In the same spirit as the next-to-last post of mine, let's roll back into Clarification Station, this time over at the tax-policy platform (ha, see what I... is this thing on...)
Yesterday, I think, someone asked me what the state of play was with the McGovern administration's Big Damn Tax Plan. I want to concentrate on one piece of it here, the piece that has most to do with the Revenue Reform Act's role as an
incomes policy, or at least a significant chunk of one.
Income policy is a crucial and delicately balanced piece of turf for not-monetarist policy in the face of the whole "stagflation" mess. So on one hand you've got said stagflation, which is defined as a situation where inflation is pushing up
and unemployment's pushing up. As John Kenneth Galbraith pointed out at the time that's quite possible under the right conditions, like when there's an inelastic (i.e. this is a product people
have to buy at least some of) supply shock, even though a lot of his fellow Keynesians had gotten wrapped up in the notion that inflation and employment would
always be in inverse motion (not so.) So you're trying to manage inflation by curtailing the amount of money circulating
and the way people tend to preemptively bid up wages/prices because they assume inflation will
keep rising, but you're also trying not to trigger a bunch of unemployment. Also if you're the Democratic Party in the early 1970s, all the way from the Scoop Jacksons of the party (and the less-reactionary Southerners) over to your President McGovern types, there's a
lot of institutional pressure inside the party culture for a full-employment approach, a "welfare reform by actually creating jobs for people to do" approach. Also, for the chronically poor, a way to get them out of that chronic-poverty quicksand with a "simple" - in the sense of radically straightforward - approach to tax policy.
On that front, both right and left (well,
part of the right and
part of the left) want to attack the problem with what Milton Friedman called a negative income tax. That is to say, in the same way income tax looks at your income and calculates, "OK, you owe this percentage in taxes," it looks at the income of a person below the poverty line and with a similar formula says "OK, we need to
give you this amount of money to raise your income to a sustainable level." Nixon latched on to that as a mathematical/market-based alternative to the byzantine bedlam of bureaucratic social-provision programs that cropped up under LBJ. A lot of folks on the left liked it too because there were various punitive or restrictive measures in other programs like Aid for Families with Dependent Children (AFDC) and they often didn't pay out enough to really lift family units out of poverty.
Nixon's Family Assistance Plan (FAP) had a variety of work requirements attached that many liberal-to-left groups and politicians saw as onerous (the right just hated it as "another goddamn handout"), and it also had a cap more liberal folk saw as too low. That cap was that it would "negative-tax" a family of four $2,400 dollars in 1970 (so that's $14,856.00 in 2019 money.) It also helped kill itself by dividing opinion among the poor themselves - especially poor African Americans - between the South and parts of the Sun Belt (more often two-parent black families in chronic poverty with some chance one or other parent could satisfy the work requirement) and urban areas in the North, Midwest, and West Coast (more often single-parent families likely to fall short on the work requirement, for whom other benefit plans might disappear in favor of FAP, cutting them off.) Abe Ribicoff proposed an amendment that would dial back the work requirements and bump up the family-of-four benefit threshold to $2,850 (1970 dollars), but neither that nor Original Recipe FAP got anywhere. Nixon also screwed up his own proposal by schizophrenic messaging, back and forth from how this would make life better for all Americans to his classic "silent majority" stuff about restoring a work ethic and gutting wasteful government programs, etc.
Along comes the McGovern campaign. McGovern had started out with what he called a "Human Security Plan" in 1971 which was to deliver by FAP-like means $600 to every child in the country ($3,720.00 in 2019 money) per year, plus a comprehensive make-jobs program, and a version of what would become Supplemental Security Income (SSI) out of Social Security to handle individuals still stuck in poverty. Along the road towards the nomination his Justice League of neo/pseudo/crypto/paleo-Keynesian economists and other left-leaning econometricians simplified that into the Demogrant model. Sounds like the root there is "democracy" but it's actually "demography", that is to say it's an equal-sized credit to everyone in the country. Above a certain income level that's phased out by the way taxes are structured. But, if you're really poor, its max ceiling is $4,000 in 1972 dollars for a family of four (that's $22,960.00 in today's money.) Which was a substantial chunk of change, not tied to a work requirement. On the campaign trail McGovern was pilloried by Humphrey, among others, with exaggerated claims that it would create an undue tax burden for middle-class folk, and attacked by Nixon' campaign (who had a chance to run to McGovern's right while holding the tattered remnants of FAP) saying McGovern would destroy America's work ethic and put millions more on the welfare rolls ("welfare" was already a coded, negatively charged word by this point. Thanks, Sixties!) In fact, what the Demogrant was designed to do was
eliminate the old welfare system (which, you might have guessed, won it no fans among public employees' unions, who would lose members to programs deleted) in favor of income grants that would keep Americans as a whole at or above the official poverty line.
So where are things in McGoverning at this point?
When the McGoverners launch their H.R. 1, there's what you could call a "Demogrant-shaped space" in it, to be filled by a negative-tax-inspired credit system. What the top-level administration folk hoped, in their heart of hearts, was that they could fill it with a version of Abe Ribicoff's amendment to FAP, tailored to secure the position of beneficiaries for whom work requirements would be hard to impossible. However, the combination of renewed infighting among liberal-to-left interest groups and also the coordinated, culturally "framed" assault by Dixiecrats and Goldwaterites rained down on it also.
BUT. While bashing out a Medicare-for-all plan they could get past Russell Long, the plucky band of Scoobies working with Phil Hart tackled a bigger issue too, namely that "Demogrant-shaped space" in H.R. 1/Revenue Reform Act. They seized on Long's own proposal, which is just a hurried-up version of his own OTL!1975 limited, truncated working-man's tax credit, the point of origin for the long process of creating OTL's earned-income tax credit.
Here, the McGoverners hurry up and create an Earned Income Credit Plan all at once. It has:
- Full OTL!modern terms on (1) who's an eligible child and (2) who can claim an eligible child for credit.
- Extension of the earned-income credit to Social Security recipients who count as "earners" because they'd paid into SS over time so that's a nice bit of legal gymnastics.
- No marriage penalty, which is to say a married couple can claim individual credits under the plan (this is sold to Long and his Southron cronies as a way to help keep women at home rather than going out to work from economic necessity)
- Up to four claimable children, three kids at full credit level ($500 in 1974 dollars which is actually slightly above the modern credit amount for an individual child under EITC) plus a smaller phaseout credit for "four or more."
- Also, rather than OTL!EITC's stingy cap of $2,000 current-money on savings investments, the McGoverning plan allows $1,000 in 1974 money (so $5,090.00 today) in savings investments, part encouragement to save, part allowance for poorer workers who may be given employee-stock-option benefits, for example.
It's also predicated on the work requirement, e.g. "earned" income credit, because they aren't going to get it past Long any other way, not at this point. There are also trust-fund mechanisms for some of the child-credit money to come out, like a bank account, available for use on child-care expenses, and for the Social Security folks in a "kitty" for spending on Medicare supplemental insurance.
So that's big progress, if the bill passes Congress. Moving up from the family-of-four cap model it would give a family of
six as the cap model (this plays plenty well with Catholics who are still a wavering but crucial part of the Democratic coalition) up to $2,800 in credits in 1974, with $500 each for the married couple and three kids plus the $300 phaseout credit for more wee bairns (so $14,252.00 in current money.) That's less, in the aggregate and per capita, than the Demogrant proposal. But it ain't hay, either. For people with a chance of work it's a major new capacity to get out and stay out of poverty.
But (here it goes again) there are two things in play here. First, the work requirement. Second, that there are still plenty of folks especially in the urban-single-parent demographic who are served poorly by this. So what can the McGoverners do? It makes
employment policy central again - despite stagflationary pressures they need to find ways to get jobs
to people where they are. Linked to that, it means the administration needs a comprehensive
industrial policy, i.e. a strategy for
creating both private- and public-sector jobs that
can employ people to do more than rake leaves.
So that's where things are at the moment. Your official poverty line around 1974 (IOTL) was $24,255.00 in today's money for a non-farm family of four. So even the
McGoverning Earned Income Credit Plan that has Russell Long's blessing does quite a lot for those folks, matched with the rise in the minimum wage. The question for the McGovern administration now is what it usually is for US administrations when they address poverty:
how do we plug the gaps? That will dominate administration thinking for some time.