Something for No One

For a tax-smart peanut farmer who shrewdly capitalized on federal depreciation write-offs to build his own business, Jimmy Carter has proved so far to be remarkably parsimonious toward businessmen. In fact, in his $31.2 billion program for stimulating the economy, Carter allocated only a very modest $2.6 billion as incentives for businesses to expand. But the House Ways and Means Committee totally rewrote the section dealing with business in Carter's economic package, taking away almost completely even the little that he was prepared to give.

In his bill, the President had hoped to encourage businessmen to buy new equipment and hire more workers by offering two alternatives: 1) a company building new facilities or buying new machines could increase its investment tax credit from the current 10% to 12%, or 2) it could simply choose to accept a tax credit equal to 4% of its total contributions to Social Security, thus decreasing slightly the cost of hiring new workers. For example, a company employing 100 workers earning an average of $10,000 a year could have deducted $2,340.

No Satisfaction. But Carter's bill ran into a rambunctious revisionist in the person of Oregon Democrat Al Ullman, the powerful chairman of the Ways and Means Committee. "The Administration's package didn't really satisfy anyone," said Ullman, who began drafting his own plan. Ullman's attitude was widely shared by a coalition of Democrats and Republicans on the committee who felt that even Carter's meager proposal was too generous toward big businessmen and would not sufficiently cope with the unemployment problem. Instead they preferred a measure aimed directly at creating more jobs.

Sensing the mood, Carter's lobbyists on the Hill realized that they faced a losing fight. The President invited the committee's Democrats to a White House breakfast (orange juice, Danish and coffee), but he too took a low-key approach. "There was no arm twisting whatever," reported Connecticut's William Cotter. Added Arkansas' Jim Guy Tucker: "He didn't press us to the wall or anything. He was very reasonable."

Unfortunately, the same cannot be said for the new provisions that the Ways and Means Committee wrote into Carter's package. In fact, it is one of the most bizarre, zany--and ultimately self-defeating--pieces of important legislation to reach the floor of the House in a long time. Ullman's proposal is titled "the jobs tax credit," and its professed aim is to encourage companies to hire new workers. For every new employee hired, a company would be granted an income-tax credit of $1,680, or 40% of a new employee's first $4,200 in wages. So far, not so bad. However, the Ullman committee wrote a number of crucial catches into the plan that turn it into economic nonsense.

A company can claim deductions only if it is hiring at least 3% more workers than the year before. Declining firms that need help the most are thus left out. Worse still, under the Ullman plan, no company may claim deductions exceeding $40,000 or enter claims for more than 24 people (unless the new employees are handicapped or disabled). This $40,000 cap means that only small firms can take advantage of the plan; the nation's major industrial corporations, which are the most important generators of jobs, are effectively excluded. Reason: the committee developed what some of its members dubbed "the General Motors complex." Explained Cotter: "It was felt that General Motors did not need help." Not wanting to be accused of aiding big business, the committee purposefully targeted its plan to help only small firms.

Ullman's handiwork evoked howls of criticism from labor and business economists alike. "An administrative nightmare," declared AFL-CIO Research Director Rudy Oswald. "It's pro-Sun Belt and anti-Snow Belt," complained Jack Carlson, the chief economist of the U.S. Chamber of Commerce, who objected to the bias for only growing firms.

The Brookings Institution's Joseph Pechman, who is a member of TIME's Board of Economists, was "very, very unhappy" with the Ullman plan. He warned that it is likely to dangerously distort the job market. His point: "It encourages employers to substitute part-time workers for full-time workers and low-income workers for moderate-income workers." For example, in order to double the tax credit available to it under the plan, a company may decide to hire two marginally qualified workers at $5,000 apiece rather than one more skilled person at $10,000.

Two for One. Even the experts on the Ways and Means staff admitted that the proposal could lead to "job churning"--the conversion of full-time jobs to part-time jobs in order to collect more tax write-offs. Ullman conceded that a firm might be able to hire a worker at $4,200 for six months, replace him with a new worker at the same wage and pick up $1,680 credit for each.

Perhaps the bill's most glaring shortcoming is that it reaches such a limited segment of the labor force--essentially only the low-paid, semiskilled workers now employed mostly in the service industries, the least productive sector of the economy. Assistant Treasury Secretary Larry Woodworth estimated that 66% of the labor force would be left out.

Despite its flaws, the Ullman revisions are virtually certain to be passed by the House when it votes on Carter's full package this week. The Administration's best hope is to rally support for the President's original proposals in the Senate, where Louisiana Democrat Russell Long, the chairman of the Finance Committee, is regarded to be more favorably disposed than Ullman toward Carter's business provisions. Then the White House hopes that a House-Senate conference committee will toss out Ullman's plan and restore Carter's original concept.

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