When More Is Not Enough

Prodded by a desire to placate critics and offset the depressing effect of this winter's deep freeze, the Carter Administration last week unveiled a bigger-than-expected package of stimulus to spur the nation's economic growth. The program presented to Congress calls for pumping $31.2 billion into the economy over the next 20 months through a combination of tax cuts, including a one-shot $50 tax rebate for almost every American, and increased Government spending to reduce unemployment. The plan, which was estimated to cost $23 billion to $30 billion when it was first announced earlier this month, had been continuously revised and enlarged almost up to the minute of its presentation. The most novel change: depending on whether they wanted to increase staff or boost spending, businessmen would be allowed to choose between a new payroll tax credit or a slightly expanded investment tax credit.

Reaction to the measure was decidedly mixed. Liberals praised it as the first step in getting the economy back on track, while businessmen, labor leaders and some economists called the package misguided or inadequate. At week's end Congress seemed prepared to expand the program even more, against the wishes of the Administration. Thus the stage could be set for the first open confrontation between the new Democratic President and the Democratic Congress.

The program would work this way:

1) A $50 check would be mailed for each taxpayer, spouse, child and other dependent included on the 1976 income tax returns. Thus a family of four would receive $200; a family of seven, $350. Checks would also go to all Social Security and Railroad Retirement beneficiaries, and to families too poor to pay taxes, if they filed to receive earned-income credits (tax overpayments that are returned). In all, the payments would total $11.4 billion.

2) Single people who earn no more than $15,000 and couples who earn no more than $17,500 would get a permanent income tax reduction totaling $4 billion a year.

3) Businessmen who want to hire more workers could reduce their corporate income tax by an amount equal to 4% of the Social Security payroll taxes they pay, and continue to use the 10% investment tax credit. Companies wanting to spend heavily for new plant and equipment could take a 12% investment tax credit, but would have to forgo the Social Security credit.

Under the revised plan, tax cuts would supply $13.7 billion of the $15.5 billion stimulus to be applied in 1977. The Government also plans to increase spending by $ 1.7 billion to put more people to work. Because the rebate is a onetime item, the components of the program shift in 1978, with tax cuts accounting for a stimulus of $8 billion and job-creating programs $7.6 billion.

The most sharply debated aspect of the program is whether a rebate will increase demand enough to boost the economy substantially. Critics contend that it will require a big permanent reduction in individual income taxes, not a mere $50 per person, to persuade consumers to buy big-ticket items such as major household appliances, cars and houses. Government economists insist that the rebates should be enough to boost demand, lift production and put more people to work. Moreover, the rebate has the advantage of being temporary, and the Administration has no intention of permanently losing current tax revenue that could later be used for new social programs.

Wrong-Headed. Labor's demand that more Government spending and less tax cutting be chosen as the way to create jobs is also wrongheaded, according to the White House. Because of long start-up times for many projects, the Government could not spend the money fast enough to be of much immediate help in creating new jobs. Moreover, the stimulus would enter the economy a year or two from now, when it could be inflationary. The Administration did try to mollify business critics who had complained that the original program offered no incentive for more investment, but its attempt failed; businessmen protest that a 12% credit is simply not big enough.

None of the criticism has been lost on congressional leaders, who are seriously considering adding more stimulus than the Administration wants, probably in the form of fatter outlays for public works and revenue sharing for states and cities. The key question is how much more Congress can increase the program without risking a Carter veto. Though the Administration refuses to set any numerical limit, Charles L. Schultze, chairman of the Council of Economic Advisers, warns that the more Congress adds, the more likely a veto becomes.

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