Posted Friday morning, August 10, 2018.
President Jimmy Carter signing the federal budget into law as budget director Bert Lance looks on. 1977 AP photo by Harvey Georges via the Washington Post.
Another trouble with delivering benefits in the form of tax credits is that average taxpayers tend to see tax laws as written to benefit the rich and penalize them. They’re not wrong. So tell them there’s a benefit right there in their tax form and they’re likely to respond, “What’s the catch?” In 1976, one of Jimmy Carter’s campaign themes was that the tax code was “a disgrace to the human race.” So when he came into office, one of the first things he wanted to tackle was tax reform. Unfortunately, he found out what other reform-minded politicians have discovered. Reform usually means rewriting policies according to dictates from lobbyists. Carter, however, hoped to do three conflicting things with tax reform. Make the tax code fairer for working people. Bring inflation under control. And move towards balancing the budget. None of these happened.
As Stewart Eizenstat writes in his memoir of working as one of Carter’s top aides, “President Carter: The White House Years”…
By the time tenacious interest groups tighten their grip on their special privileges, reform usually yields less revenue than its believers hope for--and therefore is less help in reducing budget deficits. Carter’s brave attempt did not succeed. The reason was best summed up by the aphorism of Senate Finance Committee chairman Russell Long: “Don’t tax you; don’t tax me; tax that man behind the tree.” Everyone theoretically favors closing loopholes in return for lower rates, until it is their own treasured loophole that is threatened.
The bill Congress finally presented Carter was a frustrating and maddening disappointment to him, especially since many liberal Democrats had a hand in it and were pushing him to sign it. His inclination was to veto it, but since it included many tax cuts Democrats told him a veto would hurt them in the upcoming mid-terms. Carter had wanted to close many loopholes that favored the well-off but which working people couldn’t take advantage of…
One loophole that particularly struck him was the deduction for “ordinary and necessary business expenses” which had been broadened to include country club dues and even football tickets. During a briefing with [Treasury Secretary W. Michael Blumenthal] and the Treasury’s tax experts, Carter exclaimed, “Club dues are a rip-off of the average guy; most club dues are for self-gratification and not legitimate business; I want club dues eliminated entirely.” In his message to Congress on January 20, 1978, a year to the day after his inauguration, business deductions would be ended for theater and sporting tickets, yachts, hunting lodges, club dues, and first-class airline tickets---and only half of the infamous three-martini lunch would be tax deductible. He was particularly eloquent in declaring that the average taxpayer was subsidizing the privileged few who can routinely deduct these kinds of expenses, while the average worker had to pay out of his own pocket with after-tax dollars, for a “rare night on the town...”
In the end, the bill Carter reluctantly signed into law ended “deductions for state and local gasoline taxes and for hunting lodges and other facilities when used for business entertainment, although country-club dues continued as deductible business costs.”
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"President Carter: The White House Years" by Stewart E. Eizenstat is available in hardcover and for kindle at Amazon and as an audiobook from Audible.
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