The Economy: The Day of the Bear

• Share

(7 of 8)

After setting its "guidelines," the Administration undertook to persuade labor to follow along. With Labor Secretary Arthur Goldberg hovering over them, the United Steelworkers agreed last March to accept a relatively modest settlement amounting to about 10¢ an hour—roughly in line with an assumed 2½% productivity gain. But when the steel industry, led by the U.S. Steel Corp.'s Chairman Roger Blough, tried to raise steel prices, the President reacted with fury, bullied the industry into canceling the announced increases.*

Kennedy insists that steel was a special case, brought about by Big Steel's own folly. So does Heller. Says he: "There's just not going to be another steel case." But businessmen remain unconvinced. Warns a Chicago economist: "Once you dip your finger into this economic stream, you have to put your whole hand in, and pretty soon you find you're wading up to the waist. President Kennedy presumed that he knew what steel prices should be. Before he's finished, he's going to have to say what auto wages should be, what railroad wages should be. One intervention begets another."

Distorted Decisions. Like the Administration's venture into price fixing, its tax proposals have stirred up a great deal of unintended bitterness.

The U.S.'s income tax structure needs drastic reform, and the Administration deserves credit for its announced intention of reforming it. The rates rise too steeply and reach all the way to a confiscatory 91%. These rates are undermined by tunnels of preferential deductions and special-case exceptions. Besides being inequitable, the structure is a drag on national efficiency. An appreciable fraction of the energies of prosperous men is directed toward reducing personal income tax liability, and enormous numbers of business decisions are distorted by consideration of tax angles.

Heller has been a longtime advocate of basic income tax reform—lowering the rates and blocking up many of the escape tunnels. President Kennedy has promised to put before Congress a "major program of tax reform" aimed at "simplification of our tax structure, the equal treatment of equally situated persons, and the strengthening of incentives for individual effort and for productive investment." But that still lies in the future. What the Administration has actually put forward so far in the way of tax revision is discouragingly scabby. Bent on inspiring capital investment, the Administration proposed an 8% tax credit on expenditures for capital equipment. This approach is in itself an example of a tendency to overmanage the economy. The Administration could have helped business morale a lot more just by trimming corporation tax rates a few points. Far from showing gratitude for the tax-credit proposal, businessmen have grumbled that the bill is overly complex and unfair in its distribution of benefits. A U.S. Chamber of Commerce spokesman rapped it as a windfall for firms that had planned to acquire capital equipment anyway.