If President Carter hoped his hold-the-line 500 billion budget, tax-cut proposals and the conservative rhetoric of his State of the Union address would rally business confidence, he must be somewhat disappointed. The stock market took a dive, and most comment from business has been critical.
In a speech in New York City Thursday, Treasury Secretary W. Michael Blumenthal reflected the Carter administration's frustration with the initial response from business to its economic plan.
"This program reflects your advice" and it "now needs and deserves your strong support," he told an audience of business officials.
It turns out that the president did score a few points with some captins of industry for reducing uncertainty. "The business community now has a more informed basis for planning," said General Electric Co. Chairman Reginald Jones. "Even if we don't agree with all of it, we know what it is, and can move ahead on that basis," commented American Telephone & Telegraph Corp. Chairman John deButts.
But the reaction of many business and financial leaders - particularly on Wall Street - to the specifics of president's program, has been decidedly critical or skeptical.
"He talks like a conservative Republican but he acts like an English Socialist," was the reaction of one leading business executive who declined to be identified, but who was referring to what he considers unstated redistributionist bias in the Carter administration's economic and tax programs.
"Business generally has reacted with disappointment," said John Whitehead, a managing partner of Goldmans, Sachs & Co., the investment banking firm. "The stock market and the bond market both show that. The messages seem to be basically a repackaging of earlier proposals, and it continues to be distressing to me, and I think to most businessmen, that there still seems to be very little understanding of the need to encourage investment - not only on the part of corporations, but on the part of individual savers."
President Carter himself surprisingly identified the often irrational stock market as the indicator of choice to measure how well he did in his State of the Union talk. And since the address, the Dow Jones Industrial Average has dropped another 14.55 points, for a total decline of 52.50 points since the year began.
Although the tax-cut plans - worth more than $9 billion to business if enacted - understandably are the most popular part of the president's program, the proposals for offsetting revenue-raising "reforms" are not.
Wall Street already is girding for a Lobbying battle to defeat provisions that would tighten tax treatment of capital gains. And the restaurant industry already has launched its campaign against halving the businessmeal deduction.
Proposals to eliminate tax subsidies for exporters and to phase out rules allowing foreign subsidiaries of U.S. corporations to defer domestic taxes meanwhile are said to be conterproductive at a time when the U.S. is running a record trade deficit, and they probably will run into strong, well-organized opposition.
"I think the president's advisers are dead wrong on this one," said Procter & Gamble Co. Chairman E. G. Harness, referring to the foreign tax deferral. "If this gets through Congress, which I doubt, it is going to be a further drag on the balance of payments, and hurt the ability of foreign operating companies to stay competitive."
There is also a question in the minds of some executives whether their companies will wind up as the recipients of a net tax cut when all of the tax proposals are considered together.
"On the one hand, everyone can agree that we ought to have a simple tax reduction to offset the Social Security tax increase, to offset the tax increases if there is going to be an energy bill, and to offset the income tax increases that just come from inflation," said Mobil Corp. Chairman Rawleigh Warner Jr.
"But the president has larded in these reforms that take a lot of the gloss off the rose and certainly fly in the face of our balance of payments problem," he added. "My impression is that the reduction in the corporate tax rate from 48 to 44 percent will all be taken away from international industry if DISC (Domestic International Sales Corp.) and tax deferral go. So where's the incentive there?"
The saving grace for most businessmen is that they don't think Congress will pass very many of the "reform" proposals in a final bill. But business leaders also dread a bruising lobbying fight that could bottle up the tax cut legislation in a repeat of the energy battle.
The stalement on energy is what many of the business leaders interviewed by The Washington Post consider the most worrisome problem currently confronting the economy, one that affects both the trade balance and the strength of the dollar on foreign exchange markets. But they also said they haven't heard anything in the president's messages that would break the congressional deadlock.
And President Carter's voluntary anti-inflation program is considered ineffective, coming as it does on top of another $60 billion federal deficit. But it simultaneiously raises concerns that more formal wage and price guidelines or controls - despite assertions to the contrary - could be further down the road.
Robert H. B. Baldwin, a managing director of Morgan Stanley and Co. and the head of the Securities Industry Association, said that characterizing the president's $500 billion budget as "conservative" is "a most interesting play on words." He said the financial community remains concerned about the size of the proposed federal budget deficit and the possibility that financing the red ink will create strains in the credit markets.
There was some optimism, however, that the combination of the president's proposals for reducing the corporate business tax rate, enacting a permanent 10 percent investment tax credit for business, and cutting individual taxeswould encourage business - which have been stymied in their expansion plans during the current recovery - accelerate their plant and equipment spending.
G. E. Chairman Jones said the combination of tax measures "does address the problem of the disturbing lag in business spending. While no one can expect unanimous endorsement of all facets of the program, it is most reassuring that President Carter is relying on expansion of private investment and consumer spending rather than increased government spending to keep the economy growing."
AT & T Chairman deButts said he would be "amazed" if capital spending by business doesn't increase by at least 10 percent in real terms in 1978, on top of an 8 per cent rise in 1977 but in the face of official predictions of an increase in 1978 of only about 5 percent.
"Capital expenditure programs are not determind by business confidence but by demand - the key determinant - and that's why I'm in favor of a tax break for lower-and middle-income people, because that's where the demand comes from," he added.
Similarly, Thomas Murphy, chairman of General Motors Corp - another company that relies heavily on a healthy consumer economy - endorsed the president's individual tax cuts.
"Naturally every politician has to look at the realities of how he can make his program politically feasible and make it attractive to the bulk of the people," said Murphy, who added that Carter's plan contains some "definite pluses" aimed at "a continuation of reasonable economic growth, job creation and a feeling that it is administered fairly."
Some executives disputed whether accelerated business expansion would commence before the uncertainties surrounding the ultimate form of energy and tax legislation are cleared away.
"What is going to determine our business expansion is the reduction or elmination of some of the uncertainties we have," said Roger Anderson, chairman of the Continental Illinois Bank. "The establishment of an energy policy would be useful - even if its something everyone can't agree to. Similary with respect to the tax proposals. But it will actually require both their passage. And they both have very controversial elements."
While the proposals for the business and individual tax cuts appealed to the heads of some of the very largest corporations, Wall Street leaders expressed disappointment at the implications the proposals have for investors.
"The administration is to be applauded for efforts to help business as far is they've gone," said Merrill Lynch & Co. Chairman Donald Regan. "What's been received much less favorably, and upset most customers I've talked to, is the proposal to eliminate the alternative tax."
He was referring to the alternative tax on capital gains, which currently places an effective tax rate of 25 percent on the first $50,000 earned by individuals through the purchase and sale of securities, real estate and other qualifying assets.
Combined with a proposal to increase the minimum tax for individuals, the tax package "casts quite a chill" over small investors, Regan said.
Wall Street had been hoping for some increased investment incentives for individuals to perk up the stock market, but was taken aback by the Carter plans moves in the opposite direction.
"The market is going down and the administration is trying to kill off one of the few tax preferences coming to the individual investors, so why should he bother to take risks?" Regan asked. "This surprised me because the administration had indicated it is concerned that corporations are unable to raise equity capital."
One subject over which most businessmen expressed satisfaction, however, is the growing role of Treasury Secretary Blumenthal as the president's leading economic spokesman and business liaison, plugging the hole that was left when former Budget Director and presidential confidant Bert Lance resigned his post last fall. Commerce Secretary Juanita Kreps also received praise for her policy influence.
"The president has been through a year where he lost his anchorman in the economic area," said Harness of Procter and Gamble. "Mike Blumentahl is now emerging as the key man, and I haven't seen much wrong with him. He may have said some things he later wished he hadn't said, but he is bright, competent and I feel, increasingly has the President's ear. Blumenthal and Kreps are both good people who understand what business is trying to do."
While the Carter administration has made some advances with business so far as its image is concerned, a pervasive skepticism remains about the overall thrust and philosophy of the President's economic policy.