Superficially the initial months of the Nixon administration can be interpreted as something of a relief from the exaggerated fears and dismal visions of the President's more devoted enemies. The New Frontier has not been surrendered to the Indians. Ramshackle as ever, the Great Society stands. The gloomiest forecasts centered upon the programs administered by Health, Education, and Welfare, but thus far at any rate Secretary Robert Finch has averted massive financial bloodletting. Moreover, in spite of Strom Thurmond, the fabled Southern strategy of the Nixon campaign, and the ambiguities of the President's own utterances on the subject, the guidelines governing Title VI funding of local school districts under the Elementary and Secondary Education Act have been only bent here and there, not discarded. The appointment of Dr. James Allen as Commissioner of Education certainly suggests some inclination not to reverse the outcome of the Civil War.
Elsewhere the omens are equally cheerful or at worst ambiguous. Congressman Donald Rumsfeld's surrender of a safe House seat in order to become head of the Office of Economic Opportunity implies the continuation of that agency. Even the Job Corps camps which Mr. Nixon the candidate condemned as flat failures are promised a continued life on a more modest standard of living under the aegis of the Department of Labor. Head Start, though it is presently the target of a somewhat dubious evaluation, is for the coming year promised as much money as it got last year.
A resolute viewer of the bright side of life can find a little more that is pleasing. The Model Cities program has been adopted by Secretary Romney as his own. Mr. Finch has actually asked for more money with which to enlarge the studies now underway in New Jersey into the effects of negative income taxes. There is manifest a Presidential disposition to proceed against at least two of the many tax inequities which make the American system of so-called progressive taxation something of an international laughing stock. These are: the tax assessment of individuals and families whose incomes put them below the poverty line and, at the other end of the scale, the total escape from tax liability of fat cats whose incomes each year run in excess of $200,000.
The much touted budget reassessment, received with yawns when it was finally released on April 15, has not proved to be any occasion for alarm, either. “The President's objectives,” it proclaimed, were “threefold: . . . to make the expenditure cuts that are a necessary part of efforts to combat inflation; to bring federal outlays under control; and to begin redirecting ongoing federal programs toward his administration's goals.” Fair enough, at least if it were possible to identify the goals in question. But all that the fanfare announced was a small stage army of some fifty minor alterations in the last Johnson budget. The two largest cuts were the least likely to stick. Of the $4 billion in announced savings, $1.1 billion comes from the Pentagon, but more than half of that figure represents a problematical reduction of B-52 bombing raids in South Vietnam. The other large saving amounts to $1 billion to be derived from smaller and postponed increases in Social Security benefits. Here again the outcome is uncertain. Congress, which has recently awarded itself a 40 per cent pay rise, may feel obliged to give the old folks a bit more than the 7 per cent improvement in their monthly checks which the administration has recommended.
Not very many of his constituents have ever expected a great deal from Mr. Nixon and it might plausibly be argued that in his initial months in office the President has fulfilled expectations. He never promised much action and he has delivered. Mr. Nixon is not a thoroughgoing reactionary, but on the other hand his public record has never betrayed much trace of original thought about domestic needs. Instead, as a prudent conservative, he publicly seeks better administration of programs invented by more imaginative men, patient sorting of the successful from the unsuccessful in job training, urban renewal, welfare administration, and so on, and careful balancing of the interests of blacks and whites, Northerners and Southerners, and urban and suburban dwellers.
Before I complete this penance of fair-mindedness, I must note another respect in which the administration has been unexpectedly temperate. This is control of inflation. In the demonology of American politics Republican administrations traditionally consort with depressions and recessions and Democratic regimes with wars and riots. But possibly because Mr. Nixon is aware of this association, having himself suffered through three Eisenhower recessions (he reportedly is convinced that he lost the 1960 election because unemployment rose in the summer and early autumn of election year), he has studiously refrained from an abrupt braking of the economy, which would be certain to cause substantial unemployment. His economic counselor, Arthur F. Burns, and his Council of Economic Advisers, though noticeably more conservative than their Democratic predecessors, are responsible economists who, in a time of racial discord and high black unemployment, know better than to advocate the trading-off of very much unemployment in favor of a reduced rate of price inflation.
Last year the country chose to elect a conservative, non-charismatic politician who promised them a quieter life, an end to the Vietnam war, a firm hand on inflation, and an improvement in the management of the federal bureaucracy. In Washington, if no place else, life is quieter. Mr. Nixon, keener of vision than most, perceives progress toward peace in Southeast Asia. Although the pace of inflation is notably unchecked, the administration is making the right noises and probably even some of the right moves to bring results pretty soon. As for the federal establishment, nobody in his right mind could expect even gifted Republican businessmen to produce instant results. It is possible, then, that in contrast to the activist types who enter the White House equipped with unfulfillable challenges to greatness and commitments to get the country moving again, Mr. Nixon merits a modest quantum of praise—administered naturally in the lowered tones favored in Republican Washington—for restraint, caution, temperance, and conciliation.
Unfortunately this quasi-quietism simply won't do as a recipe for social harmony in a racially and politically torn country. The reasons the Nixon strategy is unlikely to give even the appearance of success for very long derive partly from the character of national needs and partly from the direction of national policy at the end of eight years of Democratic administration. The Kennedy-Johnson years ended in a whimper as far as domestic policy goes; even their most successfully executed programs were demonstrated to be inadequate responses to the problems which they were designed to solve. Possibly the least flawed achievement was the attainment of something like full employment. By historical standards (though not by post-World War II European and Japanese criteria) an unemployment rate below 3.5 per cent probably represents the best American performance we are likely to get until we succeed in integrating into our labor force blacks, Puerto Ricans, and rural whites. Although the Vietnam war has had something to do with high employment, there is no need to deny the Keynesians their fiscal policy success. The 1964 tax cut was that truly rare event, a public policy which worked according to plan and prediction. Walter Heller and the Council of Economic Advisers said that a major tax cut would, through its multiplier impact, expand the 1964 Gross National Product to produce nearly full employment, and, mirabile dictu, they were quite correct. One cannot say as much for some of the later forecasts made by the economists.
The more important of the other legislative innovations of the Kennedy-Johnson era include Medicare (proposed in a more generous form fifteen years earlier by Harry Truman), aid to public education, and the War on Poverty. Of the three, the last may yet deliver some unexpected results. Despite the botching or sabotage of many programs sponsored by OEO, it may turn out that the community action and neighborhood legal services programs of the War on Poverty will produce more lasting consequences than some of its better-funded, more conventional programs. The Supreme Court decision in April of this year which outlawed residency requirements as a condition of welfare eligibility, for example, was the result of a case fought through the courts by poverty lawyers. Another of their cases, to be heard at a later date by the Supreme Court, claims the right of welfare recipients to a hearing before their assistance can be cut off.
This is not the occasion for detailed discussion of programs which are in any event so familiar. What I want to make clear is a judgment of the significance of the limited changes which they wrought. In the case of the 1964-65 series of welfare measures, the program was limited, conservative (with the partial exception of some OEO experiments), and always underfinanced. Nevertheless, this was the first successful movement for social change of even a moderate, meliorative variety since the first Roosevelt administration.
It is plain, however, that the Great Society had stalled by the end of 1965, and if we are to understand where a new President is starting from and why we should not rejoice unduly at his restraint in tampering with Democratic programs, we should not forget that the original Kennedy-Johnson programs existed on lean rations at a time when price inflation and rising population would by themselves have required substantially larger appropriations just to maintain them at their original levels. Appropriations for the schools under the Secondary and Elementary Education Act have never risen above 50 per cent of Congressional authorization. The War on Poverty has done well to get as much money each year as it got the one before. The propaganda for Model Cities has been a great deal more generous than the appropriations recommended by the President or approved by Congress. Rent supplements and public housing have been the annual victims of Congressional budget cutters. For some time the Congressional disposition has been to trim welfare support, impose more onerous conditions upon mothers who receive Aid to Dependent Children allotments, and restrict the scope of Medicare coverage. The Great Society was a starved social experiment years before the Nixon administration began to reevaluate it.
The Republicans' mean-spirited reaction might be taken more calmly as part of an inevitable period of national digestion of legislative novelties if only one could be confident that all of the novelties would survive an extended period of financial malnutrition. Of course this would be to suppose in turn that eight years of liberal Democratic administration had modified significantly the structure of American plutocracy, either by redistributing income in the direction of equality or by diffusing power among some constituencies not used to its exercise. But neither of these alterations in our economic arrangements has been either attained or sought for.
Today income is distributed very much as it was in 1961. Now as then the lucky 5 per cent at the top of the income pyramid collect 20 per cent while the unhappy 20 per cent of the population at the base of the pyramid struggle along with a symmetrical 5 per cent of the national income. This pattern is not the mere consequence of blind chance, much less the play of free markets, for much in the policy of two Democratic Presidents was calculated to promote inequality. The first two tax initiatives of the Kennedy administration liberalized depreciation guidelines and granted 7 per cent investment allowances to the business community—exceedingly valuable privileges for the prosperous folk who run and own large corporations. Fiscal success that it was, the tax cut of 1964 was no victory for egalitarianism. With a few minor exceptions the tax reform provisions of the original measure failed to survive, and what remained was a measure which reduced corporate taxes and cut the top personal income tax rate from 91 to 70 per cent. The effect was to reduce burdens on prosperous taxpayers and thus to make the tax system less progressive.
Morever, many of the new social benefits, notably Medicare, were financed largely through the Social Security mechanism which in itself contains a highly regressive tax feature. Because Congress maintains low ceilings on the maximum amount of income subject to Social Security levy, those with lower incomes are the exclusive source of periodic increases of the levy. This is an important reason why working-class and lower-middle-class taxpayers have been screaming for relief. And their plight has been aggravated by the sharp rise in real-estate and sales taxes upon which states and localities must depend to finance schools and other services. By comparison with the inhabitants of other advanced industrial states, Americans are lightly taxed. But the system produces so many inequities that many Americans feel, and some actually are, harshly dealt by.
The democrats did nothing to bring the tax system into some less whimsical relationship with one's ability to pay. As the system now operates, individuals of quite modest incomes pay larger percentages of those incomes than do their more affluent fellow citizens. And the number and the value of the loopholes increase as incomes rise. Overall, for example, taxpayers who earn more than $100,000 annually pay lower effective rates than those in the $50,000-$100,000 bracket. Up to this moment, Congress has been far more disposed to widen than to close or narrow the tax hatches that make this possible.
There is one further comment to be made about income distribution. Any inflationary period favors the recipients of the more volatile forms of income. Thus it was that in the fourth quarter of 1968, in spite of tax surcharges and the expenses arising from credit shortages, American manufacturing corporations earned $8.7 billion after taxes. This was a pleasant 5.2 per cent of sales, higher than the preceding quarter's 4.9 per cent or the 5.1 per cent record for all of 1968. As the Wall Street Journal approvingly noted, this level of profit has been matched or exceeded only five times since 1950.
Profit, it can more or less plausibly be argued, is the reward of efficient enterprise. But inflation often rewards most richly those whose claims to efficiency are the most tenuous. The tax laws in an inflationary period grant stock speculators, real estate promoters, and conglomerate organizers something very like the right to print their own money (although that last bubble appears to have burst). This too is part of the reason why so many people are feeling no richer or are actually feeling even poorer at a time when the GNP bounds forward each quarter, industrial output rises, and the familiar roll call of statistical indicators seems to prove that Americans never had it so good. In fact, as the Teamsters' Nicholas Kisburg recently demonstrated in a study of real earnings in the New York metropolitan area, higher taxes and price inflation often leave even tightly organized workers no better off than they had been when wages, prices, and taxes were each rising less steeply.
As for any potential redistribution of economic power, what seems to have been going on instead is another movement toward further concentration of assets and corporate control. Recent Federal Trade Commission data reveal continued acceleration in the pace of corporate mergers. In 1966 there were 1,746 company acquisitions, in the next year 2,384, and last year no fewer than 4,003.1 All this was of course in addition to the normal growth of the established goliaths of American manufacturing and finance. One recent dodge, the bank holding company, allows banks to acquire unrelated manufacturing and distributing enterprises in a fashion which reminds a good many observers unpleasantly of the operations of the Japanese Zaibatsu or the German industrial banks which have traditionally merged financial and industrial power.
It is no exaggeration to say that when the Johnson administration passed into history, it left the Republicans a country operating at full economic blast, equipped with an inadequate but marginally improved set of social services (by comparison with 1960), and handicapped by a distribution of income and wealth possibly still less equitable than in 1960 and a concentration of economic and military power far more menacing than the military-industrial complex which had aroused Mr. Eisenhower's apprehensions.
What I have been describing is close to the policies of classic English conservatism: inegalitarian as to power, income, and wealth, and disposed to pay most of us off with high employment and modest social benefits. There have been occasions when that policy was, if not appropriate, at least successful in both England and the United States. This is not one of those occasions. I do not intend to rehearse the familiar catalogue of social needs which a new administration, saddled with an expensive war and harassed by a serious inflation, must nevertheless cope with. Two concluding statements will suffice. Massive new funding is required for federal programs now on the statute books, among them aid to schools, Medicare, public housing, model cities, welfare, and manpower training. In addition, federal assistance is urgently required to bail out the states and localities in their attempts to finance the growing burden of public services out of taxes which offer little financial and less political scope for increase.
Race and the cities: we cannot avoid as a nation the confrontation which they impose upon us. As a people we have faltered before the choice of a full integrationist strategy designed to open white suburbs and white schools to black families and, in the inner-city ghettos, a strategy calculated to make life humanly tolerable and financially viable. Both approaches require very large quantities of resources for any hope of success, and although we all know by now that money alone does not resolve racial tensions deeply rooted in human prejudice and American history, we should be equally aware that these problems are highly unlikely to be ameliorated in the absence of a very large national commitment of public funds.
Here then is President Nixon's dilemma. A conservative by temperament, affiliation, and political choice, elected by rural and suburban seekers after lower taxes and improved public order, he is faced with menacing maladies of race and urban life whose treatment will surely require that large wads of cash be diverted from the thrifty white voters who installed him in the White House to the blacks, Puerto Ricans, and Mexican Americans who preferred Mr. Humphrey. And yet there appears to be no money available. When the war in Vietnam subsides, the generals and admirals will have grasping hands extended for the funds to buy new and more expensive toys. And if the President resists the military, he will face a clamor (which he himself has encouraged) for tax reduction.
Within this grim context, the unfolding Nixon domestic program seems a good deal less reassuring than I was earlier suggesting. The President is disinclined to support urban programs not because there is no money available for them, for, of course, there is money available, financially if not politically. Repeal of the investment tax credit (un-vitiated by a promise to reduce other taxes) would supply the Treasury with over $3 billion each year for domestic spending. Or, as Andrew Brimmer, a governor of the Federal Reserve Board, has recently urged, the tax surcharge on corporate profits might be raised from 10 to 15 per cent. It is, after all, the business sector which is the major source of inflationary pressure. Accordingly it is the business sector, not the unhappy consumer, that ought, on economic grounds as well as on grounds of equity, to be squeezed. A real effort to close such enormous loopholes as the tax treatment of real estate and capital gains, building depreciation, charitable and foundation allowances, and the mineral depletion scandal could readily generate anywhere from $5 to $15 billion in additional tax receipts. A modest slice from the Pentagon establishment could easily grab another $5-$10 billion. We could—but of course we will not—control inflation and at one and the same time finance social reform at decent levels.
President Nixon's actual tax and expenditure policies have decidedly different aims from these. The administration tax program, sent to Congress on April 21, is a carefully carpentered piece of merchandise. It commences with a major surprise, the repeal of the 7 per cent investment tax credit and the companion 3 per cent allowance now granted to utilities. Mr. Nixon adroitly couples with this proposal, presumably highly unpalatable to his business supporters, a promise to reduce the tax surcharge from 10 to 5 per cent, come January 1, 1970. As far as the Treasury is concerned, the two changes offset each other and the net revenue effect will approximate zero. This is not the way to generate additional funds for urban programs, although on January 16, 1970 the tax system will be a trifle less unfair than it now is.
The remainder of the program is equally astute politically. The President puts a liberal face upon mild changes whch will no doubt be used as arguments against more substantial tax reforms. The new “low-income allowance” will, according to Treasury estimates, “remove more than 2 million of our low-income families from the federal tax rolls and assure that persons or families in poverty pay no federal income taxes.” At present a family of four with income in excess of $3,000 is subject to some tax. After the Nixon reform only families that earn over $3,500 will be assessed. Today a married couple whose total income is $2,300 still pays a $100 federal income tax. The Nixon plan would relieve such a couple of all liability. And so on. As far as it goes, the changes are commendable and long overdue.
The revenue lost by this bow to equity is to be replaced by imposing tax liabilities upon some affluent citizens who legally have been able to avoid such liability under existing tax regulations. The key innovation is the “minimum income tax” which, says the President, will impose a “50 per cent limitation on the use of the principal tax preferences”—notably not including tax-exempt securities and capital gains. In the absence of specific legislation, it is difficult to say just how much importance should be attached to this device. Even Congressman Mills and the New York Times have reacted by stating a preference for a direct assault upon the loopholes themselves, surely a more fundamental approach to the problem.
As on so many other occasions, one is led almost irresistibly to say of a Nixon action: it could have been worse. Small changes in the right direction are better than none at all, unless of course they spoil the chances to make more substantial improvements later on. But it would take a real optimist to think that there ever existed an opportunity to be spoiled in this administration to do away with oil depletion allowances, inheritance tax escape hatches, capital gains avoidance devices, and the rest of a list which costs the Treasury up to $50 billion a year in uncollected revenue. My guess is that if Congress enacts this package, it will be about as much tax reform as we can sensibly anticipate in the next four years.
Nixon's expenditure policy should be divided into its current and, one hopes, a post-Vietnam phase. The current Nixon budget, as I have said, is the last Johnson budget modified by a very small number of changes. As far as social policy goes, the most significant of them may turn out to be the slight reduction in the funds sought for Model Cities. Romney intends to spread out what is left after the cut over a much larger number of communities. The effect almost inevitably will be the conversion of a scheme designed to operate powerfully upon a limited number of slum areas into a conventional federal subsidy spread thinly on the usual political assumptions over so many claimants as to eliminate the possibility of substantial success anywhere. The most disastrous current failure of course is the President's refusal to take on the Pentagon, which is the major consumer of federal tax receipts and, one would have thought, the likeliest candidate for budgetary curtailment.
After Vietnam what is promised in the way of new federal spending is revenue-sharing with the states and tax credits for business firms that invest in poverty areas or hire and train the hard-core unemployed. The strategy is faithful to the Nixon themes of decentralization and reliance upon the energies and ingenuity of private business. Both of these devices are potentially retrogressive in their effects, although revenue-sharing had liberal origins and carries some continuing liberal sponsorship. Walter Heller, while still Chairman of the Johnson Council of Economic Advisers, proposed distribution to the states of a portion of annual federal income tax receipts, with few strings attached. As he saw it there were three practical merits to the device: the states would be relieved of some of the dreadful financial poverty in which they now conduct their affairs; revenue-sharing might strike many Congressmen as a preferable alternative to tax reduction in a time of fiscal surplus; and finally, state government itself would be appreciably strengthened. Heller thought of revenue-sharing as supplementary to the wide variety of categorical grants to states and localities which had been federal practice since the early days of the New Deal.
The idea was quickly adopted by such astute Congressional conservatives as Melvin Laird and Charles Goodell who saw in revenue-sharing a potential substitute for federal social programs. It would appear that Laird and Goodell were rather more astute than Heller in their perception of the political potentialities of revenue-sharing. In fact, there is rather more wrong with the scheme from a liberal perspective than there is right with it. It is no accident that the governors have to a man favored and the mayors with equal unanimity opposed revenue-sharing, for there is no way of assuring that the states will treat the large cities any more equitably with federal funds than they do under the various state-aid formulas now in use. There is a racial count against the device as well. It is exceedingly difficult even under existing categorical grants to control the ways in which states spend federal money. Funds given to the states without strings or standards are certain to be disbursed in the South and elsewhere with scant attention to racial equity. The last and possibly the most powerful argument against revenue-sharing is embedded in the history of social innovation in the United States. In our conservative land, social change has come with extreme rarity from the states. Where progress has been made, it has usually been at the federal level. An occasional activist President is from time to time able to push Congress in progressive directions. To diminish the political importance of the federal government and increase that of the states is still further to shift the balance of power in a conservative direction.
Nixon's favorite scheme, granting tax incentives to business for applied social work, is subject to both technical and social reservation. Technically there is great difficulty in writing a statute which would genuinely reward the extra efforts at ghetto investment and job training engaged in by corporations without giving subsidies to corporations that in the absence of the reward would have followed the same policies anyway.
The larger, social issue is one that I have earlier alluded to. Are we going to encourage the drift of two separate societies, one black and the other white? Or are we going to strive still against the odds to achieve an integrationist resolution of the American dilemma? There is no doubt that tax incentives for ghetto investment support a separationist strategy. It is this perception which explains the odd alliance of the Nixonites and such Black Power advocates as Roy Innis.
I thus come to a brief but unhappy conclusion. The Nixon domestic program is drastically inadequate to meet the social needs with which only the federal government can cope. This is bad enough, especially since the President shows no sense of urgency in somehow scraping together more resources for urban programs. But what is worse is the direction in which the signposts point. The danger is real that the more innovative policies of recent years will be whittled away or blurred in their impact, that revenue-sharing with the states will strengthen conservative political elements throughout the country, and that tax incentives will encourage the drift to white and black separatism which now menaces us. The voices of the new administration are low and courteous, but their message is not one of joy.
1 Large companies acquired small ones. Often large companies acquired other large companies. In 1966 the 200 largest corporations bought 33 other companies with total assets of $2.4 billion. The score for 1967 was 67 companies endowed with assests of $5.4 billion. Last year the giant 200 picked up 74 companies and assets of $6.9 billion.