Redoing Carter's Package

Having designed a program of tax cuts and spending increases to speed up the U.S. economy, Jimmy Carter must now sell his creation to his fellow Democrats who control Congress--and already they are forcing some changes. The first, but probably not the last: a recasting of the President's now celebrated $50-for-everybody tax-rebate plan so that low-income people will get more than that, and the well-off will get nothing.

That change reflects a deep skepticism on Capitol Hill that the rebate plan will pep up demand enough to cut quickly into unemployment. On the tax-writing House Ways and Means Committee, Barber Conable of New York, the ranking Republican, likens the passing out of $50 checks to everyone to "dropping money out of airplanes"; New York Democrat Otis Pike grumbles that there must be a better way to create jobs.

Rebate Lid. Still, Congressmen can think of no other way to pump so much money into the economy so fast. So they came up with the idea of concentrating the rebates among lower-and middle-income people, who would be most likely to spend the money promptly, and denying them to the rich, who might simply put the cash in the bank. Late last week the White House agreed to a plan under which the rebate would be more than $50 for members of families that earn $25,000 or less; $50 in the $25,000-to-$35,000 group, zero for all those above. That would keep the total size of the rebate at $11.4 billion.

That, however, will not end the tinkering. When Ways and Means Chairman Al Ullman this week presents to the committee his own proposals for what would eventually be called the Tax Reduction Act of 1977, his draft is likely to contain a major revision of the President's plans to lower business taxes. Carter wants to offer companies a choice: they could reduce their income taxes by an amount equal to 4% of the Social Security taxes they pay on each worker, or to 12% of the money they spend on new plant and equipment. Many Congressmen want to scrap both alternatives in favor of a plan that would tie tax cuts directly to the number of workers added to payrolls. Ullman's idea: let an employer subtract from-his income tax 25% of the wages--up to $4,200 a year--paid to a worker newly hired or recalled from layoff.

Publicly, Treasury Secretary Michael Blumenthal calls that proposal "arbitrary and capricious." Privately, a White House aide fumes: "You try to put together the best plan you can, and then Al Ullman goes off the deep end with some crazy idea of his own." Carter's men argue that the proposal would unfairly benefit employers who are going to increase their payrolls anyway, tax break or no, and would encourage the wrong kind of hiring--since a company could cut its taxes just as much by employing a part-time worker at $4,200 as it could by adding a full-timer at $8,400. Walter Heller, a member of the TIME Board of Economists, adds that the Ullman proposal would give disproportionate tax relief to companies in rapidly expanding areas like the Sunbelt but deny help to needy businesses in areas like New England. Carter's version of an employment tax credit, in contrast, would save money for all companies whose workers are covered by Social Security, while still tying the size of the saving to the number of workers employed.

Even if these arguments fail in Ways and Means, the Administration will get chances to repeat them as the bill goes before the full House and then the Senate. In the end, the outlook is that Congress will pass an economic-stimulus package of about the size and composition that Carter wants, with some changes that the President will regret --but not enough to veto the bill.

Long Term. Carter already is thinking ahead to future tax issues. Last week he casually dropped a bombshell: chatting with employees of the Department of Housing and Urban Development, he outlined a plan to cut taxes for everyone earning less than $16,000 a year, raise them for everybody making more. That would be part of his long-term program for tax reform; the President has started discussing specifics before his aides have even settled on generalities.

Carter's intention is to replace the present personal income tax exemptions of $750 per person with tax credits of $240 to $250. An exemption reduces the income subject to tax; a credit is directly subtracted from the amount of tax due. Thus the higher a person's tax rate, the more beneficial it becomes to use an exemption rather than a credit. Treasury officials figured that under Carter's plan, a family of four earning $10,000 a year would save $388 in taxes; the same family earning $25,000 would pay $100 more than it does now. What Congress may think will not be known for a long time: Carter's tax-reform proposals will not be presented to it until the end of the year.

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