By David Kurlander
As President Biden’s first full week in office winds down, debate over his COVID-19 relief package—and particularly the size of and eligibility requirements for stimulus checks— remains tense. 44 years ago, President Jimmy Carter faced a similar gauntlet of congressional maneuvering and public judgment during his quest to jumpstart the faltering economy he inherited from his Republican predecessor. Particular controversy swirled around Carter’s attempt to offer a $50 tax rebate to every American, a proposal that he ultimately abandoned amid decided political consequence.
Jimmy Carter inherited both an 8% unemployment rate and rampant inflation after he defeated President Gerald Ford in November 1976. If Carter didn’t put enough money into the economy, Americans would continue to lose their jobs. If he pumped in too much cash, he risked pushing consumer prices even higher.
During the transition, the country’s most influential economists and businesspeople made the pilgrimage to Miss Lillian’s Pond House, Carter’s mother’s home in Plains, Georgia, where the President-elect began work on a stimulus package. Chief among the advisory team was Charles Schultze, who had been President Johnson’s Chief Budget Officer. Schultze joined Bert Lance, Carter’s to-be OMB Director, and Treasury Secretary pick W. Michael Blumenthal to design a plan that could—as Schultze later put it—“tread prudently between the twin risks of over and under-stimulation.”
The three men, who would become Carter’s so-called “Troika” of financial masterminds for his first year in office, crafted a $30.2 billion proposal. They included a public works jobs program targeting veterans and young people. They included a mild tax cut for businesses. But then there was a slightly more ambitious scheme: a $50 tax rebate for every American; more than $11 billion in all, a significant piece of the relief package.
The idea was Schultze’s, who was relatively comfortable with deficit spending and ambitious economic programs. He’d spent much of his career preaching those concepts at the Brookings Institution, the legendary center-left think tank, and he’d helped LBJ secure funds for his early Great Society programs. Carter was more wary. “Well, he just liked balanced budgets,” Schultze later said. Schultze wasn’t pulling the rebate idea out of thin air—during an even-more-dire downturn two years earlier, Congress had passed (and President Ford had signed) a more ambitious tax rebate.
As the “Troika” announced elements of the stimulus package around the time of Carter’s inauguration in January 1977, most commentators saw the plan as decidedly moderate. New York Times journalist Leonard Silk suggested that the plan was a “minimax” proposal—a play on computer scientist and game theorist John von Neumann’s concept of minimizing the maximum harm on both sides of an issue. In other words, most saw the “Troika” as being cautious.
Even with the “minimax” labeling of the overall stimulus proposal, however, the tax rebate concept came under immediate congressional fire when the “Troika” presented their plan the week after Carter’s inauguration. Schultze summed up the backlash in a garrulous oral history with UVA’s Miller Center: “All the Congress hated it. For some reason it struck them as immoral. You just hand a fifty-dollar check to people. That’s terrible! It was intriguing. I think the only person in town who liked the rebate was Charlie Schultze.”
Arthur Burns, the intimidating, pipe-smoking Chairman of the Federal Reserve, openly criticized the rebate. “It’s not a good habit for the Treasury, the Congress or the country to get into. It’s not an efficient way to stimulate the economy,” the Fed Chief told the House Banking Committee on February 3rd, 1977. Burns, a Nixon appointee who was generally averse to legislative intervention, urged no action. “As far as I can judge, the economy is improving on its own.” Newspapers loved the drama between Carter and a Nixonian ghost of sorts. “Perhaps Too Big: Dr. Burns and Mr. Carter Are on Collision Course,” read another Times headline in early March.
As Burns pushed against the rebate, labor unions pushed just as vocally for a more generous proposal. “I don’t see why the upper brackets should get back $50 to flip at the first headwaiter they see,” longtime AFL-CIO head George Meany said about the tax rebate, arguing that the stimulus should be more specifically targeted at the maligned industrial sector.
By late spring, Carter was beginning to rethink the rebate. “I have mixed emotions about whether it’s actually needed, but it’s kind of a test now about whether we can hold together our stimulus package,” Carter wrote in his diary on April 6th. The economy had indeed been bouncing back, albeit meekly. Carter’s doubts deepened, however, when key advisors, and particularly “Troika” member and OMB Director Bert Lance, began urging the President to drop the rebate. Lance argued in his memoir that press coverage of the package was the reason for the upturn: “The anticipation of a tax rebate was enough to stimulate the economy by itself.”
On April 14th, 1977, Carter called a news conference to announce that he had decided to eliminate the $50 checks. “I don’t see this as a political defeat,” Carter told the press. Lance was happy at the time. Later, though, he came to understand the psychological impact that Carter’s accommodation—even if reasonable—left to his political detractors. “People began to say he was a vacillator, unable to stick with a decision or even to make one,” Lance recalled. “On the contrary,” Lance argued, “Jimmy saw the situation accurately and made a quick, bold decision not to go for it.”
When Carter signed the rebateless stimulus package in mid-May, before a coterie of America’s hardest-hit mayors, he expressed hope while acknowledging that the package wasn’t a cure-all for the economy: “I think this is a move in the right direction. We’ve still got a long way to go.”
The image of a defensive Carter giving in to the tug-and-pull of voices to his extremes would haunt him throughout his presidency, from the oil shocks to the hostage crisis. The “Troika” would fall apart (although the loyal Schultze would stick with Carter through to the end), but the image of Carter’s waffling would linger long after he departed the White House.
As President Biden gears up for negotiation in a far more polarized political environment and during a far more tragic moment for the country, he enters a period of profound reputational risk, without a clear answer to what the “minimax” solution might look like.
For more on Carter’s economic team, check out W. Carl Biven’s excellent 2002 book Jimmy Carter’s Economy: Policy in an Age of Limits. For more on the early Carter administration, read journalist Robert Shogan’s contemporaneous account, Promises to Keep: Carter’s First 100 Days.
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