Jimmy Carter was in hot water. On the eve of the crucial New Hampshire primary, the former Georgia governor had been hoping that a final debate with his Democratic rivals would clear a path to victory. But then he made a serious mistake: He got a little too specific about his plans for tax reform.

Throughout the early stages of his campaign, Carter had called for sweeping reforms to the federal tax system. Over the course of several months, he had developed a message of controlled outrage that seemed to resonate with voters. “Your tax structure is a disgrace to the nation,” he told an Atlanta audience in November 1975. “We need a complete reform of our tax structure.”

Carter’s talk about disgraceful taxation seemed to be working — especially when he paired it with complaints about federal spending. “I am not in favor of taxing poor people in a rich country and sending it to rich people of poor countries,” Carter said of U.S. foreign aid programs. “That’s what we’ve been doing.”

Progressive Populism

The populist framing of Carter’s fiscal rhetoric wasn’t subtle, and many political observers chalked it up to the influence of one of his key rivals for the Democratic nomination. “There is a strong populist flavor, and a faint echo of Gov. George C. Wallace of Alabama, when Mr. Carter denounces present income tax law and codes as ‘a disgrace to the human race,’” observed The New York Times
in a news analysis.

Wallace is often remembered for an infamous line featured in his 1963 inaugural address: “Segregation now, segregation tomorrow, segregation forever.” Indeed, he had opposed desegregation vigorously during his time as governor, famously blocking the door personally when two Black students tried to enroll at the University of Alabama in 1963.

But in addition to being a segregationist, Wallace was also an economic populist. His message of middle-class empowerment resonated with Southern voters — especially when coupled with denunciations of wealthy elites and their unfair advantages.

Candidates outside the South had also found traction with that sort of populist appeal. New economic and social challenges left many Americans looking for leaders to express their worries and discontent. Wallace-style populism, especially when shorn of its explicitly segregationist baggage, seemed like a promising approach. Indeed, Richard Nixon had used it successfully in his famous 1969 appeal to “The Silent Majority.”

In 1976 Carter’s nascent campaign tried to harness Wallace-style populism to a generally progressive platform of economic reform (albeit one that seemed somewhat conservative by the standards of 1970s Democratic Party politics). “Much of what he says appeals to the conservative impulses of Middle America,” said The New York Times in its news analysis of Carter’s campaign, “but he manages to do it without demagoguery and without compromising his own image as a humane and progressive man.”

Avoiding Specifics

Populism certainly seemed to be working for Carter on the subject of tax reform. He had put taxes at the center of his economic platform, repeatedly invoking his language of “disgrace,” to the delight of audiences around the nation. Carter linked his outrage to the proliferation of tax preferences, insisting that the system was designed to benefit the rich at the expense of the poor and middle class.

“He has been saying for weeks that he would like to see repeal of almost all tax shelters, preferences and deductions,” reported New York Times journalist Adam Clymer at the time, “a view he shares with a lot of students of the tax system and William E. Simon, secretary of the Treasury.”

Until that night in late February, Carter had declined to provide many details about his plans for remaking the tax system. “He has argued that he does not have time to study up on the specifics because he is too busy campaigning,” Clymer wrote. That excuse sounded plausible coming from a candidate who had made vagueness a hallmark of his campaign.

Carter understood that vague proposals were also less threatening to special interests — and not-so-special interests, for that matter. Abolishing preferences and deductions sounded great in general terms, but it would almost certainly sound less appealing once specific targets came into view.

Somehow, Carter managed to forget the virtues of vagueness on that evening before the New Hampshire voting began. Asked by a reporter if he would support elimination of the mortgage interest deduction, Carter said yes. He also endorsed repeal of the deduction for state and local property taxes. Abolishing these deductions, along with many others, would allow for dramatic rate reductions, Carter said. On balance, low- and middle-income taxpayers would come out ahead.

“That was an honest answer, but a costly one,” observed The Berkshire Eagle a few days later. Carter won the New Hampshire primary with 28 percent of the vote, beating his nearest competitor, Rep. Morris K. Udall, D-Ariz., by 5 percentage points. But his comments on repealing tax deductions ignited a media storm — and vigorous attacks from his primary opponents.

Sen. Henry “Scoop” Jackson, D-Wash., offered an especially loaded charge. In language clearly intended to evoke memories of former president Nixon, as well as the American agony in Vietnam, Jackson accused Carter of developing a “secret plan” to hurt taxpayers by repealing provisions essential to their economic well-being. Carter was plotting “the destruction of the middle-class American family,” Jackson told CBS News.

Carter hadn’t seemed to grasp how dangerous — or daring — his suggestion about deductions would prove. “His answer reflected no apparent understanding that even all-out reformers regard those two items as perhaps the hardest to change without vast economic dislocations,” observed Clymer.

Clymer’s assessment was an exaggeration. “All-out reformers” certainly believed that both deductions were important. But they also understood that the most daunting barriers to repeal were political rather than economic. Still, Carter seemed to have misjudged both the economic and political aspects of the issue.

Carter’s misstep was surprising, given his demonstrated skills as a campaigner and political tactician. But with the Massachusetts primary just days away, he needed to regain his footing quickly.

Carter’s staff began casting about for ways to respond. If Carter’s approach to tax reform enjoyed broad support among experts, why not consult a few? Maybe they could provide a snappy comeback for Jackson’s attacks.

Among the experts on Carter’s call list was Stanley Surrey, a former Treasury tax official and at the time a Harvard law professor. Surrey possessed a crucial blend of skills that made him useful in this sort of crisis: undisputed expertise, real-world policymaking experience, and reasonably keen political judgment.

All these attributes were on display when Carter’s campaign staff called to ask their question: “What should Carter say?” Surrey immediately understood the more serious question behind the question: “What does he do to dig himself out of this hole?”

Surrey’s Solution

And as it happened, Surrey had an answer. As he later recalled in his memoirs (published last year after some careful editing by legal scholars Lawrence Zelenak and Ajay Mehrotra), Surrey proposed that Carter emphasize the “upside down” nature of the home interest deduction.

“The deduction was allowable against the highest income tax bracket of the taxpayer,” he explained to the staffers. That meant that “the wealthier the homeowner, the larger the amount of mortgage interest that the Government was paying through the deduction.” With a top-bracket income tax rate of 70 percent in 1976, that made the deduction valuable indeed to rich homeowners.

By contrast, less wealthy homeowners received less help, thanks to their lower marginal tax rates. And on the lower reaches of the income scale, the deduction offered some taxpayers nothing at all. Homeowners with large families, for instance, might be entirely exempt from individual income taxes — the deduction was worthless to them.

Surrey insisted that Carter frame the deduction repeal in positive rather than negative terms. The candidate should emphasize that he wasn’t against helping homeowners. He simply opposed using the mortgage interest deduction as the tool for delivering that help, since it did the job so poorly. Surrey recalled his advice: “Carter could say this method of assisting homeowners — and he is all for such assistance — is unfair and should be reexamined to find a better solution.”

Surrey’s advice was consistent with arguments he had been making for decades, dating back to his years in the New Deal Treasury Department and continuing through his service in later Democratic administrations. It was not especially novel or distinctive advice — countless tax experts shared his view of the mortgage interest deduction, as Clymer had noted.

But Surrey’s political judgment was generally good, at least for a tax expert. It was hardly perfect; his own candor as an academic author had caused him serious problems during his Senate confirmation hearings to become assistant Treasury secretary for tax policy. But after years of service in Washington, Surrey had learned to frame complex tax questions in terms that non-experts could grasp.

Perhaps most important, Surrey had come to understand the importance of finding the moral high ground in tax policy — and defending it against challengers. In the case of the mortgage interest deduction, Surrey knew that a presidential candidate could never oppose aid to homeowners — that was political suicide. The trick was finding a way to endorse that aid while also exposing the mortgage interest deduction as bad policy.

Surrey’s “upside down” argument made that possible. And he explained the case in cogent terms to the eager staffers from Carter’s campaign.

Unfortunately, Carter’s people didn’t seem to grasp Surrey’s point. Or perhaps they didn’t find it quite as brilliant, cogent, and media friendly as Surrey did. Either way, Carter didn’t use it. Instead, the candidate floundered his way through the next debate, answering questions about deduction repeal with “lame talk about the tax system needing reexamination in general.” Carter didn’t seem to realize “that he could have put others on the defensive,” Surrey later wrote.

Return to Generality

Carter’s victory in New Hampshire was followed by a fourth-place finish in Massachusetts the following week. Jackson came in first after a week of relentless attacks on Carter, especially around the tax issue. And as the candidates headed off to Florida for the next big contest, Carter began mounting a vigorous defense.

“With fire in his eyes and anger in his drawl, the usually soft-spoken Mr. Carter surprised many who had grown accustomed to his restrained, almost pastoral rhetoric of love and compassion over the last few weeks,” The New York Times reported on March 6.

Carter’s advisers insisted that Jackson was gaining traction with his attacks on the tax issue. “We found some slippage in our canvasses among people who were already favorable to Jimmy,” said Carter’s press aide, Jody Powell. “And most of it was related to the defense and tax things,” added Hamilton Jordan, Carter’s national campaign manager.

To contain the damage, Carter returned to his original vagueness on the tax issue — and to his rhetoric of disgrace and populist disapproval. He won the Florida primary, dispatching not just Jackson but Wallace, too. And as he continued his march toward the nomination, he polished his call for sweeping if unspecified tax reform.

As he confronted President Gerald Ford in the fall general election, Carter doubled down on his populist tax talk. “The present tax structure is a disgrace to this country,” he declared in his first debate with Ford. “It’s just a welfare program for the rich.” To the extent that Carter offered any details, he was careful to keep them tightly focused on nefarious elites and their undeserved benefits.

“As a matter of fact,” Carter declared in that first debate, “25 percent of the total tax deductions go for only 1 percent of the richest people in this country, and over 50 percent of the tax credits go for the 14 percent of the richest people in this country.”

There were echoes of Surrey’s advice in those statistics, as there were in Carter’s litany of more specific complaints. He targeted provisions involving domestic international sales corporations, as well as outsize business entertainment and travel deductions.

“These special kinds of programs have robbed the average taxpayer and have benefited those who are powerful and who can employ lobbyists and who can get their CPAs and lawyers to help them benefit from the roughly 8,000 pages of the tax code,” Carter said. “The average American person can’t do it. You can’t hire a lobbyist out of unemployment compensation checks.”

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