President Carter's economic policy statement today will outline a program "for dealing with short-term problems in a way which contributes to longer term goals," Charles L. Schultze, chairman of the Council of Economic Advisers claimed yesterday.
Schultze said that while action -- including tax cuts -- is needed to "get people back to work" and speed up recovery from the recession, it was important that this did not exacerbate inflation.
He stressed that Carter will continue to oppose enactment of any tax cut this year. The Senate Finance Committee last week approved a $39 billion tax-cut bill to be sent to the Senate floor next month. but its chances of becoming law are in considerable doubt as House Democrats, as well as Carter, have generally opposed enacting a major tax bill this year.
House Ways and Means Committee Chairman Al Ullman (D-Ore), however, yesterday told the committee that it would "confront the issue" of tax cuts in mid-September. He has argued consistently against a tax-cut bill this year.
He made the comment during a mark-up session on a miscellaneous tax bill. Rep. Barber Conable of New York, the panel's ranking Republican, tried to get the committee to start work immediately on a major tax bill by offering the Republican porposal for an across-the-board tax cut of 10 percent and accelerated depreciation, in line with the so-called 10-5-3 proposals.
Ullman ruled this out of the order and was sustained by the commmitte in a party-line vote. Although Ullman appeared to be committed to beginning a markup of a tax bill by the middle of September, Conable was very doubtful whether this left enough time. "It's very late," he said yesterday. "They're trading time," he added.
Congressional sources said Ullman had not reversed his opposition to a tax-cut bill this year.
Inflation, low productivity growth and energy insecurity are the main longer-term problems facing the U.S., Schultze said.
The president's program is based on two major principles: To avoid worsening inflation and to encourage a shift towards more investment in new plant and equipment, he said.
Schultze criticized Republican Presidential candidate Ronald Reagan's tax-cut proposals as too inflationary. These would provide large, across-the-board tax cuts for individuals as well as more generous depreciation allowances for business investment.
A "fairly substantial" increase in the share of the nation's output which goes into investment is needed, Schultze said. This could have a major impact on productivity growth, and thus on the potential for a rising standard of living, he added.
Schultze said that today's package would include tax incentives for business investment and more spending on public investments, such as transportation. The increases in public investment to be announced by Carter probably will be on the synfuels program and mass transit improvements, already proposed by the administration.
Schultze said a pre-election tax cut would be like a Christmas tree, with a lot of legislative baubles on it. If Congress goes ahead with a tax bill now, it probably would end up much too large, he said.
Today's measures will include a proposal to make the investment tax credit, which is an offset against taxes owed, refundable in cash when a company has no tax liablities. The full 10 percent credit will not be made refundable, as this would cost between $10 billion and $12 billion in 1981, sources said.
The auto industry would be one of the biggest beneficiaries of such a proposal. U.S. auto companies have had substantial losses this year and so have had no tax liabilities against which to offset investment tax credit.
Schultze yesterday emphasized the importance of investment in the auto industry. He said that as part of coping with energy crisis, investment in making energy-efficient consumer products, such as smaller cars, was needed.
Schultze blamed oil exporters for much of America's present economic difficulty.
The administration will encourage new investment by private industry through tax incentives, Schultze said. These would make investment more profitable and improve companies' cash flow, he added. Improved depreci- ation allowances for writing off investiments against tax will be an important element of today's statement, sources have said.