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The controversy over tax reform is inseparably linked to overall economic strategy: every dollar raised by reform is another dollar that can be devoted to general tax cuts. Besides the provisions on medical and sales-tax deductions, Carter proposed a long list of changes: preventing businessmen from writing off the cost of tickets to the theater and sporting events, and making only half the cost of business meals deductible; phasing out the system by which businesses can defer taxes on profits earned either by exporting or by manufacturing goods abroad; further limiting the use of tax shelters, especially those covering investments in real estate−to cite only the main ones.
Judged logically, these recommendations are a mixed bag. Taxing export profits more heavily at a time when the U.S. is striving to reduce giant trade deficits is foolish. Some business really is talked over at most "three martini" lunches, though businessmen could manage to talk on less fuel. On the other hand, tearing down real estate tax shelters might divert into productive investments some money that is now going into unneeded shopping centers.
The Ways and Means Committee voted down four of the first five reforms it considered, and congressional leaders have told Carter that there is "no constituency" for the rest. That is an exaggeration; 75% of the people questioned by Harris in March favored limiting deductions for business entertainment. But many Congressmen think voters do not get excited about any reforms except those that affect them directly.
There are quite a few of those. TIME Washington Correspondent Simmons Fentress reports: "The Congress is carrying on a love affair with the middle class just now−the besieged, embattled, beleaguered middle class. Rightly or wrongly, Congress is afraid that Carter's tax reforms are striking not just at fat cats and oil barons, but at average American households as they struggle with taxes, tuition and inflation. Do not the deductions for interest on home mortgages add up to a major tax loophole? And the exemption for real estate taxes or charitable contributions? If medical-expense deductions can be attacked this time, might not these others be next?"
Carter will continue to fight for his reforms out of populist conviction, and may eventually get a few, but only if he will agree to a rejiggering of his whole program. The tax cut that he proposes would most benefit people who earn less than $20,000 a year, and many Congressmen want more relief for those earning more. That sentiment attests to the rising political power of the middle class. Congress's push to reduce Carter's tax cut is even more eloquent testimony that inflation, besides upsetting economic calculations, is repealing the accepted political rules as well. ∎