Something for (Almost) Everybody

THE ECONOMY Something for (Almost) Everybody

As Jimmy Carter, his top economic advisers and Democratic congressional leaders emerged from a four-hour meeting in Plains last week, their smiles and banter clearly gave them away. They had not only reached agreement on what to do about the economy, they were quite pleased with what they had wrought. "I've been in Congress for 24 years," House Speaker "Tip" O'Neill exulted, "and I don't ever recall anything of this nature--the leadership coming and having a dialogue with the President in regard to his pending messages and plans. I am tremendously pleased with the package, and I have every confidence we will be able to work it out with the Congress."

The long-awaited package contained few surprises. It aimed to give the sluggish economy a moderate and, its designers hoped, a noninflationary stimulus. In this fiscal year (ending Sept. 30), $12 billion to $16 billion would be injected into the economy--$10 billion to $14 billion in tax cuts and $2 billion in job programs. For fiscal 1978 (beginning Oct. 1,1977), the package calls for $8 billion in tax reduction and $5 billion to $8 billion in spending for jobs. How much is actually spent will depend on how the economy is doing.

The Carter package offers something to just about everybody, but the heaviest emphasis is on aid to low-and moderate-income groups. The four main features of the program:

TAX REBATES. The biggest item is $7 billion to $11 billion in rebates on 1976 personal income taxes. Charles Schultze, Carter's nominee as Chairman of the Council of Economic Advisers, says that a "fairly flat" sum will probably be adopted for all income groups, though the precise figure has not yet been determined. Obviously, if everybody gets a $100 or $200 rebate, people with lower incomes stand to benefit the most proportionately. Social Security recipients are expected to receive a one-shot boost in their benefits similar to the $50 they gained from the 1975 tax cut package.

Many economists see rebates as a quick fix for the economy. No other form of tax reliefer federal spending, they argue, moves so swiftly into the economic bloodstream. Says Otto Eckstein of Data Resources Inc. and a member of the TIME Board of Economists: "In 1975 we learned that a temporary tax cut lifts retail sales. It was spent fully within two or three months." The Carter forces are counting on the rebates to encourage business to spend more on expansion, since consumer purchasing power will be increased. While the 1976 recovery was sparked by inventory rebuilding and consumer spending, it was eventually slowed to a crawl by lagging business investment.

PERSONAL TAX CUTS. Carter's package also includes a permanent reduction in taxes that will amount to $2 billion for the remaining half of fiscal 1977 and $4 billion per year thereafter. This will be accomplished by increasing the standard deduction for people who do not itemize deductions on their returns. The minimum standard deduction for a single person is now $1,700, the maximum $2,400. Carter would offer a uniform deduction of $2,400. For married couples, the minimum standard deduction is now $2,100, the maximum $2,800. These would be replaced by a flat $2,800. With the changes, some 4 million people who would otherwise have itemized their deductions are expected to find it more profitable to claim the standard deduction. A single person with an adjusted gross income of $15,000 or less and average deductions would benefit from the change, as would married couples with incomes of $17,500 or less. A family of four earning $10,000 would pay roughly $100 less in federal taxes.

BUSINESS TAX CUTS. Corporate and noncorporate businesses would be given a permanent tax reduction of $2 billion. The cut could be achieved by increasing the present 10% investment tax credit to 12%. But this credit applies only to equipment. The package is almost certain to include a tax credit equal to 5% of what a firm pays in Social Security taxes. By decreasing labor costs, the program would encourage business to hire more people. It would also give a bigger tax break to firms that use more labor than capital.

JOB PROGRAMS. On the spending side, the current $2 billion public works program would be expanded to an authorized level of $6 billion. Initially, Carter plans to ask for $2 billion (on top of the $2 billion already approved by Congress) for such projects as water and sewer systems, schools, dormitories and police headquarters. Only if further stimulus were needed would he request the remaining $2 billion. This final amount was recommended by congressional leaders, who all along have favored greater outlays for jobs than have Carter's close advisers.

At a $4 billion spending level, the public service employment program is designed to finance some 500,000 jobs, ranging from library aides and nutritionists to tree trimmers and draftsmen. In fiscal 1978, the number of such jobs could rise to 725,000. Manpower training programs operating under the Comprehensive Employment and Training Act will be enlarged to reach four target groups: youth, Indians, migrant workers and Viet Nam veterans. In addition, outlays to states and localities under the countercyclical revenue-sharing program will rise from $350 million per quarter to $600 million.

With this package, the President-elect plans to make good on his chief campaign pledge: to put people back to work. His proposal is a far cry from the full employment Humphrey-Hawkins bill embraced by every Democratic presidential candidate, including Carter (although his embrace was rather half-hearted). Schultze expects that the programs will create far more than 800,000 jobs by 1978 because of the "multiplier effect" that increased employment and spending exert on the private sector. He thinks that the current 8.1% unemployment rate can be nudged down to between 7% and 7.5% this year. In 1978, it could possibly drop to the vicinity of 6%.

This would probably not satisfy many groups that supported Carter. Before his program was unveiled last week, organized labor, 41 liberal Democrats in Congress and the congressional Black Caucus all demanded a $30 billion stimulus for 1977. As it is, the Carter package will push the budget even deeper into deficit, from the $60 billion already anticipated for this fiscal year to the neighborhood of $75 billion. That is flirting dangerously enough with inflation; more than that might well be courting a return to a runaway price rise.

Bert Lance, Carter's director of the Office of Management and Budget, expressed the prevailing caution in the President-elect's camp: "I think we've got to be very, very considerate of the fact that economic stimulation packages add to the deficit, which is already very high," said Lance. "If you're not very, very careful about it, you're going to cause some real problems in the minds of the American people."

The economic package is a characteristic product of the Carter method. It came after months of research and consideration of the widest range of options. The transition team turned in several papers to the President-elect, who asked for still more information. Revised briefing books were then sent to the top economic appointees, who also sought more details. At their very first meeting with Carter on St. Simons Island, the economic aides were instructed to resolve their differences as best they could by the time of the final sessions in Plains. Any remaining disagreements were worked out during a three-hour meeting on Thursday. "It was very low-key," said a participant. "Six months from now, when we know each other better and when those who have constituencies are more conscious of them, a session like this one will probably be less subdued."

The package that the Congressmen so enthusiastically approved does not bear the clear stamp of a single adviser. Carter firmly believes in keeping individual egos on a tight leash. Schultze appeared to be the chief spokesman for the package, but he is not expected to overshadow Lance or Treasury Secretary Michael Blumenthal. "Jimmy wants them to function as a cluster," says a staffer. "And they will. Lance has a banker's view of the world. The others balance him very well--Blumenthal on international and Schultze on domestic economics." Adds Issues Coordinator Stuart Eizenstat: "The emergence of a key adviser is a natural process. But it doesn't have to be hurried."

At week's end Carter put U.S. economic problems in a worldwide context by announcing that in the first week of his presidency he will send Vice President Walter Mondale abroad to begin talks that he hopes will lead to an economic summit meeting. Carter would like the summit to occur in late May or early June, and Japan has already offered to be the host country. Mondale, who will visit Great Britain, France, West Germany and Japan, will also discuss NATO problems and ways of easing tensions in the Middle East and southern Africa.

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