Devastatin’ August 30, 1996February 6, 2017 With the President’s approval of FDA plans to squelch advertising and promotion of cigarettes to kids last week, CNN interviewed a North Carolina tobacco farmer. What would be the impact of the new regulations? “Devastatin’. Just devastatin’” came the reply. I’m not making fun of his drawl — I am a total fan of the Southern language. But I do wonder at his assessment. The tobacco industry says Joe Camel and the Marlboro Man don’t encourage anyone to smoke — only to switch brands. If the tobacco industry isn’t lying, tobacco sales won’t be affected a bit. Of course — news flash — the tobacco industry lies routinely. The new FDA rules will help discourage smoking to some degree. Cigarette sales will be damped down a little. But devastatin’? North Carolina’s tobacco markets extend around the globe. Losing half the American 8-to-17-year-old market — for that’s the President’s goal, to cut the rate of smoking among kids in half — wouldn’t amount to spit. More worrisome for the long run: if kids don’t start young, most never will. (Some 60% of today’s smokers started between the ages of 8 and 14.) With millions of smokers dying and quitting each year, the American market really will gradually dwindle if millions of children can’t be hooked each year as replacements. Yes, it’s a free county, and people should be allowed to smoke if they want so long as the rest of us aren’t forced to breathe it. Absolutely. But to spend $5 billion each year promoting the country’s leading cause of preventable death? This makes no sense. What’s more, restricting ads for an addictive carcinogen to “black-and-white text only” does not, it seems to me, unreasonably repress or endanger free speech — any more than rules that prevent food and drug companies from advertising unsubstantiated claims. That said, incidentally, I see nothing wrong with buying tobacco stocks if you think they’re going up. (I don’t know where they’re going, but you would have lost several large fortunes betting against these stocks since 1964, when the Surgeon General’s first report was issued.) No way will your investment go to build new tobacco factories or fund advertising — the last thing these cash machines need is to raise capital. Thus, you won’t be hurting anyone, and you can take your dividends and profits and give them to organizations like STAT (Stop Teenage Addiction to Tobacco, 511 East Columbus Avenue, Springfield, MA 01105) or SmokeFree Educational Services (375 South End Avenue, 32G, New York 10280). That’s what I did years ago when I made a profit on RJR zero coupon bonds. Though I don’t own any myself, tobacco stocks may be a buy for two reasons. First, they’re down on all this bad news — the FDA regs and the loss of a smoker’s lawsuit in which a jury awarded $750,000. Second, they’re a class of stocks many well-meaning people simply rule out. That may serve to make the stocks cheaper than a coldly logical appraisal might justify. Personally, I hope they go broke so they can’t afford to advertise and promote so lavishly. But your shunning their stock will not hurt them in any way. Monday: A Time to Kill
Should He Turn Down a 4.5% Loan? August 29, 1996February 6, 2017 “I try to live below my means (and invest the surplus in no-load, low-fee mutual funds) … but my 13-year old Honda needs to be replaced (with a late-model used car). Through my credit union, I can obtain a share-secured 2-year loan at 4.5%…meanwhile, the shares earn 3.8%. I do realize that the 3.8% dividend will be taxed, and unlike a home equity loan, there is no deduction of the 4.5% interest…but it still looks like ‘cheap money’ to me…is it something that I should take advantage of? I’ve read a bunch of personal finance books…but don’t see much discussion of share-secured loans…you’re my last hope.” — Fred If I’m your last hope, Fred, you’re in deeper trouble than you realize. But I can see only three reasons to borrow at 4.5% so you can continue to earn 2.5% (which is about what you’re earning, after federal and state income tax, by keeping that dough in a 3.8% credit-union account). The first is to have a little ready flexibility for emergencies. If you’d be wiped out buying the car for cash, maybe you shouldn’t. The second is to have a better “balance sheet” if you expect to be applying for other credit (since a savings account may be more impressive to a lender than ownership of a used car). The third, related, reason, is to establish good credit. If you have no credit history, this would be a painless and inexpensive way to establish that you can pay off a loan responsibly. But basically, your instinct is right. For every $1,000 you borrow this way, you lose about $20 a year. An exceptionally slow way to get rich.
One More Vote for Dole, Then on to Other Stuff August 28, 1996February 6, 2017 From Don Steinhart: “I have enjoyed reading your column on the Ceres homepage for about 6 months now. However, in the comments from the past few weeks, I see that you obviously have an agenda you are trying to accomplish by bashing Dole. I respect your opinions, and even though we don’t agree, you are 100% entitled to express them. However, I cannot overlook a glaring error in your assessment of the way additional revenue will be raised to pay for the tax cuts Dole is proposing. “You stated in your August 20 comment that ‘the MAIN contention of those who believe this stuff’ is that people will work harder, earn more money, and wind up paying more in taxes. That’s ridiculous. Right now, anyone who has that capability is probably already doing that. No one is going to work a little harder just because the government will get a slightly smaller piece of it. It sounds good, but it’s not reality. [Well, so far I agree with you 100%. That was my exactly point.] “I would think that someone who knows as much about the economy as you do would understand the effects this could have (that is, if you’re being objective). The simple matter is: If people have lower taxes, i.e. more disposable income, they will probably spend it. That just seems to be the way it works in today’s society. If they are spending more, revenues for business increase, profits increase, and therefore, the amount of tax they pay to the government increases (you will note that he never suggested lower taxes on businesses). Additionally, these same businesses will probably need more workers to handle the increased work load, so there will be more people working and paying more in taxes, drawing less in government assistance. [But with the economy already near full-employment, especially of the most employable, where will these workers come from? Will employers start bidding up wages to get them, rekindling inflation? Will the Fed raise rates to try to damp it down?] “To say that this is unnecessary now because the country is doing so well already is equally ridiculous. What’s wrong with making it better? So, why don’t you just come out and say that deep down you’re just liberal socially and don’t like Dole because of that? If you really think about it, that’s where the real differences are about. You are just using your position to try and sway those who would support Dole because of their financial standings into supporting your friend because of your social standing.” Fair enough and nicely put. I certainly make no secret of being a Clinton fan, and part of the reason is that I believe strongly in things like discouraging tobacco promotion to kids, protecting a woman’s right to choose, attaining equal rights for gays and lesbians, and on and on. But the economic issues are crucial, too. That’s why I was so pleased to see Clinton choose deficit reduction over the howls of some of the more liberal Democrats, and to see him fight so hard for NAFTA. Free trade, low interest rates, streamlined government agencies (one I studied last year was the SBA — which has voluntarily slashed its own budget, yet found ways to provide a lot more service). With 10 million new jobs created, 200,000 fewer people on the federal payroll, and a long list of other accomplishments, Clinton’s is probably an even stronger economic record than it is a social one. Dole was a good Senator and is a good man. But I don’t think he would himself support a broad tax cut right now if he weren’t running for president. I don’t think he was planning this during the primaries and just keeping it in under wraps. I think he would have remarked, upon hearing of Jack Kemp’s tax cut ideas, that Jack Kemp — another fine guy, whom I admire but disagree with — had played a few too many games without his helmet. You will recall that we had even better economic growth in the Sixties than we do now. Yet back then the top federal bracket was 70%. And note that after Clinton raised taxes (almost entirely on the highest-earning 2%), the economy picked up nicely and we got those 10 million new jobs. I don’t think you can assume that lower rates will pump the economy without lifting interest rates (thereby crimping the economy). Nor, I think, are you right to assume that lower taxes will pay for themselves in increased economic activity. Let’s say the $548 billion cut is “spent” — as you say. People will use it to buy big-screen TVs, VCRs, clothes, Nintendos, fax machines, cars, microwaves. Won’t a lot of that money wind up in the pockets of Asian, Mexican and European workers? (I’m all for that — but how will it shrink our deficit?) But forget that. Let’s say it all stayed in America and the pre-tax profit margin on that $548 billion were 20% — $110 billion in additional profits to be taxed at 34%: an extra $40 billion or so in corporate taxes . . . but nowhere near the $548 billion tax cut. I know (a little) about multiplier effects, and so on. But tell me this. Are there any circumstances in which cutting government revenues will actually result in cutting government revenues? If so, why do you think this is not one of those times? And are there any circumstances in which a society should fear the widening gap between rich and poor? Either on moral or purely practical grounds? I don’t begrudge Alex Mandl his $20 million signing bonus; but I do worry about cutting his taxes on that bonus by $1 million at a time of $117 billion deficits and great and increasing inequality. Tomorrow: When It Makes Sense to Turn Down a 4.5% Loan
More Doleful Responses August 27, 1996February 6, 2017 From Tom Hintz: “Now that your true colors have come out (a dyed-in-the-wool bleeding heart liberal), I need to correct you on just a couple of points. (To try and refute all of your points would be more of a waste of my time.) To start with, look at a graph of capital gains tax receipts since before the increase in 1986 to now. Although there was an initial pop in revenues prior to enactment of the new law, revenues have never lived up to expectations and overall have declined, not to mention the unfavorable effect the tax increase probably has had on the economy. A decrease would probably have the opposite effect. Also, for us ‘rich’ folk out here trying to save for our children’s education and our retirement (I don’t count on social security being around) and with a good deal of equity in our homes, I don’t think you can say that the capital gains tax cut primarily benefits the rich. I do know that when the law changed in 1986, my capital gains tax increased 100% (from 14 to 28%)!!!” I agree there would be a short-term increase in tax receipts, as people who’ve been waiting for years for a lower capital gains tax took profits. (With such a sharp cut in the tax, I think you could also expect a pretty sharp break in prices, with a lot of new eager sellers.) I’d like to see a smaller, more gradual capital gains tax cut. For better or worse, the estimate I saw is that 55% of the benefit from the reduced capital gains tax would go to the 1% wealthiest Americans (better for me, being one of them; worse, perhaps, for everyone else, on whom the cost would fall). One way to avoid the capital gains tax bite on your retirement money is to keep it within tax-sheltered vehicles like IRAs, and so on. Another way to minimize the capital gains tax bite: to follow the lead of successful investors like Warren Buffett and not sell too often. A third (since you mention the equity in your home) is to take advantage of the tax exemption when you buy a new home, and/or the one-time over-age-55 $125,000 exemption on your primary residence. But the great bulk of the Dole tax cut isn’t the capital gains tax cut. It’s the 15% income tax cut. That’s where I have the real quarrel. “As far as your reference to Dick Armey, he never suggested using cuts in education to pay for the gasoline tax repeal. Why don’t you dig out the entire video clip of his answer and stop relying on what you read in the paper. He was using education as one example of where we have increased spending dramatically without showing much for it. Maybe using this as an example was a poor choice, but he still has a valid point.” I was actually relying on the video clip I saw on the news. But if he didn’t really mean it, I’m relieved. I do know that a lot of kids in this country are without textbooks, sitting in overcrowded classrooms. Money doesn’t solve everything, but it can buy books and pay teachers. Economically speaking, it’s probably better to invest in kids than, say, give wealthy septuagenarians tax breaks. Nothing against wealthy septuagenarians; but that’s not where the leverage is. Their productive years are largely over; there’s little chance of their becoming violent criminals or lifelong burdens on society. “One final word. Back in the early 50’s, people payed about 13% in federal income taxes. Now they pay 21%. A married professional couple, both working, have over 40% of there money taken from them today. (21% federal, 15% FICA, other local, state and sales taxes.) The federal budget in 1960 was around $100 billion. Now it is $1.5 trillion. Get the picture? And if you think you don’t deserve the tax decrease, you can always pay the government more than you legally owe. Hey, and if enough of you rich liberals on Wall Street and Hollywood get together, you might even erase the budget deficit by yourselves!” Now, there’s an idea. Actually, back in the 50’s the top federal income tax bracket was 90%; today it’s about 39.6%. So I’m not sure the rich are over-taxed at these rates, either historically or by comparison with other countries. As for the huge federal budget, it is huge. You’re right. But as one of my columns last week asked, what would you cut painlessly to pay for Dole’s $548 billion tax cut? And if not painlessly, on whom would you inflict the pain? Not me, obviously — and I’m grateful for that — and not you . . . so who? Medicaid recipients? Veterans? School kids? As you know, most of that $1.5 trillion goes to seniors, via Social Security, Medicare and Medicaid, and to defense. But I certainly appreciate your frustration, as well as your taking the time to write. I just can’t figure out a way to cut taxes 15% and balance the budget. And I don’t think Bob Dole believes it for a minute. From Cola Allen: “It is NOT Mr. Clinton’s or Mr. Dole’s or even Mr. Perot’s money you discuss. These ‘tax dollars’ are my kid’s tuition, medical coverage, vacations – OOPs – would have been. Since these are tax dollars my kids don’t get THOSE dollars. “No sane person would suggest that we don’t have to balance the Federal budget. My ideas are rather simplistic. The I.R.S. is the most inefficient method of revenue collection a madman/pol could devise. I believe it to be an information gathering arm of the government (but please don’t tell them). Close the I.R.S. and save BILLIONS per year and we have NOT taken a crumb of welfare food or nuclear missile out of the budget yet! “The number of man hours private citizens and business spend keeping the I.R.S. fed each year could be put to use growing the G.D.P. and becoming very strong globally. What to replace the I.R.S. with? I don’t know, a national sales tax has potential. Better minds than mine can easily handle that question.” I’m not sure it’s the I.R.S. you mean to replace so much as the wildly complex tax code the I.R.S. is charged with enforcing — a creation of Congress. I’m all for simplifying it, though by and large it is the business end that is complex and time-consuming. Most people can get their personal taxes done in an hour for $50 or $100 at H&R Block (or wherever). One problem is that any change that costs a taxpayer more will be opposed by that taxpayer — and rich special interests can block most reforms — while any change that costs less will widen the deficit. So the best time to make changes is when (a) they’ll result in lower taxes across the board (and thus encounter little opposition) and (b) lower taxes are the right prescription for the economy (i.e., in the midst of a recession). You already know I don’t think this is a sensible time to be cutting taxes dramatically. But what a double-shame, if we do, not to couple it with tax-simplification that, as I say, is probably only possible to get people to accept when it lowers their taxes. Just to cut everybody’s taxes 15% — besides unfairly favoring the best-off and being stupid right now — blows the opportunity to use the tax cut to “buy” tax simplification. From Dean Van Druff: “Has it ever occurred to you that you could raise revenues by lowering taxes?” Yes. And it certainly works in a situation where taxes are so high they’ve crippled the economy or people simply refuse to pay them. But that’s not the situation now. (If it were always the situation, we could lower taxes to zero and still increase revenues. No?) I think in today’s circumstance the term for this is “wishful thinking.” (In an earlier day, it was “voodoo economics.”) Tomorrow: One More Vote for Dole, Then on to Other Stuff
Doleful Responses August 26, 1996February 6, 2017 Lots of good mail from last week’s comments on the Dole tax cut proposals. Before moving on to other subjects (Wednesday: when it makes sense to turn down a 4.5% credit union loan; Thursday: tobacco stocks and A Time to Kill), I wanted to take a couple of days to share the response. I won’t waste your time with the ones that agreed with me (but thanks to those of you who did). From Michael Mattox: “As far as I’m concerned Bob Dole will be giving Americans back what is rightfully theirs with his 15% tax cut. If you remember, the American people elected a president who promised NOT to raise taxes on the middle class and then did raise taxes first thing when he took office. If Clinton wasn’t elected the taxes wouldn’t have been raised. So how can you fight against Dole’s 15% tax cut? Clinton stole that money and it’s time to give it back!” Well, he may have stolen it, but it didn’t go to him, it went to lowering the deficit from the $300 billion range to the current projected $117 billion. And while he raised MY taxes one huge heck of a lot, because I’m fortunate to make a lot of money, he raised middle-class taxes only very, very slightly, and lowered taxes (actually, increased the earned income credit) on the working poor. The thing is: Clinton doesn’t get to keep this money himself. Indeed, his own taxes went up, too. But he’ll be saddling Chelsea’s generation with a less staggering national debt for having done so. The other part of the picture that’s worth mentioning is that by doing with the deficit what the bond market demanded (as detailed in Bob Woodward’s book, The Agenda), Clinton got the economy to pick up and interest rates to fall. For anyone with a variable-rate mortgage or who’s enjoyed the rise in the stock market, that surely compensated for the pain of the roughly $35-a-year hike in the gasoline tax. No politician likes to raise taxes — look how angry it makes voters. But not to have dealt with the deficit (or to have dealt with it only by cutting government services and aid to the poor, without asking people like me to chip in, too) would have been a real betrayal of his responsibility. From Mark Hudson: “I must say I am amazed to read today you have been attacking Dole. Somehow I just assumed that every educated, savvy, investor was a Republican. Here’s to wishing for a capital gains cut and better IRA funding laws.” Well, once in a while I vote Republican. And I’m happy to see the new IRA rule allowing nonworking spouses to contribute up to $2,000 to an IRA. I wouldn’t mind seeing those ceilings increase — and I’d like to see a modest capital gains tax cut (but phased in very gradually, so as not to trigger a rip-snorting bear market in stocks and real estate). But the 15% tax cut, which Dole can’t possibly believe wouldn’t balloon the deficit and, in turn, raise interest rates by spooking the bond market, is not a good idea. From a guy at Bear Stearns: Since your conclusion is that cutting tax rates 15% will hurt the economy and all the people who depend on the Federal government, why not propose to raise tax rates 15%? Presumably all the negatives you’ve pointed out about a cut would be turned into positives in a tax rate increase. No one would work less, government receipts would increase, the deficit would shrink, interest rates would drop, the government could continue to aid people down on their luck and fund the arts, etc. It’s enjoyable to make fun of Dole, but your readers might want to know what you think U.S. tax policy should be. Are taxes too low? Good point. I hope taxes are not too low, because I’d hate to see them raised. Nor, obviously, is there one perfect answer. But that doesn’t mean that when you’re running a $100+ billion deficit in a nicely growing economy at more-or-less full employment the thing to do is cut taxes. That’s exactly the time NOT to cut them. From Jim Ehmer: “You are absolutely wrong! The choice Americans will have in November will be clear, i.e., Clinton’s large and growing government, more taxes, and more loss of personal freedoms because of increased intrusion by an ever-growing beauracracy -or- Dole’s reduction in government (IRS, Commerce, etc.), less taxes (we working people can keep more of what we earn for savings, debt reduction, and investment) and greater personal freedom. You fail to account for the combined benefits of tax-reduction and spending cuts and the resultant benefit to all of America. Ed Hyman, best economist on Wall Street 16 times, who appeared on W$W Friday night, emphasized this. Out of the entire media community, I have felt that you were at least the rare exception in that you were credible. Now I’m starting to wonder…” I agree the choice will be clear, but disagree on the rest. The federal payroll, which grew under Reagan and Bush, has shrunk under Clinton to its lowest level since Kennedy. (Not in dollars, of course, given inflation, but in headcount.) It would be great if taxes could be slashed without increasing the deficit; but with all due respect to Ed Hyman, most economists don’t think it will happen. The last time we tried it was with Ronald Reagan’s tax cut (which, like Dole’s proposal, benefited the rich far more than others). Far from cutting the deficit, it ballooned the deficit. If the economy were in recession now and we had 8% or 10% unemployment, you might be right: a tax cut might wind up paying for itself, even though the Reagan experience calls that into serious question. But today, especially, it’s unlikely that a large tax cut would fail to increase the deficit. More likely in my view: a spooked bond market, higher interest rates, lower stock prices, higher mortgage rates. From Joe Chesler: “Please drop the political agenda and comment on general interest subjects. Thank you.” Careful what you wish for — you could get another one of my columns on ostrich steaks. Tomorrow: More Doleful Response — and Then I’ll Stop
15% of What? August 23, 1996January 30, 2017 Sounds fair, doesn’t it? Just cut taxes 15% across the board. Rich, poor, black, white — whatever. But one effect of Dole’s 15% tax cut would be to widen the already vast and rather worrisome gap between rich and everyone-else in America. For a high-income type like me in the 39.6% bracket, a 15% cut knocks my marginal rate down by nearly 6%, to just under 34%. Nice! To someone in the 15% bracket, the same 15% reduction knocks off only 2% or so, down to just under 13%. But it’s worse than that. While I really am in the 39.6% federal bracket, no one is in the 15% bracket, in the sense that they are also paying either 7.65% in Social Security tax or, if self-employed, 15.3%. So either 22.65% or 30.3% is taken out of each additional dollar they earn. (Rich folk don’t have to pay much Social Security tax beyond the first $62,000 or so of income.) The 15% tax cut Dole proposes doesn’t apply to Social Security tax. So there I am, earning hundreds of thousands of dollars a year, seeing my marginal tax bracket fall from about 40% to about 34% (I’m simplifying the numbers, but not skewing the essence of it), and there is the guy cutting my lawn in the blazing sun seeing the tax rate on his income from self-employment cut from 30.3% to 28%. Hmmm. Of course, in actual dollar terms it is far more stark. The Dole tax cut will save poor people nothing, because poor people pay no taxes; will save average folks a few hundred bucks; will save me and many of my friends tens or hundreds of thousands. I have nothing against myself, my friends, or the really rich. I just don’t think the nation’s first priority these days should be to make our lives even more privileged than they already are. (Not to mention the fact that the tax cut could lead to inflation and higher interest rates, which act like a tax all their own — and affect “most people” a lot worse than rich people. The middle class could easily see their “tax cut” go right back out the other pocket in higher mortgage payments.) Vote for Dole if you believe in outlawing abortion. But don’t vote for him if you want to see more money in your pocket. If he wins and does what he says, there will be more money in my pocket.
Gold in the Streets August 22, 1996February 6, 2017 My ophthalmologist’s optician’s grandfather came to this country from Greece. To New York. This is a great country, and he got a job digging. They were building the New York City subway. Before World War I. He was young. He spoke no English. He didn’t know what the hell they were doing, he was just digging in the street. He thought they were digging for gold. Every day he’d scoop up a little dirt and stick it in a handkerchief to take home. At home, he would sift through the dirt looking for specks of precious metal. He had been told the streets were paved with gold. I don’t know if this is a true story. It seems to me I’ve heard it before, so maybe it’s just one of those that goes round and round. But my ophthalmologist’s optician heard it from his father and believes it to be true. That’s good enough for me. This is a great country, full of hopes and dreams and stories. I tell you this to provide a heartwarming break in my relentless assault on Bob Dole’s curious 15% tax-cut proposal. Tomorrow: 15% of What?
Private Charity: The Dole Solution August 21, 1996February 6, 2017 The last couple of days I’ve been trying to figure out how Bob Dole would balance the budget by slashing government revenues and spending more on the military. This certainly is not the platform on which he was running in the primaries. But let’s take him at his word — that he really plans to slash taxes, beef up military spending, and yet balance the budget by 2002. Yesterday I suggested that cutting tax rates wouldn’t increase tax revenues, but rather, as you might expect, lower them. Also, that ending all foreign aid and funding to the arts wouldn’t make a dent. So where is all the money going to come from to pay for the tax cuts, the increased defense spending, and balance the budget? You can do away with government meat inspectors or ask airlines to inspect their own planes for safety . . . you could abolish the S.E.C. or cut back the I.R.S. (but those two actually generate money for the Treasury). You could end farm subsidies (but they’re already being phased out — Congress already did that) and sell the national parks to the highest bidder. But all this stuff if penny ante. The real dollars have to come from the poor, the ill, the elderly — all the people who are getting the money now. This is where the real money is, other than defense, which Dole would increase, not cut. And that’s fine, you may say. Let efficient, volunteer-based private charity take the place of wastrel government largesse. If children wind up begging in the street, as they do in so many countries, the good people of America will take them in. Or their churches will. Or their church-run orphanages will. Not for nothing have Newt Gingrich and Bob Dole and Ralph Reed all adopted children. They believe in forcing women to bring unwanted fatherless children into the world, because abortion is murder; but, to their credit, they are among the first to step up to plate and take those kids into their hearts and their homes. (At least I assume they are.) Or, well, if you don’t adopt the kids yourself, you can contribute money to the orphanages, or pay taxes for the prisons (but local taxes, so it’s OK) they’ll eventually be housed in. Either way, the problem is solved. But here’s where I get confused. According to the IRS, the average itemized charitable deduction in 1994 was between $1200 and $1800 for itemizers who reported adjusted gross income between $15,000 and $75,000. That’s pretty good, considering how tough it is to take care of your own family’s needs these days on an AGI of $15,000 to $75,000. Now go up to the $100,000-$200,000 adjusted gross income range. Yuppies, lawyers, doctors. Their average charitable deduction in 1994 was $3,420 — less than 3% on average. Now go up to the $200,000-$500,000 range. Surgeons, law partners, big-time corporate VPs. They averaged $8,372 — still barely 3%. Now go up to $500,000-$1,000,000. Republicans. Now you’re talking about enough money to pay almost any basic costs of living, so there’s really a choice in how you allocate your funds between luxuries for your family and the needs of your community. Plus, you are very likely to be able to do your giving with appreciated securities, which makes it a lot cheaper than for the guy paying cash. They averaged $21,582. Still about 3%. Built into that average you do have a few wealthy bleeding-heart liberal Democrats, who tend to give a lot more than average. (That’s one of the signs of a bleeding heart.) Net them out, and you’ve got rich Republicans giving maybe 2% of their adjusted gross income on average. The IRS numbers I saw didn’t go beyond $1,000,000, but the trend — a more or less flat 3% — hinted at no change as you continued up the scale. So here’s my confusion. If Bob Dole proposes to pay for his tax cuts and defense buildup and balanced budget by cutting aid to the poor, ill, and elderly, with private charity taking up the slack — what assurance does he have that this will finally serve to melt the hearts of rich Republicans to start giving more money? On the one hand, their 15% tax savings will provide them lots of new giveable cash. But on the other hand, the lower tax bite and halved capital gains rate will actually raise the cost of giving. (Today, it costs a rich guy just 60 cents to give a dollar because of the tax benefit. Tomorrow, it would cost 66 cents. Using appreciated securities, the price hike would be even wider.) My conclusion: the people so anxious for this 15% tax cut are not likely to turn around and give much of it to charity. How come we don’t hear more about Bob Dole’s adopted kids, anyway? Or Newt’s? Or Ralph Reed’s? Tomorrow: Gold in the Streets
Where Bob Dole Would Find the Money to Pay for His Tax Cut August 20, 1996February 6, 2017 Correction: If you bet $20 on the “birthday trick” as I suggested last week, you’re likely to lose. Oops. You don’t need 20 people for a 99% likelihood of winning, as Mark told us; you need 59 or 60. For the odds to be 50/50, you need about 23. Thanks to Keith Burdick, Toby Gottfried and others for pointing this out. And now on to some other numbers that don’t add up . . . Yesterday I expressed skepticism that Bob Dole would be able to balance the budget while slashing taxes and spending more on the military. Unless — wait! Maybe the idea is that we’ll use the military to loot and pillage. Replace lost domestic tax revenues with a modest levy abroad. As the Romans demonstrated, this is actually a pretty neat idea. We could call the tribute we collect “the price of peace,” and explain that, as the world’s ultimate peace-keeper, we will exact $50 per head per year — about $275 billion. A little stiff for a Biafran family of eight, but peace doesn’t come cheap. Protection money. Could put John Gotti in charge of the program. But failing that? Can we really slash taxes, spend more on defense, and still balance the budget? The main contention of those who believe this stuff (and I’d bet you anything Dole isn’t one of them) is that if your income taxes were 15% lower, you would work harder than you do now, earn more money — and wind up paying the same or more in taxes after all. Would you? But even if you would — and c’mon, are you seriously telling me you would? — might there be other people who would work less hard to make ends meet . . . since ends would meet a little sooner? And if you and I did work enough harder to get our taxes back to where they were, would that throw anyone else out of work? After all, unemployment is awfully low right now. If you’re such a good waiter that your boss happily accepts your request to work two more shifts a week, won’t he just be laying off whoever else now works those shifts? I’m not saying tax cuts can’t stimulate (or overstimulate) an economy. But common sense tells you they’re not always appropriate, let alone increase tax receipts. Why does Bob Dole suddenly think they’re appropriate now? Anyway, one potential source of funds to pay for the tax cuts and increased defense spending is the extra tax on our extra earnings from working harder. I don’t think it would amount to much. Another source is the revenue boost that would come from halving the capital gains tax. In the short run, that would like raise a lot of revenue, as people took advantage of the chance to take huge profits on stocks and real estate they won’t sell now because of taxes. But that would also, it seems to me, create a tremendous amount of selling pressure and relatively little buying pressure. Do you anyone who keeps his money in a savings account, or bonds, because the capital gains rate is too high? Who would suddenly want to buy stocks or real estate if it were halved? I don’t. But I do know a lot of people — including me — who’d love to dump some stocks and real estate they’ve owned for years if the tax were cut. More sellers than buyers . . . falling prices . . . gloomy times. Not great for the economy or increased tax receipts. Ah, you say. The sellers become buyers. And that’s largely true. You sell one stock and use the proceeds (minus the tax, if you’re prudent), to buy some other. But you have other options as well. You can (a) wait a while and/or (b) use the proceeds to pay down debt. Anyway, it’s complex. I’m not saying the capital gains rate shouldn’t be gradually trimmed. I think it should be. But it’s not going to help much to balance the budget by 2002. So how else is Bob Dole going to pay for his tax cuts and increased defense spending? Well, how about foreign aid? There’s a good old whipping boy. But what politicians rarely tell the people when they rag on “foreign aid” is that ours currently amounts to just $13 billion a year. Cutting it to zero, which would be morally unconscionable and geopolitically dumb, would barely make a dent in paying for Bob Dole’s tax cuts, let alone closing the existing deficit. (Actually, rather than increasing the defense budget, we should increase the foreign aid budget, in sensible ways, to countries that are moving toward capitalism. Next to the Louisiana Purchase, the Marshall Plan was probably the best investment this country ever made.) The same goes for things like funding for the arts. You could cut it to zero and not make the tiniest dent whatsoever. Indeed, the last time the Republicans were asked how they’d pay for a tax cut — the 4.3-cent gas tax they wanted to roll back — Dick Armey said we could just take the money from “education.” Smart — no? And then we could also save some money by denying school lunches to the children of legal immigrants — listen, it may not be much, but I figure that if you deny just 100 kids school lunches, that alone would be enough to pay for the tax-savings I personally would reap from the 15% income tax cut. Not that I’m the richest guy around — to pay for some of my wealthier friends’ tax cut you might need to knock 10,000 kids out of the lunch line — but my point is that this is doable. Why divert resources to feed and educate children that could, instead, be used to lower my taxes and increase the military budget? Tomorrow: Private Charity: Bob Dole’s Solution
The Dole Platform August 19, 1996February 6, 2017 Did you hear Bob Dole’s acceptance speech Thursday night? Under Clinton, close to 10 million new jobs have been added to the economy (versus essentially none during the Bush years) even as the federal payroll has been cut to levels not seen since the Kennedy years and the deficit — enormous during Reagan/Bush — has dropped by nearly two thirds. Inflation is low, interests rates fairly low, and we have steady economic growth, free trade, sharply falling crime rates, 33,000 more cops on the streets (headed for 100,000), and peace around the world. Bob Dole looks at that sorry state of affairs and says: no more! He would increase defense spending (guns) and slash taxes (so we can buy more butter) — the very things Ronald Reagan did. But note that when Reagan did them: A: The top federal income tax bracket was 70%, not 39.6%, and unemployment was high, not low. Slashing taxes may not be as appropriate now. (When Kennedy cut rates, the top bracket was 90%.) B: The Soviet Union was a powerful and arguably aggressive military threat that he hoped to outspend into collapse. A strong military is of course important. But ours is already unrivaled. We have some enemies — Iraq, North Korea — but how would a military build-up cause them to collapse? Aren’t we strong enough to defend ourselves from them even now? C: The deficit exploded. Why explode it again? Bob Dole wants to balance the budget by drastically reducing government revenues, while increasing defense spending and appropriating money to build new prisons. He of all people surely knows this is a fantasy. In your own financial affairs, it would be like saying you’ll get out of debt by taking a pay cut and hiring a security guard. Tomorrow: Where Bob Dole Would Find the Money to Pay for His Tax Cut