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Are You Kidding, George? $1000 a Person?

By Jeremy S. Bluhm

SPEAKING at Class Day here a year ago, Tom Wicker, associate editor of The New York Times, called the wealth gap between rich and poor a major cause of violence and social unrest in this country.

"We in America are not going to escape much longer the meaning and consequences of the situation in which just one per cent of our total population holds 28 per cent of the net wealth of this country with all the other 99 per cent and the public sector scrambling for what is left," he said.

Nor could we comfortably ignore much longer a situation in which the poorest fifth of the nation receives only 4 per cent of the nation's annual income, and the next poorest fifth, only 11 per cent, while the richest fifth gets about 45 per cent.

Out of self-interest alone, Wicker said, the relatively privileged members of his Harvard audience ought to "stand in the years to come for something nearer to equality--equality in material things--something nearer to equality for the poor, and something closer than what we have now, in my judgment, to individual liberty and justice for all of us," for this is what would be required to "alleviate many of the social tensions that have plagued our lives in recent years."

Ironically, shortly before Wicker spoke at Harvard, income redistribution died as an issue of the 1972 Presidential campaign. It died in California when Hubert Humphrey knocked the political life out of George McGovern's proposal to give $1000 to every person in the United States.

McGovern's plan would not actually have given equal benefits to everyone, rich or poor, though it might have appeared that way. The plan would have provided a minimum income of $4000 to a family of four with no income and progressively diminishing amounts to families with incomes up to $12,000 a year.

Beyond this point, the plan would have taxed back the total amount of the income grants. But, until a family of four's income reached $20,000 or so, it would still be paying lower net taxes than it does at present. Only beyond this point would its taxes increase. Thus, higher taxes at higher income levels would pay for lower taxes--and positive income supplements--at lower levels.

After the California primary, McGovern withdrew his proposal for further study. When he presented his new welfare reform proposals almost three months later, his earlier commitment to supplementing the incomes of working people--poor and not-so-poor--was gone. Throughout the campaign, McGovern stood fairly firm on tax reform--taking money from the rich--but after California, he offered less of that money to the poor and none to the middle class. His advocacy of total reform had given way, or so it seemed, to the requirements of political reality.

HOW DID McGovern come to make his $1000 per person proposal in the first place and why did he draw back from it later? A closer look at these questions may throw some light on the political pitfalls, avoidable or unavoidable, involved in advancing a complicated economic reform proposal of this sort.

A political judgment lay behind McGovern's initial decision to make his minimum income proposal--but it was a judgment tied to the political situation before the primaries, not to the situation in which McGovern might find himself as the Democratic candidate or front-runner. In late 1971, McGovern was running far behind Muskie as the party favorite. His main hope was to stand out to the left of the party on the issues and thus increase its support from the left-leaning, issues-conscious wing of the party which was already attracted to him by his stand on the Vietnam war.

McGovern was not alone on the left, however. His monopoly there was challenged by Fred Harris, John Lindsay, and even George Wallace. All, in differing senses, were "populists." "Harris, particularly, and to some extent Lindsay were talking about income redistribution and getting a pretty good play in the press," especially from liberal columnists like Tom Wicker and The Washington Post's David Broder, Frank Mankiewicz, McGovern's top political adviser, recalls.

Columnists like these "have far more impact on a primary than they do in any other time because people only vote in a primary who have an active interest in the campaign," Mankiewicz said. And these columnists were portraying Harris and Lindsay as "guys who were talking about the real issues," an image that McGovern wanted.

Wallace provided a major stimulus for McGovern's stand on tax reform, Mankiewicz said. "Wallace was talking about it [tax reform], but only in terms of what was bad. We thought we could cash in on Wallace unrest by saying 'Wallace talks about this and so do we, but Wallace doesn't say what he'd do about it and we do.'"

The aide responsible for putting together McGovern's tax and welfare reform package was Gordon Weil, who covered the European Common Market for The Washington Post before he came to work for McGovern in 1971.

Weil dates the decision to offer proposals on the tax and welfare issues back to June 1971, when he and McGovern met with a number of liberal economists to work out an economics agenda for the campaign. Tax reform and Nixon's failure to achieve full employment were put at the top of the agenda, but Weil remembers "mention of a need to do something in the welfare reform area."

After the June meeting, MIT economists Edwin Kuh (an informal McGovern adviser since 1968) and Lester Thurow began developing McGovern's tax reform proposals. On his own, Weil began looking into the issue of welfare reform, seeking occasional advice from Kuh and Nancy Amaday, a staffer on McGovern's Senate Committee on Nutrition.

Two outside influences spurred his investigation. One was the Harris campaign. The other was a report from campaign fund-raisers that, if McGovern supported or even announced he was considering a welfare reform plan called "Fair Share," a large contribution might be forth-coming from its originator, a White Plains, N. Y. industrialist named Leonard Greene.

Weil sent Kuh a copy of the Fair Share plan and asked him to look it over and show it to members of the June economics advisory group. He says Kuh reported back to him that he had done so and that the group though the plan was "reasonable...even attractive."

Kuh says this is a "lie." He looked over the Fair Share plan but "couldn't figure it was just scraps of paper (to me)" he said. But it looked to him like a "credit income tax" scheme James Tobin had outlined in an article in the Brookings Institution's 1968 Agenda for the Nation. This, he says, is what he told Weil.

THE CREDIT income tax, as Tobin presented it, would serve two functions. It would provide a guaranteed minimum income. And it would constitute a major reform of the tax system.

The scheme would replace the present tax exemptions for dependents with "tax credits"--Tobin discussed using credits of $750--and would replace the present graduated tax scale with a uniform rate of 33 1/3 per cent (rising, possibly, at higher incomes).

The tax credits would provide a guaranteed minimum income to all the poor, including the working poor. The uniform tax rate would prevent "income shifting" between years and between family members to reduce taxes. And the rate used, 33 1/3 per cent, would provide a much greater incentive to work than the 66 2/3 per cent tax rate presently applied to the earnings of those on welfare.

Weil found the Tobin plan appealing, even though it was "represented in the article as being something that's a bit advanced," he said. As he saw it, "there are only two approaches to welfare possible--the one we have now or one where you take the policing out, an automatic system where people are guaranteed a decent income, a plan that encourages them to get a job instead of discouraging them."

Because of the Tobin plan's low tax rate, taxpayers would continue to receive net benefits until their income was far above the poverty level--in fact, more money would go to the non-poor than to the poor. Thus, the "cost," the redistribution involved in the plan, would be quite high.

"I think it's fair to say our line of thinking go the whole way," Weil commented, however. The result was not a program that would obtain quick acceptance by Congress, he said. "But we thought it was important to push for the desirable thing, rather than start out going for something less desirable." This was McGovern's style, a style which suited the political situation at the time.

The proposal Weil eventually put together presented "Fair Share" and a $1000 per person Tobin scheme as two plans which McGovern might adopt if he became President, but committed him to neither.

The proposal's only commitment was to the principle that the government make an annual payment to "every man, woman and child" in the country. This payment, the proposal stated, would replace the present welfare system and would serve to re-distribute income from the top to the bottom--and to many in the middle class.

The methods by which this proposal might be implemented "require full examination by the best economic talent available," the proposal stated. They would receive this examination if McGovern were elected but--it was implied--not before.

The proposal was deliberately inspecific, largely because it raised many questions which could not be answered without extensive computer simulations of the plans in operation. Without doing simulations based on a large sample of individual tax situations, it would not be possible to predict how the plan would actually affect many Americans, and particularly, what apparent anomalies it might create. In California, McGovern learned the hard way how vitally important it was to discover and resolve such anomalies before the plan came under public scrutiny.

Without doing these simulations, it would also be impossible to determine what the proposal would cost. This is work which a President, with the resources of the Federal government at his disposal, can do. But, as Weil said, "It's unlikely that anyone running for President, with all the task forces he can muster, can make these kinds of decisions."

For this reason, it might have been wise not to make a proposal of this sort in the campaign. But, Weil said, "it wasn't my belief that you had to have the figures to make the proposal." He, and Mankiewicz, too, thought the proposal could still be made in terms of general principles. And perhaps, if McGovern had not strayed beyond principles, everything would have turned out all right. But, pressed by reporters in California to explain his position on welfare reform, McGovern moved beyond the general principle he had earlier espoused and allowed himself, more and more, to become identified with the $1000 per person idea.

The welfare reform proposal had been released, along with McGovern's tax reform plan, in late January 1972. As a gesture to Greene, it had been futile: no contribution was forth-coming. As a response to the challenge from the party's left, it was unnecessary: soon after the proposal was released, Harris dropped out, never having offered a remedy for income inequality.

McGovern's proposal lay dormant throughout the early primaries. By late Spring 1972, it was ready to emerge from hibernation. McGovern was the Democratic front-runner and stood alone on the left of the party. His stand on the issues had become a potential liability, and Hubert Humphrey, his one remaining major opponent, sought to exploit it. In Nebraska, McGovern was labelled the candidate for amnesty, abortion and acid. In California, Humphrey attacked McGovern on defense cutbacks and welfare reform.

Why did McGovern let himself get tied to a specific welfare plan in California? "His calculation," Weil said, "was that it was easier to explain the proposal using $1000 as an example than it was to explain the principle. He thought it was more effective to explain it in those terms."

Weil says he warned McGovern of the risks he was incurring. "He said, 'yes, I think you're absolutely right.' Then he went on doing it the way he'd always done it. So effectively you're told that your idea has not been accepted," Weil said.

When the plan came under attack in the primary's first television debate, McGovern showed he was not prepared to defend it. In the May 28 debate, which was broadcast on CBS's "Face the Nation," Humphrey gave the impression that he knew far more about the proposal than McGovern did himself.

He managed to portray the plan as outlandishly expensive. He alleged it would put millions of people "on welfare." And he provided a striking piece of evidence that "the middle income taxpayer will pay the lion's share of the bill."

The debate illustrated clearly the hazards of introducing a proposal of this complexity without having worked out the details or knowing the cost. McGovern was actually forced to admit, during the debate, that he could not put a price tag on his plan.

Surprisingly, he did not seem to think this was a problem. When one of the panelists inquired, incredulously, "But you're asking us to accept a program that you can't tell us how much it's going to cost," McGovern answered, "That's exactly right."

McGovern seemed to feel that the taxpayers who would pay for the plan would accept it on faith because they "would be financing a minimum income program that would work, rather than this mess that we have no that won't work."

As for the dangers of making a proposal without working out the details, Humphrey dramatically demonstrated these with his secretary case--his argument that "a (single) secretary working in San Francisco, making $8000" would experience a large tax increase under the $1000 per person plan as McGovern presented it.

Humphrey was right. Some of the funds to provide benefits for large families would have come from small families and single people under the plan. "We worked all summer to try to deal with the secretary problem," Joseph Pechman, a Brookings Institution economist who joined the campaign after the California primary, said. "We did (do something about it) with gimmicks, but that upset the plan."

The debate may have illustrated more than the importance of being prepared. Mankiewicz thinks it illustrated the impossibility of defending the proposal in a campaign.

During the debate, Humphrey misrepresented the plan in ways that made it look ridiculous (without rebuttal by McGovern). He asserted that the plan would give $1000 to everybody, rich or poor, "whether it's Howard Hughes or whether it's Joe Smith." He remarked that the plan would involve "a $210 billion Treasury transaction" since it would give $1000 to all 210 million Americans.

And he played on the theme that the proposal would put everybody on welfare, although actually, most of those who would receive benefits under the plan would be working.

SOUND AS the proposal might be as an idea, it could not easily be defended against attacks of this sort. The proposal "can't be defended in three minutes or indeed three months," Mankiewicz said. "For a minute of ridicule, you need an hour of serious undivided attention to answer some of the wilder criticisms."

"If you're President, maybe in two years you can make some headway," he said. But if you're presenting the proposal in a campaign, you are unlikely to obtain the public understanding necessary to get such a proposal across."

Yet, as Mankiewicz noted himself, there are politicians who can handle complicated proposals in debate. When critics attack Senator Edward M. Kennedy's health insurance plan, for instance, "they're the ones who look like they don't know what they're talking about," he said. Kennedy "knows that plan, he's been living with it for a long time, and he can defend it quickly and competently with critics." Clearly, McGovern knew his own plan less well.

Humphrey "went after McGovern in a far tougher way than would ordinarily be his style...[and] McGovern was surprised," commented Ted Van Dyk, who advised Humphrey on issues in 1968 and did the same for McGovern after the 1972 convention. "Were we in the same position as Humphrey, had it been our last chance, we probably would have attacked his record on Vietnam," he said.

For a front-runner, however, it didn't make good sense to "get too tough with the opposition candidate" in the party. It might endanger the election. A good party man, an old liberal like Humphrey, would probably have preferred not to attack a fellow Democrat either, especially on liberal issues. But, because of his political situation, he did. And, in so doing, he made Nixon's job a lot easier. Nixon didn't have to say much about McGovern on the issues. Humphrey had already said quite a bit.

Humphrey had subjected McGovern to the kinds of attacks he would have to expect when he went before voters of both parties. McGovern's strong liberal stand on the issues was no longer the asset it had been in the early primaries. Now he was on the defensive.

Mankiewicz and others in the campaign felt Humphrey's attacks on the welfare proposal were "political" and "dishonest." And indeed they were. But these are the kinds of attacks that liberal reform proposals will inevitably receive. A liberal "issues" candidate must be prepared to defend himself against criticisms of this sort. And McGovern wasn't.

AFTER THE California primary, a great deal of work was done on McGovern's welfare proposal, though in a sense, it was already too late. The proposal was permanently stained. From mid-June on, a task force of economists made an intensive computer study--the kind that should have been made before McGovern made a specific proposal--of a large variety of plans based on the "demogrant" or annual payment principle. But by early August, it was clear that the demogrant could not be made to fly; it was too expensive and raised too many technical questions which could not be satisfactorily resolved or explained in the campaign.

Politically, one of the plan's most nettlesome problems was that it would require making major changes in the present tax system. Indeed, as Tobin had pointed out in his articles, this was one of the purposes of the plan. But as he had also pointed out, this was not an easy idea to sell.

Besides replacing the existing tax structure and substituting tax credits for exemptions, the plan would require a wholesale elimination of deductions and exclusions. This would be necessary to bring in more revenue from high income taxpayers and to ensure that net benefits at lower levels were based on a realistic reflection of recipients' real income. (The idea behind the whole scheme was to simplify the tax structure so that taxpayers--the rich in particular--could not hide behind the tax shelters the present system provides.)

After the demogrant was dropped, attention was focused on a cheaper plan which left the positive tax system intact. Under this plan, a family of four with zero income would still receive $4000 but its net benefits would cease at $8000. Above that income, it would stop receiving benefits altogether and would enter the regular tax system.

The plan, a standard negative income tax, provided a weaker work incentive than the demogrant, since it would reduce benefits faster as income rose. And it would do much less for the middle class. To some economists, who were concerned about poverty but less with redistribution per se, this was a positive advantage of the new plan. Heather Ross, the economist who had prepared it, took this view.

She opposed the demogrant because "it gives money to people who don't need it." She objected to "giving so much to blue collar workers for new cars and television sets, when so much is needed in the public sector."

She doubted, also, whether "there's any political mileage in making those people net beneficiaries. You could give them a lower net tax payment. But once you go over to positive payments, you lose all the excitement of that proposal," she said.

This is a critical point. McGovern thought the demogrant would create allies in the middle class, aides said, especially on the issue of welfare reform. But he probably misjudged the public mind. Middle class Americans may be angry that they are losing so much of what they earn through taxes. And they may think that the rich are not paying their fair share. But they do not expect the rich to give them money. They believe that they--and the poor--deserve only what they earn through work.

McGovern had not convinced them that they deserve more, nor that they are not getting their fair share of the nation's income. And so, he was not going to be able to sell a plan for radical income redistribution--there was no demand.

Whether to propose the negative income tax remained an open question until late August, but the thought of proposing it was finally dropped, a few days before McGovern presented his new tax and welfare reform proposals to New York's Society of Security Analysts. Though the negative income tax was much less generous than the demogrant, it was still a very generous plan. Politically, it possessed most of the same vulnerabilities as the demogrant: it, too, would be hard to explain, it would appear to put many millions "on welfare," and it would be attacked for its cost. The plan was moderate only from a very liberal perspective.

THE ADVICE of politicians and politically-minded aides played a key role in the final decision to drop the negative income tax. From inside the campaign, McGovern was being urged to drop the plan by Van Dyk and Paul Offner, a former aide to Senator Gaylord Nelson who joined the campaign to work on economic issues in mid-August. Offner believes that, until he brought it to their attention, McGovern and Weil had not considered the fact that the plan would put a third of the nation "on welfare", though Weil denies this.

Offner and Van Dyk argued that McGovern should propose jobs for the poor and concentrate on Nixon's mismanagement of the economy. And they persuaded McGovern's liberal Senate friends--Gaylord Nelson, Alan Cranston, and Abraham Ribicoff--to urge him not to propose the Ross plan.

Alvin Schorr, a social work expert who had advised McGovern's Senate Committee on Nutrition, also warned that the proposal would be politically fatal and argued that it was much more feasible to reduce poverty by giving the poor a greater share of Social Security and similar benefits.

AND SO, finally a speech was written which proposed a million public service jobs, increased minimum Social Security benefits, and an upgrading of welfare benefits for poor people who are not covered by Social Security and cannot work. Under this upgraded system, a family of four would receive $4000 in cash and food stamps--a gesture of continued commitment to the $4000 minimum implicit in McGovern's $1000 per person proposal.

But the "question of income supplements for working people who, in spite of their labor, still have trouble making ends meet," was deferred for further study. "I have asked some of the nation's leading economists to continue work on a system of tax credits and tax reductions to assist low and moderate income persons," McGovern said, but added, "The ultimate resolution of this question must be the subject of careful study by both the Congress and the Executive Branch."

And so, income redistribution was buried as an issue of the 1972 Presidential campaign. Efforts had been made to revive the corpse, but they were doomed to failure.

What was the lesson of it all? That complex, progressive proposals have no chance in the political arena? That the only safe campaign is an empty, conservative one? Perhaps. But we might conclude instead that this proposal never had the chance it deserved, that if it had been properly prepared and better understood by the candidate, it might have fared better. We cannot know for sure. The experiment was hardly conclusive.

(Quotes from transcript of Face the Nation courtesy of CBS News.)

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