IT TELLS you quite a lot about the way things are going between President Carter and the Democratic Congress. In January, Mr. Carter proposed several quick tax cuts and rebates to speed up business activity and reduce unemployment. Having got as far as the Senate, the tax proposals are now falling into disarray.
The trouble started when the business community decided that the $50 rebate to each taxpayer would be both ineffectual and inflationary. It would be ineffectual, the reasoning went, because people wouldn't spend the money - and inflationary because they might spend it. President Carter found that logic persuasive and withdrew his support for the rebate.
He also tried to pull back a couple of tax cuts for business at the same time. But, to the administration's great surprise, the Senate went ahead last week and passed the business tax cuts anyway. While the business community felt that rebating personal taxes would be inflationary, it felt equally strongly that cutting its own taxes would not be inflationary. That logic overwhelmed the senators, who voted by the remarkable margin of 74 to 20 for the business tax credits.
All of this logic, unfortunately, leaves the administration's economic plan bent badly out of shape.The principal benefit to individual taxpayers, the rebate, is out. All the benefits to business taxpayers are still in. The original proposal now looks like an automobile after a severe collision. It's still capable of driving up the road, but something's wrong with the alignment - it's pointed in one direction but moving in another. The timing is off, too. The main impact of the bill will be felt next year when, if the administration's forecasts are right, it will be needed less than it is this year.
The increased credit for new business investment is a good and useful device to encourage business expansion. But the case for applying it now is the same as the case for the $50 rebate. In our own opinion, the country needs both. Mr. Carter doesn't think that it needs either. The Senate's view is that the country needs tax benefits for business but not for consumers. In these matters, as Mr. Carter will discover, it's generally the Senate's view that prevails.
This episode is a poor omen for the serious and systematic tax reform that Mr. Carter has promised next year. In contrast with a major overhaul of the tax laws, this first Carter proposal was very simple. But within weeks the administration lost control of it. You can see here a mistake that the administration has also made in other areas. It tends to overestimate the force that mere presidential endorsement can give to a piece of paper. The administration couldn't persuade the businessmen to accept its economic strategy; instead, the businessmen persuaded the President to drop half of it. The administration couldn't persuade Congress to accept either version; instead, the Senate has now done what is usually does. It has responded mainly to the people who pushed hardest - businessmen who wanted tax credits affecting them directly. Like other Democratic Presidents before him, Mr. Carter is learning that large partisan majorities in Congress don't mean much when it comes to the tax bills. Nothing counts but pure logic.