Carter's New Economics

A smorgasbord of morsels instead of a bold strategy

"The steps I describe will begin a journey toward a more productive, more competitive and more prosperous American economy." With that promise, Jimmy Carter last week announced his $32.2 billion Economic Renewal Program. Immediately the policy provoked controversy. Asserted Congressman Clarence Brown, the Ohio Republican: "Too little, too late, too political." Complained Murray Weidenbaum, director of Washington University's Center for the Study of American Business: "It provides just the opposite of what the ailing economy needs."

In fact, despite the fanfare with which the program was unveiled in the White House East Room, the package contains little that is new and offers no bold economic strategy for combatting the nation's fundamental economic malady: inadequate capital investment. Above all, it does not seem to go far enough toward what is called supply-side economics, which means taking steps to stimulate more efficient output of goods and services. Instead, Carter offers an economic smorgasbord with some morsels for business, some for individual taxpayers and even some for advocates of an increased Government role in the economy.

This lack of a comprehensive strategy probably reflects the haste with which the package was assembled. With the election only ten weeks away, Carter apparently felt that he needed some "new" economic platform on which to campaign. Not only has Republican Presidential Candidate Ronald Reagan been calling for a 30% across-the-board tax reduction spread over three years, but several congressional committees have also been advocating tax slashes.

Not all reaction to the Carter program has been critical. Connecticut Democrat Robert Giaimo, the powerful chairman of the House Budget Committee, called it "statesmanlike." And Walter Heller, the University of Minnesota economist, approvingly observed that it was "a carefully crafted conservative program." One of its most commendable points is that despite its election-year timing, it contains more relief for business than for vote-casting individuals. Said Carter: "Now is no time for an excessive stimulus program nor for inflationary tax reductions. We must make careful investments in American productivity." The program's benefits for business will be worth about $15.2 billion and are intended to boost capital investment next year by 10%; relief for individuals will total $12.4 billion. An additional $4.6 billion is to be spent in direct Government aid. In the smorgasbord of new policies are these:

>An 8% tax credit for individuals and businesses to offset next year's hefty jump in Social Security payroll deductions. This break would be worth $106 to a family earning $20,000 and $155 to one earning the $29,700 maximum that is to be taxed that year for Social Security.

>A special deduction to help trim the so-called marriage penalty, a decade-old fluke in the tax tables that requires husbands and wives who both work to pay higher taxes than two unmarried wage earners living together. The change could save couples hundreds of dollars.

>A new tax depreciation schedule that will, in effect, permit businesses to write off capital investments about 40% faster than they now do, which will encourage executives to put more money into new plant and equipment.

>A cash payment, roughly the equivalent of an investment tax credit, for firms like Chrysler Corp. that are losing money and thus pay no taxes and cannot take advantage of credits. The new scheme would provide them with fresh incentive to make capital investments.

>An extension of the maximum period from 39 weeks to 52 in which unemployment compensation can be collected by people who live in areas most seriously affected by the recession.

>An increase in outlays for Government programs like energy conservation, mass transit and job training.

>The creation of an Industrial Revitalization Board, which will be composed of Government, business and labor representatives and will advise the White House on issues concerning what Carter calls "economic revitalization" and others term "reindustrialization."

Carter's aides argue that the new measures are neither a traditional counterrecession stimulus program nor an election-year general tax cut. For example, the program would create only 500,000 new jobs in 1981 and a like number the following year. This would have the effect of cutting the projected unemployment rate of 8.5% for next year to only 8.1%, and is far short of the "millions and millions and millions" of new jobs that Carter promised last month. Just how much Government stimulus the economy needs becomes increasingly questionable as the recession shows signs of bottoming out. The Commerce Department announced last week that the index of leading indicators, a rough guide of the economy's direction, surged a record 4.6% in July. But prospects for a balanced budget are still bad. The added Government activities called for by Carter would boost next year's projected budget deficit by about $5.7 billion, to $35.7 billion.

Explaining the new policy, Treasury Secretary G. William Miller argued that "people are better off to have a program that is designed to generate an anti-inflationary recovery than to go through a tax reduction now that merely takes out of their pockets money in real value terms." This was a slap at Reagan's call for a $36 billion general tax cut for next year. The G.O.P. nominee maintains, however, that his proposal would not be inflationary because it would encourage individual initiative, savings and capital formation. Said Reagan of Carter's program: "What he's proposing is that more Government will solve the problems that Government created."

Nearly all of Carter's program needs Capitol Hill's approval; it is almost certain that if they are passed at all, Carter's proposals will be modified significantly by the House and Senate. The timing of such legislation is very uncertain. Some congressional leaders still talk about voting a tax cut for 1981 before they recess next month. But Carter will not even submit his plan until next year--if he is reelected.

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