October 25, 1978

The Day The New Deal Died

When Ohio Congressman Ralph Regula returned to his office in the wee hours of the morning Oct.  15 he told his staff, "This is an historic occasion because the New Deal died today!"

His assessment was made on the basis of Congressional approval of a major tax cut bill that emphasized the formation of capital rather than redistribution of wealth.

If, indeed, Regula's analysis is correct we can look forward to expansion of U.S. industry and creation of new jobs.

There are lingering doubts that the reduction in some taxes amounting to $21.4 billion will put any more purchasing power into the hands of citizens.

Inflation - now running between 10 and 11 percent - will rob American wage earners and investors of about $13 billion next year.  A scheduled increase in Social Security taxes Jan. 1 will cost us another $10.4 billion.

When all is said and done, the inflation-tax load on Americans next year will have gone UP $2 billion.

But let us be grateful for small favors.  Without the recently enacted tax bill our tax burden would be in the neighborhood of $23 billion more - and that's an expensive neighborhood.

The significance of the new tax structure is the relief - small as it is - accorded the working and saving middle class.  It is from this group that 90 percent of the nation's productivity and wealth comes.  And it had just about thrown in the towel.

The heavy Democrat majorities in Congress threw out the Republican Kemp-Roth tax reduction proposal that would have given real and permanent relief to tax payers.  The margin of rejection, however, was so narrow that even the liberals got the message.

The final bill aimed at maintaining the existing level of income for the government - while placating rebellious tax payers with a few concessions.

Tax brackets are widened so that future wage increases will not be eaten up completely by escalating tax rates.  The standard deduction is increased by $100.  Personal exemptions are increased from $750 to $1,000.  Persons over age 55 now will be allowed to sell their home once during the rest of their life with out a tax on the inflated profit.

The real surprises came with recognition of the vital role business and investors have in a healthy economy.

The top rate on corporate earnings in excess of $100,000 is reduced a modest 2 percent to 46 percent.  The 10 percent investment credit is made permanent.  Finally, and most importantly, the tax on capital gains - the profit realized on a successful investment - was slashed from a maximum of 49 percent to 28 percent.

Oh, the anguished shrieks from liberals were predictably loud and long.  Amazingly, the Congress and electorate paid little attention.

Representatives of more than 100 liberal, labor and special interest groups gathered in Detroit last week to map strategy to snatch defeat from the jaws of victory.

Senator Teddy Kennedy declared the new tax legislation a "disgrace" and delivered himself of the opinion that "President Carter should not hesitate to veto it."

Douglas Fraser, president of the United Auto Workers union, muttered darkly about the "corporate reactionaries and their ideologues" - language that would have delighted the late Chinese communist chairman Mao.

"Instead of arguing over equity for working people, we argue over whether America needs a union-free environment," said Fraser.  "Instead of debating real tax reform and wealth distribution, we are told Proposition 13 and Kemp-Roth are what society needs."

By golly, I couldn't have said it better myself.  The sensible side of those arguments may be winning out.

Unions are essential in big companies, for only power can stand up to power.  Equity for working people, however, consists in the continuous creation of jobs by tool investment, and the right to keep what they earn.

Likewise, the concept of using the government's taxing power to take from the producers and give to the non-producers - that is, redistribute wealth - is the quickest road to national economic collapse.

The New Deal policies of President Franklin D.  Roosevelt perhaps were valid for a limited period of time in a grave national emergency.  In the long run, though, they lead inexorably to rampant inflation and ultimate stagnation.  Only World War II saved the New Deal from failure.

Forty-six years of "compassion" for the poor and indigent - in the belief all who reached those states of disadvantage were victims of a ruthless society - has changed very little.

Big government has fixed nothing.  Once again the citizenry has learned the lesson we should have remembered from our forefathers' experience - government has limited powers, and those only as given by the people.

Capital produces wealth, and that wealth has to be shared by both investors and workers.  The investor selfishness of 1900, and the union hate of 1930, must give way to enlightened self interest.  Each is entitled to make a buck.

The death of the New Deal is long over due.  A rebirth of capitalism can bring a new era of prosperity if we give it an opportunity to grow.

Author: Lindsey Williams