The MacNeil/Lehrer Report; Economic Game Plan

JIM LEHRER: Good evening. Coach Jimmy Carter`s game plan for the economy is now all out on the table. It comes in three major parts, and number three, the federal budget, was officially unveiled today. It`s a $500 billion blueprint for spending the government`s money next fiscal year, $61 billion more than it will take in in taxes. The other two parts were announced earlier, a voluntary anti-inflation program designed to get labor and industry to hold down prices and wages on their own, and a tax cut for individuals and business, aimed at stimulating the economy and holding down unemployment. President Carter reportedly sees 1978 as the year of the economy. Well, tonight, a look at the practical economics and politics of what the President has in mind. Robert MacNeil is away tonight. Charlayne Hunter-Gault is in New York. Charlayne?

CHARLAYNE HUNTER-GAULT: Jim, clearly the centerpiece of President Carter`s economic package is a $25 billion tax cut. This includes $17 billion for individuals, $6 billion for business firms, and a reduction of $2 billion in federal excise tax and payroll taxes paid by employers. Also to aid business, President Carter has proposed a series of tax incentives to encourage businessmen to invest in new factories and equipment. One such sweetener is a broadening of the current ten percent investment tax credit as an incentive for companies to expand at home rather than abroad. In large part the intention of the individual tax cuts is to offset the effects of the large Social Security tax increases just passed by Congress. Those big increases are expected to go into effect a year from now. The tax break will show up in weekly paychecks in October.

The cuts are also designed to make up for the effects of inflation, one such effect being that taxpayers will be bumped into a higher tax bracket when they receive their cost-of-living raises. For example, a worker earns $20,000 annually. If he receives a seven percent cost-of-living raise, his earnings next year would be $21,400, moving him into a higher tax bracket, and the practical effect is that instead of the cost-of-living money going for groceries or whatever, it goes back to Uncle Sam. The tax cuts are being hailed by the Carter administration as the best way to stimulate the economy, keep it expanding, create enough new jobs, and lower unemployment. Jim?

LEHRER: The question, of course, is what the many parts of the President`s economic game plan really add up to. Well, Joseph Kraft makes his living adding up things Presidents do and propose. He`s a national columnist for the Washington Post and many other newspapers. Joe, in general terms, what does the Carter plan amount to, in your opinion?

JOSEPH KRAFT: Well, let me say I agree with Charlayne that the centerpiece is the $25 billion tax reduction. The President decided -- and this, it seems to me, is an important, critical, almost historic decision -- he decided in favor of a tax cut designed to maintain the economic recovery. He decided against -- and I think this is critical -- reducing government spending in order to cut down inflation. That strikes me as having been the right decision for this year, an extremely good and important decision; and in view of the things that are being said, it`s not the kind of decision a Republican President would have made. So for this year it seems to me that the country is going to be in pretty good shape. However...

LEHRER: You`re emphasizing "this year."

KRAFT: Yeah. Because I think that a lot of the things the President has done plant booby traps and big problems for the years ahead.

LEHRER: For example?

KRAFT: Well, inflation is clearly one of the big problems that`s very, very strongly coming up.I would say maintaining an adequate defense, although people haven`t talked about it, is a big problem coming up. But it seems to me the biggest problem coming up is the weakening of the presidency itself, the crumbling of what we knew as the imperial presidency, the development of a post-imperial presidency, and I have the sense that President Carter has given away to the private sector and to the Congress a lot of authority which he may need in the future to deal with acute problems that you can dimly see around the corner.

LEHRER: The private sector -- you say he`s given away... you mean in terms of the economic recovery, in the short term he has turned it over to the private sector.

KRAFT: Yes, the economic recovery now depends on the level of private investment. If there`s a heavy level, if it`s nine percent next year or this year, and seven percent next year, which is twice what people expected, you`re then going to get continuing recovery. If it`s less, the recovery is going to go slow and he`s going to have to make more tax cuts. If it`s more, you`ve got inflation. But either way, he`s got to take some action, and it seems to me that he`s already switched and changed and chopped to a degree that has caused him to be thought of as a weak and vacillating President. It`s going to be hard for him to take future action. His anti-inflationary program is very weak; that needs to be buttressed. So he`s bought himself some time. He`s created some options, but to me it`s a big question whether he retains the authority that`s required to exercise the options.

LEHRER: But what about the thesis that somebody could come back with and say, all right, he`s set up stronger government action; if the private- sector approach that he`s laid out does not work, he can then come back and say, hey, look, I tried it this way, it didn`t work, now let`s do something a little stronger.

KRAFT: Congressman Bolling would be a better judge than I am about that, but my impression is that while that kind of inside politics may work for you and for me and for the Congressman, in the country at large what is perceived is a President who has already changed his position over and over again and who is thought of as weak and vacillating and unsure of his goals, and I do not think that adjusting things, even though it might be the right thing, that adjusting, and keeping your options open is the kind of stature that commands a lot of power in the country. So I think the President has given away an awful lot by changing his mind.

LEHRER: But what if it works?

KRAFT: If it works -- and I think it will work this year -- I suspect he`s going to have to do more of the same next year and the year after. I think that the Carter recipe for getting out of the recession is walking down this little tightrope step by step by step; and I must say, given the other alternatives, it strikes me as about the best. There are lots of little things that I would like to see done, particularly a much stronger anti- inflation package that would give him a wider knife edge to walk down. But basically this groping your way forward strikes me as about right, and I would say that for this year this is the best of all possible budgets, the best of all possible approaches -- for this year.

LEHRER: All right. Thank you, Joe Kraft. Charlayne?

HUNTER-GAULT: Okay, let`s get another point of view, from a man on Wall Street who has followed the nation`s economic health for some twenty years. He is Larry Wachtel, an investment analyst with Bache, Halsey, Stuart and Shields. Mr. Wachtel, the President is obviously asking the business community to keep the economic recovery going by assuming some of the responsibility -- hiring more people. Is the six billion dollars he`s offered enough?

LARRY WACHTEL: I`m not quite sure it is. I think the package could have been changed more toward the business side. You`ve got to remember that the consumer -- consumption -- carried the ball in 1977. The con summer has A heavy debt load at the moment. Even while capital spending has lagged, the projections for `78 is 4.5 percent. So it seems to me that priorities should have been oriented toward business. Even on the energy side, the administration is stressing consumption, while I think the business community is stressing production. I think that`s where he goes a little askew. I think if the corporate tax rate were cut even beyond the four percent, maybe eight percent, it would create more jobs in the private sector and more vitality.

I would say secondly, I disagreed somewhat with Mr. Kraft in terms of the spending cuts. We`re talking about a $62 billion budget deficit in the fiscal year which ends in September of 1979 on top of a $60 billion budget deficit in this fiscal year. This is inflation-breeding, this drives up interest rates; and it seems to me that the Ford administration had said that if we cut taxes, let`s cut spending commensurately. I think that`s the proper tack to take.

HUNTER-GAULT: You think something`s been left out of this equation.

WACHTEL: Right.

HUNTER-GAULT: Okay, what about confidence? Many of the President`s critics have said in the past that he hasn`t instilled confidence -- or at least, the confidence has been eroded -- between him and business. Do you think this plan that he`s laid out over the past week has helped to renew the support of business?

WACHTEL: I would not say so. I would say the problem in the confidence is getting the philosophy of the Carter administration. I think he`s kind of all over the lot; at one time he`s perceived to be a conservative, another time a liberal...

HUNTER-GAULT: So you don`t disagree with Joe Kraft on that.

WACHTEL: On that I don`t disagree. And I also feel that in terms -of long- range planning it may work this year -- I think there`s an old saying about, if the businessman was told that the world was coming to an end in three years, he would make appropriate preparations -- you`ve got to take the long-term approach; and we can`t go year by year, we must take a long- term approach.

HUNTER-GAULT: What happens -- can you give us a short scenario -if the businessmen fail to expand and provide the needed impetus to keep the economy growing as the President hopes?

WACHTEL: I think the economy would simply run out of gas. There`s one thing about this economy that is unlike other post-World War II cycles: it does not have any excesses; it has not built up any euphoria. There fore, if the economy does slow, it would simply be the consumer spending slowing down as a result of the high debt structure and the businessman not coming aboard with his capital spending. That`s why it`s important that the capital spending come on; it must pick up where the consumer lets off.

HUNTER-GAULT: And by capital spending you mean...?

WACHTEL: Plant and equipment spending.

HUNTER-GAULT: Planning new equipment and so on.

WACHTEL: That`s right.

HUNTER-GAULT: Well, if the private sector doesn`t come through and the government is forced to stimulate the economy in the latter part of this year or next, what alternatives would there then be to raising taxes or other things to deal with the budget deficit?

WACHTEL: Well, you know, I think that you have to at some point in time look at the other side, the inflation side. I also think that the dollar problem is paramount. The foreign investor, the foreign speculator, is looking very carefully at the inflation policy of the administration; and if it continues to be spend, spend, spend without an eye toward the inflationary spiral commensurate with that spending, I think the dollar will suffer for it.

HUNTER-GAULT: And are those the signs that we can look for, decline of the dollar, decline of the support for that...

WACHTEL: Well, it seems to me that the dollar rallied prior to the State of the Union message and has been down in the two days after the State of the Union message. They really don`t perceive in the Carter game plan the type of biting the bullet, if you will, that would strengthen the dollar.

HUNTER-GAULT: Okay, thank you. Now on the jobs front: in his economic game plan the President has committed himself to cutting the present jobless rate of 6.4 percent to 5.8 percent by the end of next year. That involves a strategy aimed at cutting the jobless rate among the largest and most chronically unemployed groups, minorities and the young. Today`s budget includes a continuation of the current level of public service employment and a new $400 million outlay to the private sector for jobs for the poor and disadvantaged, especially the young.

Dr. Bernard E. Anderson is an economist at the Wharton School of the University of Pennsylvania. He is also a staff economist on the President`s committee on equal employment opportunity. Dr. Anderson is in the studios of Public Television Station WHYY in Philadelphia. Dr. Anderson, you prepared the position paper which outlined the National Urban League`s opposition to the tax cut. Isn`t its aim to help low- and middle-income people? Why did you react against it?

Dr. BERNARD ANDERSON: Well, what we said, Charlayne, was that it`s certainly necessary to have additional stimulus to the economy in the form of a tax cut in 1978 because beyond the first two quarters we expect that the rate of growth in the economy will fall off significantly without a tax cut. However, I think it`s important to recognize that in order to reduce unemployment one must look at the type of unemployment we have. We do not have a problem of mass unemployment in the United States; in fact, last year we produced about 4.1 million jobs, more jobs than have been produced in any single twelve-month period, I believe, in our economic history. What we must do in order to reduce unemployment to get down to the 5.8 percent that the President wants to reach, and even lower than that, is to target all the pockets of unemployment. And what we`re suggesting is that there certainly should be a tax cut that will accommodate the consumers for the increase in cost associated with the energy cost and the Social Security and other costs that will hit consumers this year, but we think that a larger part of this tax cut, this $25 billion tax cut, should be in the form of incentives to the private sector to focus on hiring the hard-core unemployed, greater incentives to the private sector to locate whatever investment in plant and equipment is generated by these measures in areas of pockets of unemployment. I must tell you that I certainly don`t think that it`s beneficial to the great bulk of minorities who are unemployed to have much of that expansion of investment in plant and equipment in perhaps Houston or San Antonio, maybe, rather than in the pockets of unemployment in our major cities. And so I would like to see -- and I think this is the position taken by the Urban League -- a much larger part of this tax cut used in a creative and innovative way, focused on the pockets of unemployment.

HUNTER-GAULT: But with the private sector.

ANDERSON: Yes. Very definitely. We will not solve the problem of unemployment without greatly enervating the private sector to do a much larger part of this job. The job will not be solved with public service employment alone.

HUNTER-GAULT: Okay. Then do you agree with Joe Kraft about the President turning over control of economic growth, inflation and employment to the private sector?

ANDERSON: No, I don`t think this represents turning over the economic policy of the country to the private sector, it`s simply a recognition that if we are to make the kinds of gains the President wants to make, the private sector is going to have to be enervated to a greater degree than has been the case in the past. We simply cannot get there through public measures alone; we need to get the private sector to expand its investment in plant and equipment, to become more expansionary in its business decisions. What I`m saying, though, and I think this is the position of the Urban League, is that in fact we need to target more of those private sector expenditures toward the pockets of unemployment in order to get at the hard-core problem of unemployment we have in the United States at the present time.

HUNTER-GAULT: Okay, thank you. Jim?

LEHRER: The President only proposes, it`s the Congress that does the enacting. And whether the Congress will even go along with the President`s economic game plan is very much an open question tonight, and it`s a question we want to put now to one of Congress` key people on economics, the man Joe Kraft mentioned a moment ago, Congressman Richard Bolling, Democrat of Missouri, chairman of the joint House-Senate Economic Committee. Congressman, the word already is that Congress might increase the amount of that tax cut. Is that how you read it?

Rep. RICHARD BOLLING: I think it might very well, but I have two points in this connection that I`d like to make. Number one, I think the centerpiece of the Carter program is the energy bill. It`s unfinished business. I think that`s the key element in the whole program; if we don`t have an energy bill, he`s going to have all kinds of trouble and so is the country way down the track. The energy bill is the base. The other things are...

LEHRER: Because so much of the energy bill is a tax bill, you mean.

BOLLING: That`s a tax bill, plus the fact that if we don`t begin to demonstrate our ability to manage our own affairs on a simple thing like energy, the people of the world are going to lose all confidence in our ability to manage anything else.

LEHRER: The thing Mr. Wachtel was just talking about in terms of the dollar market, you mean.

BOLLING: That`s correct, and a great deal of our problems today, inflation and otherwise, have been caused by the enormous increases in cost of energy. They affect inflation, they affect jobs, they affect investment. The lack of an energy bill makes the businessman unconfident of the future; so it`s a key thing. Now, as far as ...

LEHRER: Wait a minute. You brought it up, so let me ask you: it`s the Congress that has not passed the energy bill.

BOLLING: That`s correct.

LEHRER: When is the Congress going to get around to doing it?

BOLLING: I hope we`re going to do it within about six weeks, but I`d like to make the point, as a member of the House, that I`ve made many times before: that the House acted promptly on a bill that was a compromise bill generally considered to be -- not brilliant, but not bad. And the Senate acted on a bill that it`s very difficult to call other than one that very much favored the oil companies. And it seems to me very, very important that the American people understand that the economy depends in a great deal, in the long run and the short run, on what the Congress does or doesn`t do in the next few weeks.

LEHRER: All right. Now to the other things, the new parts.

BOLLING: Well, the tax bill is a legitimate sort of an easy way out. There are a lot of people in the Democratic Party who`d like more spending, and they`d like it on specific programs. Some just like those that we just heard about in employment.

LEHRER: Targeted unemployment programs, as Dr. Anderson was talking about.

BOLLING: Targeted, and more structural effort in different ways to deal with the very specific nature of the unemployment. It is among the young, it is among the minorities in an overwhelming degree; but the tax cut is not the easy way out, it`s the practical way out. You can be pretty sure that in an election year Congress will pass some kind of a tax cut, whereas if you come in on a series of increases, a variety, you`re going to get in trouble with everybody automatically. If you don`t have enough increase for defense, you`re in trouble with a bloc; if you have too much -- and so on. So the tax cut is a sensible way to ensure that something is done to stimulate the economy in whatever quarter it`s going to need that stimulus, the third and fourth, the first quarter of the next year, an so on. I think it`s a pretty good overall approach. I think it`s a retreat only in very, very legitimate terms.

LEHRER: Retreat for the President from a prior position?

BOLLING: Yes. I think it`s a retreat only in a very limited way. The President came in with great expectations, and I think that`s sort of wonderful that he did; and he discovered that the forces that work in this town and the Congress and around the Congress are not very friendly. They are not very friendly to the national interest, they`re terribly friendly to a whole bunch of particular special interests. And I think what he did this year, rather than what he did last year, recognizes the complexity of getting anything done at all. Therefore I think that while I don`t agree with any particular part of the program as precisely what I would like, I think that the whole program represents a useful, in effect retreat from too many expectations to a reality which I think will be somewhat achievable.

LEHRER: Let me ask you to play reporter for a moment. Do you think that your colleagues in the Congress are going to buy the most of it, and if not, what parts are going to fall by the wayside?

BOLLING: I don`t think any part of it will survive in whole. I think there`ll be many changes in the priorities in budget. I can`t tell you which way they`re going to go.

LEHRER: They`re not going to reform the tax law, are they?

BOLLING: I hope we`re going to do some of it. It`s so overdue that my hopes keep overwhelming my judgment. We tend not to be very good about changing the present way the pie is split up, but I hope we do some of the things that make it more progressive and improve the tax law`s fairness, because it`s a key element. But there`s one point I`d like to make that`s fundamental, and absolutely the key. The response to the President`s program by the country and the interest groups is going to play an enormously important role in the Congress. The Congress reacts to the country, reacts to lobbyists. And the dilemma that the President faces today is that virtually all the lobbyists are working for their particular interest. You`re always hearing about what`s good for me. And it`s a change; I`ve been in Congress a long time -- you used to hear from lobbyists about what`s good for the country.

LEHRER: Is that true, Joe Kraft? Have you noticed a change, more emphasis on special interests now than there has been in the past?

KRAFT: I think there`s a little bit more license, but it does seem to me that the real change is a weakness of Congressional leadership and an inability to put these pieces together. And there, I think, the country is in trouble; I don`t think the White House is particularly good at melding these things together in a way that helps. I think the notion that the Congress is going to be responsive to the country is an illusion. I think the national reaction to what`s been going on in the last five days here is a big yawn, it`s like a replay of the Super Bowl game.

BOLLING: But would you accept the notion that they do react to the lobbyists?

KRAFT: I think that the lobbyists come into play when you don`t have big thrust from public opinion, and I don`t think you do have a big thrust from public opinion; nor do I think you could. That`s why President Carter had to retreat.

BOLLING: I think we had a relatively major success in the House on energy.

KRAFT: Not because of public opinion. You had it because the House leadership...

BOLLING: In part because of public opinion, and...

KRAFT: You`re too modest.

BOLLING: ...and because of strong leadership, right.

LEHRER: All right, now, Congressman Bolling says that he doesn`t think this is much of a retreat. You keep using the term, and Mr. Wachtel has also said the President`s been all over the lot. Where do you see the major retreat on his part?

KRAFT: Well, I see a retreat in targets, for example. He said he was going to get inflation down by a point a year. I see there a big retreat. He isn`t on that any more. His talk about a balanced budget in `81, he said we might be able to do it now; that, it seems to me, is a retreat. His deference to the Congress on the energy bill; he said it`s important. That`s a retreat. But the general tone, it seems to me, is...

LEHRER: Mr. Wachtel, what would you put at the top of your list of retreats, his promise to balance the budget by 1981 -- now it looks very unlikely that`s ever going to happen; is that your number one?

WACHTEL: I don`t object to that retreat, because I think that Mr. Carter started out with a lot of objectives that were unrealizable in the first place, and he`s pulling back to reality. I applaud that. I think in terms of retreat, for example, during the campaign he specified that he would be for deregulation of natural gas, and now he is against deregulation of natural gas; that`s a retreat that I deplore.

LEHRER: What about you, Dr. Anderson? Where do you see the President retreating, in any major areas, in your opinion?

ANDERSON: I think the President recognizes the difficulty of achieving all of the goals he set out in January-February 1977. He realizes now that he simply cannot achieve all of those objectives in the time frame that he originally set. But let me remind you of another statement he made during the campaign; he said that unemployment is the major problem facing the country. Now, we haven`t made much gain in the way of reducing unemployment. And I would hope that we would get back to that in the passage, for example, of the Hawkins-Humphrey full employment measure and other measures to focus on this question. Yes, we have a problem with energy; we need a national energy policy. Yes, we need to stimulate greater business confidence. But I believe the business community would be stimulated if it saw in the months and years ahead an opportunity to expand sales and thereby have an incentive for greater investment, and I think we`ve got to deal with this problem of unemployment. And with respect to the cities and minorities, the trickle down theory simply doesn`t work. By giving a generalized tax cut to industry in the hope that that will in some way reduce unemployment in these major cities, simply will not happen and we`ve got to target these funds.

LEHRER: Mr. Wachtel, what do you think of that thesis Dr. Anderson just laid out?

WACHTEL: I think there should be a proper mix for the cities and for the capital sector. I think that there is a trickle-down theory on the public spending side, but if you stimulate the private side then you create long- lasting jobs as contrasted with public jobs, which last for a while and then fade out. If you create a private sector job it`s a long-lasting job.

LEHRER: Well, Congressman Bolling and Joe Kraft, we have seen just exactly what you-all were talking about. From Mr. Wachtel`s standpoint, the business side, there`s not enough stimulation for business; from Dr. Anderson`s standpoint of the hard-core unemployed, there`s too much. Is this what you were talking about?

BOLLING: Well, I think what President Carter tried to do in this series of messages was to get the country to see that all the different parts of the country depended on each other, that we needed a package that would in effect have a good effect for all the country. Now, the point that I would try to make on his inflation package is that it`s the right step in the right direction -- not very much; but what he needs to do -- and he needs to do it just the way Franklin Roosevelt needed to do it, he needs to do it just the way Harry Truman needed to do it: he needs to stimulate the support of the people for something more than just special-interest approaches.

LEHRER: My special interest is that we`re out of time. Dr. Anderson in Philadelphia, thank you. Mr. Wachtel, thank you in New York. Good night, Charlayne. Congressman, Joe Kraft, thank you. Robert Mac Neil is in Israel tonight, where he`ll be interviewing Israeli Prime Minister Begin for our program tomorrow night. I`m Jim Lehrer. Thank you and good night.