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POLICY: Carter’s Plan: Criticized, but Flexible

5 minute read

A program that offers something for everybody runs the risk of not much pleasing anybody. So it is with Jimmy Carter’s economic program—an amalgam of quick tax rebates for individuals, permanent though much smaller tax cuts for low-income people and corporations, a speedup in public works and other job-creating programs for the unemployed, all calculated to pump $12 billion to $16 billion into the lagging economy this year, a similar amount in fiscal 1978. As comment rolled in last week from economists, businessmen, labor leaders and politicians, the predominant tone was one of disappointment.

Incentive Lack. Among economists, Liberal Robert Nathan, a member of TIME’s Board of Economists, and Conservative Paul McCracken, former chief adviser to President Nixon, found themselves unlikely allies in calling the program too small to give the economy the push it needs. Some bankers and businessmen were displeased that the program contains no specific incentive for investing more in new plant and equipment. Says Eugene Birnbaum, chief economist for the First National Bank of Chicago: “This tax package is appalling to me. We would be better off without stimulus than with one so badly formed.”

The U.S. Conference of Mayors said the plan did not do enough to help cities. The AFL-CIO, led by George Meany, got downright caustic. It adopted a statement calling the program “a retreat from the goals which we understand President-elect Carter to have set during last year’s election campaign.” The goal the council had in mind was cutting unemployment by 1½ percentage points this year; to do that, the labor leaders want a stimulus of as much as $30 billion in 1977 alone, with most of the money going directly to federal job programs. Most surprising, F. Ray Marshall, who is Carter’s own choice to be Secretary of Labor, called the plan too small and weighted too heavily toward tax cuts ($10 billion to $14 billion of the stimulus this fiscal year).

Concentrated Stimulus. For all that, Carter’s plans have the backing of Washington’s Democratic leadership and are likely to be passed by Congress with few changes shortly after the new President takes the oath of office. A good thing too: much of the criticism seems to miss the point — partly because Carter did a less-than-adequate job of explaining his plans. For example, many critics talk as if the $12 billion to $16 billion first-year stimulus would be spread over twelve months. In fact, as Carter did not make clear, it would be concentrated in the six months between April and the end of fiscal 1977 on Sept. 30.

That still will give the economy a nudge rather than a massive push, but indications are mounting that a nudge may be all that business needs. Though Carter himself, in announcing his program, inexplicably said that the U.S. is in a period of “very stagnant growth,” the latest figures continue to show a perceptible pickup. The unemployment rate dropped from 8.1% in November to 7.9% in December, the first decline since September. Almost all of the drop occurred among adult males, the prime family breadwinners; their jobless rate fell from 6.5% to 6.2%. Figures on fourth-quarter output of goods and services, due out this week, are likely to show a rise of around 4%—less than half the growth rate at the start of 1976, but better than the 3.9% that some economists had estimated for the period. Growth could rebound to the 7% to 8% range during this year’s first half.

The most heartening news was a Commerce Department report that businessmen intend to increase spending on new plant and equipment by 11.3% this year, with most of the increase probably coming in the second half. The “real” increase, discounted for inflation, would be around 6%—hardly a boom figure, but enough to indicate that corporate chiefs are overcoming the hesitancy to invest that acted as the most important drag on the economy in 1976. Carter’s economic aides, headed by Charles F. Schultze, who will be chairman of the Council of Economic Advisers, contend that corporations have plenty of money to increase investment further without any special tax breaks. What is needed, they insist, is a pickup in consumer spending sufficient to convince executives that the products to be made by new plants will be bought.

A final point in favor of Carter’s program is that it has been crafted to less en the risk of speeding up inflation. That remains a danger, as illustrated by the Wholesale Price Index, which rose in December at an annual rate of 11.4%, propelled mostly by increases in farm products. The President-elect’s advisers reasoned that it is much easier to add to a program of stimulus that proves inadequate than it is to cut down one that speeds up the economy to an inflationary pitch.

That program, says Walter Heller, a member of TIME’s Board of Economists, “will not come within a country mile of creating excess-demand inflation.” On the other hand, stresses David Grove, an IBM vice president and also a board member, “this is not a final plan”: tax cuts could be broadened and federal spending accelerated if the economy does not quicken as hoped. Grove’s summation is perhaps the fairest appraisal: “a good, flexible start.”

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