Treasury Secretary W. Michael Blumenthal says he favors changing the tax system so that all income, including capital gains, would be taxed at a uniform lower rate.
"At this point I am just philosophizing," he said, "but we should allow individuals and business to keep more of what they make."
In wide-ranging interviews. Wednesday and Friday Blumenthal also:
Said he would assure organized labor a voice in trade negotiations policy. Although stressing anti-protectionist attitudes, he declared: "I don't say that come what may, we have to get (trade) barriers down regardless of what it does to the domestic economy."
Said there is little risk of a new world recession starting this year, provided that other nations, notably West Germany and Japan, join the United States in a "substantial and coordinated" expansion program.
Rejected business leaders' demands for inclusion of an additional investment tax credit as part of Carter's $23 billion to $30 billion stimulus package. "More consumer purchasing power" will flow into the economy as a result of the package, and that in itself will stimulate new business investment, he said.
But the economic stimulus package "is only the beginning" of a Carter administration effort to give business the "assurance" that comes from a predictable and expectable set of policies. Blumenthal said. The tax revision package is the next stage, he said.
The former Bendix Corp. president predicted that the administration would deliver as tax revision plans by early fall, to Congress which could mean that they would take effect in 1973.
Blumenthal left no doubt of his personal commitment to a change in the tax laws that will stimulate economic growth by providing "more opportunities" for business investment - "that will encourage people to work harder and put [their money] into the sorts of things society needs."
High on the awesome list of domestic problems he must grapple with, he said, are tax revision and urban decay.
To those who have said that these problems in combination with international economic tensions make the job of Treasury Secretary impossible, Blumenthal replied: "We can try, and we can make some progress."
He said he recognizes that some of the "easy and simple" academic assumptions about economic behavior in recent years have proved wrong. "Economists maybe vaguely understand what's wrong but they certainly don't know the solutions," admitted Blumenthal, himself an economist.
For example, he said that in recent years the U.S. has had large budget dificits, yet recently has enjoyed a falling rate of inflation. Also, the nation has suffered through high unemployment and high inflation at the same time - a condition that economic textbooks suggest is impossible.
Yet, even though Blumenthal contended there is no automatic relationship between government deficits and inflation, he said the public perception is that deficits are bad, "and since perception becomes reality," policymakers must be constrained by the deficit. The Carter stimulus package has been shaped with this in mind, he said.
The problem of growing debt among the world's poor countries "is one of the big international issues we will be struggling with in 1977 and some years to come," he said. He stressed his open mind on the poor nations' proposals for a variety of relief measures turned down by the Ford administration, including commodity agreements. "That doesn't mean we are prepared to agree with them, but we are prepared to take a new look," he said.
He also think there must be ways of defusing the tension between the oil-consuming nations and the oil producers cartel by "seeking to develop" areas of common interest. He said he favors giving a larger role to some members of the Organization of Petroleum Exporting Countries (OPEC) in policymaking international financial organizations.
The uniform tax rate idea, a version of which was unsuccessfully put forward last year by former Treasury Secretary William E. Simon, is based on the concept of doing away with all preferences and special treatment.
For example, there would be no deductions for interest payments or contributions, no special treatment for capital gains, no exemption of earnings on municipal bonds.
In one plan advanced by Simon, instead of paying taxes ranging from 14 to 70 per cent on income after taking all deductions, individuals would pay 8 to 38 per cent - but on total income. The idea is that the higher taxable base combined with the lower rate would being in about the same revenue, and would be more equitable and simple.
Blumenthal's planning has not yet advanced to any set of specifics. But he said he is attracted by the simplicity of "eliminating the distinctions" between capital gains and normal income. "I don't see why a person with a middle income shoud have to hire a lawyer to fill out his form," he said.
He added: "The simple minded notion underlying all of this is that, if it works. I would hope there would be a bigger pie, and higher levels of activity producing more revenue. You know, it's like the old joke in business - we're losing money, but we'll make it up on the volume.
Blumenthal's philosophy on trade and protectionism will be tested within the next few months in cases involving imported shoes, color television sets, and steel products.
His approach will be that of a seasoned negotiator, having spent four years hammering out U.S. positions during the Kennedy round of tariff reductions from 1962 to 1966.
"It's in the interest of our economy to reduce trade barriers where we get a quid pro quo," he said. "Unilateral reductions don't work - reciprocity is very important."
He pointeed out "many restrictions" are still in effect against American imports," and the United States must on occasion use protectionist devices "to get leverage against these nations."
But he was firm on the general principle that "if we believe in free enterprise, we have to believe in free trade. I've never understood the businessman who says he believes in the free enterprise system, but who wants to stop at the water's edge."