Interview with Alfred H. Kingon and Robert I. Weingarten of "Financial World"
Q. Governor, what do you believe are the nation's top priorities in the areas of economics and finance?
Governor Carter. Well, obviously the priorities that we'll correlate as best we can are reductions in the unemployment rate, the inflation rate and the federal deficit, and restoration of the productivity of our country both as regards individual workers and our society in general. Another obvious need is to reduce the waste of our natural resources; to have long-range planning to conserve what we have for future years. Sometimes these needs are in conflict. But I think in general, if we pursue them collectively and with meticulous planning of long-range commitments, the conflicts between them can be minimized. My own belief is that the best overall effort should be toward reducing unemployment with an emphasis on private employment as contrasted to jobs created specifically and paid for by the government.
Q. In outlining economic priorities, you talked about reducing unemployment as a prime goal. Do you think this can be accomplished without setting off another round of inflation?
Governor Carter. I think so. And my opinion is based on advice given to me by a wide range of economists from all parts of the political spectrum and the economic spectrum. I think that until you get down to the area of, say, 5 percent unemployment, a substantial reduction below what it is now, the inflationary pressures won't be great. Most projections showed that when you get below that point, then you have to assess very carefully on a daily or weekly or monthly basis a trade-off between increased emphasis on employment and increased attention to inflationary pressures. But I think that in the last major inflation explosion, which took place beginning in 1973, there was a peculiar combination of factors that won't be duplicated in the future: scarcity of commodities, devaluation of the dollar, oversale of American grain and wheat to the Soviet Union, a quadrupling in the price of basic energy supplies, followed later by increases in natural gas and coal. So I think, in general, we could get down well below what we are experiencing now in unemployment without inflationary pressures being in control.
Q. Arthur Burns made a speech recently in which he suggested that in some senses the government should be the employer of last resort. Do you believe that in any sense the government should be the employer of last resort?
Governor Carter. Well, yes. I don't know if Mr. Bums' definition of last resort and mine would be the same. I would guess they would be fairly compatible. There are some areas where government programs would be needed at the beginning of the next administration. Young people, particularly minority groups, have an unemployment rate of 40 percent—a heavy contributing factor to the crime rate increase. There, I think, an investment in a program similar to the CCC program that we experienced in the Great Depression would be beneficial to our country. Additionally, we have about 10 percent of our welfare recipients who are chronically dependent upon public financing and who are completely able to work. There is nothing wrong with them physically or mentally. I would like to see them taken out of the welfare system altogether, given job training and instruction if they can't read or write; the services of private and public job placement agencies should be matched with the job seeker—perhaps in the public sector setting up work in recreation centers or as teachers' aides, depending on their ability. If they're offered a job of that kind and don't take it, I wouldn't pay them any more benefits. Jobs could be first offered in the private sector, if they're available. Otherwise, I think it would be good to give them a public job. These areas ought to be initiated through government without delay. But in general, much more so than many of the Democratic Members of Congress, I would favor government programs strengthening the private sector in research and development funds, the guarantee of mortgages and so forth.
Q. You believe in a balanced budget ...
Governor Carter. Yes, I do.
Q. Do you visualize as President that you could bring this about, and if so, how long do you think it would take?
Governor Carter. Yes, I think so. Within the 4 year period I believe we could have a balanced budget. Our projections that have been made by leaders in The Conference Board and the Wharton School of Business confirm that. Obviously, if you have completely unforeseen circumstances arise, any national disharmonies or major disruption in the orderly supply of commodities or threat of war, that would make the predictions inaccurate. But our projections are that by the end of the first administration, 1979-80, have a balanced budget and that would be a major goal of mine. I think in normal economic times, within the framework of market fluctuations, that on average there should be a balanced budget.
Q. Do you visualize that you will have to forego a number of programs or cut existing services in order to do this?
Governor Carter. No.
Q. Not at all?
Governor Carter. Our projections are based on the fulfillment of my campaign commitments. I think that we can have a complete revision in the welfare system without any special increase in cost. Government reorganization would result in some decreased expenditures compared to what it would have been. I think we can have an equivalent or superior defense capability, and perhaps save, by some restructuring of the grade scales, a reduction in the number of instructors for a given number of students, withdrawing of our Armed Forces from some areas overseas—these kinds of things. I don't mean a reduction below what we've got now, but a reduction below what it would have been from normal growth.
In addition to that, you would have some areas where the costs would be increased through government—the field of health care is a most notable example. We now spend about $550 per year for every man, woman and child in this country on health care. We still have an inferior health system. The most remarkable thing—and that concerns me most—is the inequity of access to health care among those who need it most. Now, whether we need more than $550 per person in this country for health care is something that I question. But with a comprehensive approach on prevention of disease, on the use of nonmedical personnel for the delivery of some aspects of health care, and for much tighter control on escalating costs for hospitals, for drugs and for health care itself, I believe that you can have a comprehensive health care system if it is phased in over a period of 3 or 4 years—without any disruption in the government's financial abilities. And even meeting that commitment, the budget can still be balanced.
Q. Will you introduce zero-based budgeting on the federal level?
Governor Carter. Yes, I shall. This is a unilateral decision that the President can make, working with the Office of Management and Budget. It doesn't require congressional approval. So in the preparation of the executive budget for which I will be responsible, I intend to use zero-based budgeting.
Q. What is your attitude toward the Humphrey-Hawkins approach in government planning? I know you've said you'd come out for it in a modified version.
Governor Carter. The concept is one with which I agree. And as you know', the Humphrey-Hawkins bill has not yet cleared either committee in the House or Senate. I don't even know the latest version because it's been constantly amended. But the amendments that have been made to it have been compatible with my own thinking. I think at first the definition of full employment was too idealistic. It was that we reduce the overall unemployment rate to 3 percent within 18 months. That would have been highly disruptive, I think, and very inflationary in nature. To say that we need a goal of 3 percent adult unemployment at the end of 4 years is reasonable. Adults have now been defined, just within the last week or two, I understand, as 20 years old or older. So by the definition of terms, you can alleviate the inflationary pressures.
Also, I felt at first that there was too much emphasis on government jobs. And in my opinion, the "last resort" aspect ought to be emphasized much more clearly than it w as to begin with. I also have two more concerns. One is that there was an unwarranted encroachment of the federal government in planning the private economy. My own inclination toward planning is that the government ought to plan what it's going to do. Let the impact of government decisions be made obvious to the business and professional world. But then let the business and professional world make their decisions of their own free will, using government plans as one of the factors in the decision making process.
And the other change that has been made in the Humphrey-Hawkins bill has been the requirement on wage scales. Originally, there was a requirement that anybody hired through a government program had to be paid the prevailing w age in that area. I think that since then that definition has been changed so that you simply have to comply with the minimum wage requirements. So those changes have all been moving in the right direction. But the concept that employment should be a major priority goal of our country is one with which I agree.
Q. Let me ask you a couple of things about taxes. First, an overall comment about tax reform and what you would like to see. And then more specifically, any changes that you foresee for the capital gains tax and the double taxation of dividends.
Governor Carter. Well, I've been cautious about making specific commitments, but I will say this: I intend to completely reform the income tax structure. Not to amend what we have now piecemeal, but to analyze as thoroughly as I'm humanly capable of doing with as much advice and counsel and help as I can recruit to start from scratch and say this is what a fair, equitable, efficient income tax code should be. There will be several factors involved and I'm going to speak in generalities.
First of all, there's a tremendous simplification of it. The total tax code now consists of about 40,000 pages, I understand. It should be grossly simplified. Secondly, I would drastically reduce the number of incentives or tax expenditures or, if you want to use the phrase, loopholes that presently exist. They have been contrived in the past, legitimately, to meet changing economic needs. But once that need has passed, speaking in historical terms, they remain, depending upon the power that has been generated among the special interest groups, even though the interest group might have been quite benevolent. So the elimination of loopholes would be another factor.
Third, I would continue some of the features of the present tax code. I don't want to be definitive about it, but one would be charitable gifts. I would be very strict, though, on foundations, to be sure that the corpus of the foundation was not used to benefit individual human beings, that salary schedules would be reasonable, that the income derived from foundations should all be spent for charitable purposes as originally planned and so forth.
I would have a truly progressive tax rate, so that those who have the higher incomes would pay a higher percentage of their income in taxation which does not apply at this point...
Q. Why do you say that progressive taxation does not apply?
Governor Carter. Well, for a family that makes over $50,000, the percentage of their income paid in taxes is about the same as one that makes less than $10,000. The larger corporations probably pay a smaller percentage of their total income in taxes than the smaller corporations do. I believe this is an accurate statement. There ought to be a simple and progressive system. I would tend to treat income more nearly the same, and that gets into your capital gains question.
I see no reason why someone who works 3,000 hours in manual labor at $3 an hour and makes $9,000 should pay twice as much tax as someone who buys the lot next to mine, keeps it a year and resells it and makes a $9,000 profit. I also understand the very serious problem of capital accumulation and retention for investment and in creating new jobs. So I understand there has to be caution expressed in the principle I have just described.
I don't feel that income should be taxed twice. Now exactly how to deal with the taxation of corporate income, I haven't yet announced. I have some thoughts, and we're doing some studies on that. I don't think that corporate income should be taxed when it's earned and also again when it is distributed. My own inclination would be to tax income based on the tax bracket occupied by the stockholder.
The mechanism through which that should be done has been described in many tax reform analyses, and which would be the most efficient, the simplest, the easiest to administer, and the fairest is something that I would like to reserve the right to decide later.
This entire process of tax reform might take as long as a full year, even with concerted emphasis on the part of the White House. I don't intend to do it piecemeal. I think that any piecemeal reform of the present tax code is doomed to failure because the special groups that benefit from the particular paragraph in the tax code can focus their full attention on protecting their benefits and the general public has no awareness of what's going on. Even Members of the Congress quite often have no awareness. But a comprehensive approach can be highly dramatized, and if I can understand it as President, and through fireside chats or other mechanisms let the American people know what is the present circumstance and what the improvements can be, I think we will have a good chance to accomplish these changes in the code.
Q. One of the negatives that you touched on in dealing with the capital gains tax is the need for capital formation in this country to satisfy our needs for the next decade and beyond. Are you thinking in terms of other steps or some steps to foster capital formation in this country?
Governor Carter. Yes; as I say, I'm not qualified now to spell out specifically what I am going to decide or recommend a year or a year and a half in the future after I become President. I'm just not qualified to do that yet. But there are obviously many things that can be done concerning investment tax credits if they are continued and in what form they ought to be—the orientation of incentive for private homeownership, a shift away from debt financing to more equity financing, things of that kind. I don't want to be presumptuous and say that I know all the specific answers yet, but the general principles that I've described to you I feel very deeply should be pursued.
Q. Are you satisfied with the way monetary policy has been conducted in the country in the last few years? Do you favor any changes in the structure or functioning of the Federal Reserve System?
Governor Carter. Obviously, in retrospect, as is the case with many Monday morning quarterbacks, I can criticize what has been done. I thought that during the period that I described earlier—when we had the tremendous impact of escalating unemployment and inflationary pressures brought about by external circumstances: grain sales, commodity scarcity, devaluation of the dollar, oil price increases—I thought that the Federal Reserve was much too restrictive when the growth in the supply of money was reduced almost to zero. However, I think we have enough flexibility built into the system now. I would not want to take away the autonomy of the Federal Reserve Board. The way I understand the circumstances, there are three major elements that affect the monetary supply. One is obviously the Federal Reserve Board. Another one is the attitude of the Congress through tax modifications. Tax rebates, changes in tax code and so forth, can very quickly inject large amounts of money into the economy, independently of the Federal Reserve Board decision making process. And the final one is the attitude of the President, and the influence the President can exert on the business community and the consciousness of individual American citizens.
The only change that I would like to make is that the Chairman of the Federal Reserve Board have his term coterminous with the President. I think there ought to be that relationship. But I would not want to dominate the Federal Reserve Board, and I think that this minimal change which I favor would be the only one that I would contemplate.
Q. Do you favor a return to fixed exchange rates?
Governor Carter. No.
Q. Are you happy with floating rates?
Governor Carter. Yes.
Q. Do you favor a return of gold to the monetary system?
Governor Carter. No.
Q. I would like to change the focus of attention to the energy shortage and our dependence on overseas sources. What are your plans to ameliorate those conditions and would they include a splitting up of our oil companies?
Governor Carter. Well, I think it's misleading for leaders like President Nixon to declare a national commitment to energy independence. We can't be independent of energy imports any more than we can be independent of bauxite imports or zinc or molybdenum or a number of other basic commodities. I think that's an artificially created hope that was done just for political purposes. We have seen since Nixon made his speech on that subject an increase in the percentage of imports from 25 percent up now to more than 40 percent. In some months I think it's even been over 50 percent. So I think we're going to have to continue to import oil.
I think we ought to have enough reserve supply or flexibility in our consumption to be able to withstand a possible embargo of oil shipments from the Arab countries. In case a Middle Eastern conflict does recur, I would make it clear to the Arab countries that if they declare another embargo or attempt to blackmail us again, we would consider this a very serious attack on our nation's strength. We would consider it not a military but an economic declaration of war. We would respond accordingly and not ship them any weapons or spare parts for weapons, or oil drilling rigs or oil pipe. I say that not to be contentious or to threaten, but to let them know the seriousness of it in the expectation and hope that it would avoid a recurrence of that very serious problem.
I would also work assiduously to bring into being an understandable long-range energy policy and to outline it quickly. I think we would have to continue to use oil. The supplies are going to inevitably drop off as time goes on. I would shift more toward coal as a basic source of stationary heat supply, including the generation of electricity. I personally favor an emphasis on the use of Appalachian coal because of the absence of disruption of labor in those communities and also because of its proximity to the area of need, which is on the eastern seaboard.
I would greatly increase dependence on solar energy, recognizing the percentage limitation might be fairly small. But I would shift to research and development toward solar energy—in all of its forms: temperature variance, geothermal supplies, wind supplies, direct impact of heat from the sun and so forth. I think the hydroelectric potential has pretty well been realized—3 percent or 4 percent of our total energy supply.
I would have strict conservation measures instituted, with an emphasis on the economy of automobiles, size of automobile engines, better insulation of homes, changes in the rate structure of electric power companies to discourage waste of electricity, public opinion statements by the President and others encouraging people to conserve. And maybe over a long-range period, encourage a change in our lifestyle to some degree to make sure that we use our energy resources and reserves much more efficiently.
As a last resort—atomic power. I have been an atomic engineer. That's what I did my graduate work in, and I've had a chance to learn about atomic power plants fairly well. I still understand some basic principles involved. I think I understand to an adequate degree the limitations and capabilities of atomic power. So I think atomic power is going to have to be continued for use in the foreseeable future. Chicago, for instance, gets about 32 percent of all its electricity from atomic power plants. And I think that atomic power plants can be safe. There are some safety precautions that ought to be reinstituted or maintained rigidly. I think the President, working with ERDA and other entities in this society—the government structure—ought to be responsible. I think, for instance, that power plants ought to be built where people don't live and where earthquake faults are not present. In most cases, I think it's feasible to locate the reactive core itself below ground level. The buildings should be tightly sealed and a vacuum maintained so that if there is a meltdown—they can explode, by the way—the gases can be retained within the tightly sealed building until the radioactivity dissipates. There ought to be standardization of design for atomic power plants and there ought to be a full-time atomic energy representative in the control room, independent of the power company, to shut down the plant if an abnormality should develop. Those are the kind of safety precautions that have been maintained, I think, rigidly and without exception in the atomic power plants under the control of Admiral Rickover. And they haven't added extraordinary additional costs.
Q. Do you think under the proper controls it can become an important source of energy for this country in the next decade?
Governor Carter. I think it's going to be an important source. I think now the percentage of power that comes from atomic power is even less than hydroelectric. But it's going to increase to some degree. Overall, I would like to see us cut down our rate of growth in the use of energy to maybe 2 percent a year. I think that's a reasonable expectation. Several independent studies have shown this. A Rockefeller study, maybe it was a Ford study, I've forgotten, The International Assessments under the auspices of the United Nations Trilateral Commission study, The Club of Rome analyses, all show that our own country could prosper and give our people a better quality of life with a 2 percent increase per year in energy consumption. I think that there was a great deal of progress made for a while as a result of the crisis in 1973, when the people just thought about it. Since then there has been a lessening of commitment to eliminate waste. So I think all these things can be done in an overall energy policy.
Q. If inflation should intensify again, do you favor some sort of income policy, wage-price control standbys?
Governor Carter. Yes, I would like us to have as a last resort, and if other economic policies can't prevail, some standby wage and price control authority. I don't think I would ever have to use it. But I would like that right as a source of persuasion. I think to strengthen the present board would probably be the first step. Then we should reestablish the relationship between industry and labor with private meetings with the President as well as with one another to say, "Why don't we get some voluntary goals for our country?" I think that would be a good step to take. I would do everything I could to avoid the need for wage-price controls. But if I felt the economy required that strong action, I would not hesitate to ask for it and to use it.
Q. One final question. You alluded before to national health and to reexamine the whole picture comprehensively. Any national health insurance program would obviously be very expensive. How would you think of financing such a national program?
Governor Carter. Well, as I said earlier in my answer, I am not sure that the total cost of the health program would have to be increased. We now spend more per capita than any other nation in the world. We spend more as a percentage of our gross national product on health care than any other country in the world. There would be some shift toward more federal government participation. I would like to keep the relationship between the private physician and the patient one of mutual choice. I would like to retain the right of a patient to decide whether he goes for treatment. But the financing would come from contributions of a mandatory nature, from employees and employers, and a continuation to some degree now unassessed from the government's general funds. As you know, quite a lot of health care is now financed by general funds. But I would say those three sources: employee, employer and government.
NOTE: Published in the September 15, 1976 "Financial World".
Jimmy Carter, Interview with Alfred H. Kingon and Robert I. Weingarten of "Financial World" Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/347543