked of providing $16 billion to local communities for property tax relief, but he now promises unspecified modest.sums to reduce property taxes for the elderly only. Administration officials hint that they have in mind some other tax reforms that would encourage investment; these changes look like the opposite of McGovern's. Commerce Secretary Peter Peterson talks of cutting capital gains taxes. The idea is to allow investors to deduct certain sums representing the extent to which the real value of the gain has been reduced by inflation.
PRICES AND JOBS. These two issues are inseparably linked. It would be a crude and unfair oversimplification to say that Nixon is "for unemployment" or that McGovern is "for inflation." But each would face a cruel choice of which to fight harder, and their approaches would be quite different.
Nixon's budget-paring program is aimed as much at checking inflation as minimizing tax boosts. The President hopes to drive the unemployment rate from its present 5.5% to below 5% next year, but many economists doubt that he can do it unless he abandons his efforts to hold fiscal 1973 spending close to $250 billion. In any case, Administration officials have never set any target date for reaching the traditional "full-employment" goal of 4%. They imply that 4% cannot be achieved quickly without spending so much money as to light inflationary fires.
McGovern is admirably explicit: he has said repeatedly that his "domestic priority No. 1" is a job "for every man and woman capable of working" and has committed himself to pushing unemployment down to 4% by 1974. He would do so partly by means of his $ 10 billion program to immediately hire 1,000,000 people--many of them heads of welfare families--and partly by spending on a wide variety of programs to expand demand throughout the economy. McGovern says on the stump that "the Nixon inflation is ground into every pound of hamburger you buy." But former Budget Director Charles Schultze, a McGovern adviser, concedes that wage and price boosts might be higher under his candidate than under a re-elected Nixon. Schultze insists that the inflationary price must be paid, if necessary, to avoid the social disruption caused by prolonged unemployment.
CONTROLS. This is an issue that will face the next President immediately after Inauguration Day. He will have to decide quickly what changes, if any, to recommend in the present law, which expires April 30. Nixon is pledged to dismantle the controls--which he erected in violation of his own free-enterprise principles--as soon as he judges that inflation can be checked without them. He is almost sure to extend them for a while. Indeed, he might even tighten them, at least on labor, in line with the general conservative and anti-inflationary bent of a second Nixon Administration. Neil Jacoby, a Republican member of the Pay Board, has suggested that the guideline for wage increases might be lowered to "around 4%" from the present 5.5%. Nixon is under pressure from businessmen to relax the guideline on profit margins, but he has given no hint whether he will do so.
McGovern's spending proclivities would seem to make controls even more essential for him than for Nixon, but he long talked as if controls were a bit of Nixon trickery that he intended to abolish quickly. He has now come around to advocating a control plan of his own, but it is still a less formal one than the President's. McGovern would replace the Pay Board and Price Commission with a single review board that would be part of the White House. After consulting with industry, labor and consumer representatives, the board would draw up guidelines for pay and price increases. Compliance would be mostly voluntary, but McGovern as President would retain authority to order rollbacks of increases that "flagrantly" violated the standards.
Many other economic issues also divide the candidates. Nixon, for example, might loosen federal surveillance of business, largely by shaking up the regulatory agencies. Consumer Activist Miles Kirkpatrick is likely to step out as chairman of the Federal Trade Commission and will probably be replaced by someone less eager to force retractions of misleading or overly puffy advertising. McGovern, by contrast, would tighten federal regulation of business. The Justice Department under Nixon prides itself on vigorous trustbusting against conglomerate mergers (without mentioning ITT); but Nixon himself has hinted privately that he would like antitrust laws relaxed for U.S. companies that compete in world markets. Commerce Secretary Peterson has argued that present law prevents textile and steel producers from combining into larger, more efficient firms that could better battle imports from Japanese and other overseas rivals. McGovern, on the other hand, has called for an even tougher antitrust policy.
Indeed, if Nixon wins by a landslide he would be strongly tempted to interpret his margin of victory as a resounding mandate for a turn to economic conservatism. Alan Greenspan, a member of TIME'S Board of Economists who is an adviser to Nixon, says: "As a private citizen Richard Nixon is quite conservative. After the election his policies will probably be significantly more conservative than they were during his first term, but for pragmatic reasons more than ideological reasons. He senses that a tax increase would be very bad for the Republic. As a result, he is quite serious about restraining spending."
But will Nixon win by a landslide? The latest TIME survey of voters, conducted by Daniel Yankelovich Inc., shows McGovern gaining some ground on the economic issue, but nowhere near enough. As of early October, voters still chose Nixon by 37% to 30% as the man most likely to provide jobs for everyone, and by 44% to 22% as the candidate who could best keep prices down. Indeed, the more relevant question seems to be whether the issues raised by McGovern can survive an overwhelming defeat.
At first glance, it would seem improbable. Many economists now interpret last spring's clamor for tax reform as a confused cry from the middle class to keep its own taxes down, rather than to raise levies on others. "People are not interested in income shares, but only in the level of their own taxes," Greenspan argues. The only welfare reform that the public seems to crave is one tightening work requirements. Certainly it will be a long time before any politician again advocates $1,000 for everybody.
Yet even a substantial Nixon victory would not be likely to bury the McGovern-raised issues entirely, but only drive them underground for a while. They could easily re-emerge--:soon and with force. If Nixon is compelled to propose a tax increase, as he probably will be, he will touch off an acrimonious quarrel about tax preferences for corporations, investors and high-income people. If the tax increase is needed largely to pay for greater military outlays, the argument over spending priorities will break out again in full cry. Conversely, if Nixon's budget hold-down causes the economy to slow and unemployment to rise from an already too high level, Democrats will certainly revive the pressure for a job-creating program. McGovern's ineffective campaign has deprived the nation of the searching debate over its economic future that once seemed likely this year. But he has provided abundant raw material for the Democratic candidate of 1976--and beyond.
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