Author: A.T.

This is just so dumb.

In 1991, I took out a $400,000 five-year loan on two small Miami apartment buildings. By now I’ve paid it down to about $250,000, and the five years are up. Pay-off time.

In the course of these five years, Miami real estate — especially on “South Beach,” where one of the buildings sits — has done OK. The buildings were probably worth $700,000 when I took out the loan. By now, even their combined tax assessment is $800,000, and tax assessments are usually under market.

(This is not my typical investment, I hasten to add. My typical investment makes for great cocktail party conversation, then tanks.)

I told the bank I’d like to renew the loan. The bank was pleased and suggested that we reset it at the same $400,000 we started with, and more or less do this all over again.

Fine. Now here comes the dumb part.

Last time a simple “opinion letter” from an appraiser sufficed. (“In my professional opinion, these two buildings are worth way more than $400,000,” said the appraiser, or words to that effect.) But now that real estate has been appreciating for five years and rents are up, and so on, that’s not enough. The federal bank regulators have changed the rules. Now not only do we need another appraisal, it has to be a full “narrative” appraisal, with photos and so on, that will cost (after shopping around) $2,600.

The thing I want to make clear is that this $2,600 is just completely wasted. No one but the appraiser and his wife derives the slightest benefit whatsoever from doing it. I gain nothing. The bank gains nothing. Uncle Sam gains nothing. (Supposedly, Uncle Sam is protecting the taxpayers from having to bail out the bank if its loans go bad. But if the county tax assessor says the buildings are worth $800,000, and if the bank has five years of history on this loan already, why is that not assurance enough?) The government would be better off ordering me to buy it four $600 hammers.

In the worst case, if the loan defaulted and the two buildings brought less than $400,000, I’d still be liable for the shortfall. And while not wanting to brag, I can tell you that I have been saving my loose change — pennies, nickels, quarters — in a large wrought iron tub for thirty years now. I don’t know exactly how much is in it, but we have had to get the floorboards reinforced. So I could probably make the bank and Uncle Sam whole.

What interests me about this is that it must be multiplied thousands and thousands of times. And not just in unneeded real estate appraisals, but in all other manner of government-mandated busy work.

Stuff like this drags down our productivity. Forcing bright people to go around writing up unnecessary “narrative appraisals” — and forcing people like me to pay for them — misdirects resources. On the margin, a few of these appraisers could be teaching our children. There are lots of overcrowded classrooms — with more teachers, each child could get more attention. Where to get the dollars to hire the teachers? For starters, from the extra tax I would pay if I didn’t have to do the appraisal. (Not having to pay a $2,600 business expense raises my taxable income $2,600, which ultimately generates more than $1,000 in tax revenue.)

The Clinton Administration has made a good start at cutting through some of this junk. (You may recall Al Gore smashing that ash tray on David Letterman, symbolizing the pages and pages of specifications once required to requisition an ashtray.) But there’s a lot left to be done. Tomorrow, I’ll offer my solution.

Around Memorial Day I told you about my friend Jim Halperin, rare-coin magnate turned spare-time writer. He had written his first ever anything, a novel called The Truth Machine.

Ah, the difference a single machine can make [I wrote]. The automobile, say. The telephone. Or how about a machine that can always tell when someone is lying — a sort of polygraph that truly works. Now wouldn’t that muck things up.

Such is the world imagined in The Truth Machine, which may be the first and only pre-publication novel posted on the Web. It won’t be in bookstores until October, but you can read it free until September 30 by visiting: http://www.truthmachine.com/.

Save yourself $22 by reading it on the Internet — and if you don’t like the way the plot thickens or his imagined world turns, click and shoot off a nasty critique to the author.

Well, now that Labor Day has come and gone, it’s time for an update. It has been a remarkable summer for Jim Halperin.

Here he was, a guy who had never written anything in his life other than one slim tome on rare-coin grading. I have a copy. It’s probably Biblical in its significance if you’re a coin dealer, but shows no signs of literary grace whatsoever.

But he had an idea for a book — this truth machine notion — and he just set about doing it. He wrote it. He sent it to all his friends for comment. The first chapter was great. The rest needed work. He rewrote it 20 times. He took a night course in writing. He hired local editors to coach him. All this while running his large coin business and being father to two small boys. And still the FedExes arrived with new drafts for his friends to read.

The book got better.

Then one day an actual bound book arrived at my door with a jazzy jacket exactly as you’d expect to see it on the shelves at Barnes & Noble. Jim had hired a jacket designer, contracted with a printer and a distributor — in addition to writing the book, he was publishing it. He printed 35,000 copies (he was publishing it optimistically — that’s a huge first printing for a first novel). He established his web site (12,600 hits so far).

And that’s about where things stood when I wrote my little piece at the end of May.

Then one day he got a call from Ballantine, the giant division of Random House, offering him a couple thousand dollars for the paperback rights. It seems that one of the friends he’d sent it to was friends with an editor at Ballantine who liked it.

Jim accepted the offer, because Ballantine’s interest gave the hardcover more legitimacy (and in case it did well in paperback, he’d naturally share in its success through royalties).

And I am watching all this, from 1500 miles away, somewhat bemused. Everybody wants to write a novel, but who does stuff like this? Not that everyone has Jim’s resources, yet even so.

But there’s more.

Jim’s lowly editor at Ballantine called him repeatedly as the summer progressed — “some of our vice presidents are reading it and they really like it.”

Then one day in July he gets another call. Ballantine would like him to stop selling the hardcover, they want to publish it. In fact, they want to make it their lead title for the Fall.

Now I am not bemused, I am agape. Beyond agape. Agape would be that they want to make it their lead title. Plenty to be agape about, no? But that they want to make it their lead title for the Fall, to anyone who’s ever dealt with a book publisher is beyond agape. Normally, it takes a year after a novel is finished to hit the stores. This one, they were proposing: eight weeks. And they hadn’t even begun negotiating the deal!

Long story short, Ballantine upped its offer from “a couple of bucks” to Real Money, took the remaining 30,000 of Jim’s books (a few of which had been sold and a lot of which had been sent out as promotional copies), rejacketed them, and raised the price from $19.95 to $24. Some will wind up in stores, but about half have already been sent out free to reviewers and “opinion makers” to get a buzz going. A thousand copies were handed out at the Republican National Convention, which is pretty funny when you consider that in the book Clinton wins reelection.

First Ballantine printing: 150,000 copies. This is surely ten or twenty times the size of the first printing of, say, John Grisham’s first novel, A Time to Kill.

Not to say The Truth Machine will succeed. It could take off, or you could find most of those 150,000 copies on remainder tables at a buck or two apiece one day.

But what a story, either way. “This really says something about persistence,” I told Jim.

“No,” he said — “utter obsession.”

Even better. I love quoting Calvin Coolidge, who said: “Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.”

I fully expect Jim will soon be calling to let me know who bought the movie rights. And I can’t wait to read his next book, now that he’s gotten the bug. Is he writing one? Well, actually, he’s got only 35 pages left to write, he told me this morning. It’s about cryonics.

From Michael, a young father who gives new meaning to the phrase “read the prospectus” (or even the phrases “read the brochure” and “read what you’re signing”):

“I have three children, ages 5, 2, and 2 weeks. For my first two, I opened Twentieth Century Giftrusts three and two years ago, respectively. They both have over $7,500 in them, and are doing well, as one would suspect knowing the Giftrust’s track record. When I recently sat down with my newly found financial advisor, the look of horror on his face was upsetting when I mentioned the exisitence of these accounts. I’ve also heard “radio” financial advisors poo-poo the Giftrust fund. The message that I carry away, is that you lose control of that money and it is tied into the fund for a specified period of time. Once you invest, you can’t get to that money unless your child allows you to once the maturity period has been reached and the check is mailed to the child. Did I jump into these accounts too soon without realizing the consequences?”

You did, but you could have done worse.

Investments in the Twentieth Century Giftrust are gifts. They go into an irrevocable trust managed by Twentieth Century. You’ve given this money to your kids and there’s no getting it back. Years from now, on the “termination date,” Twentieth Century will let your kids know what they’ve got (but will not liquidate any investments or send a check unless asked to).

“I’ve never recommended Giftrust,” says my mutual fund guru Less Antman, because he’s leary of accounts that give kids control of college money.

One problem: the kids may choose to use it to spend it on something else. Another: colleges may grab most or all that money before considering financial aid, where if it were yours they’d let you keep a little. (If you’re reasonably well-to-do, this second problem does not apply. You won’t qualify for need-based grants anyway, and your child’s ability to get student loans should not be affected.)

Less feels parents should keep the funds in their own name, “except for the establishment of a small account with minimum monthly contributions in the name of each child as a life lesson on the value of patience and steady investing.”

(I tend to agree, although it obviously depends on the situation and the kid. One exception I’d eagerly make: helping your 14-year-old set up an IRA with the money she earns baby-sitting or cleaning pools.)

But though Michael is stuck with Twentieth Century for the term he explicitly approved in the applications, “this is as much a disaster,” Less notes, “as finding that you are stuck in a business partnership with Warren Buffett. I’d say the odds favor him looking back on his investments in Giftrust as the smartest financial moves he made in his entire life, and a newly found financial advisor who reacts with horror at his choice of Giftrust might best be newly lost again.”

Of course, if he’s uncomfortable that his kids will have control of the money, future investments should go into other funds, in his own name, such as Twentieth Century Vista and Twentieth Century International Equity.

For more on kids and your money, see the August 7 comment, “What Shall We Name the Baby’s Mutual Fund?” (The baby is doing fine, by the way.)

Tomorrow: Persistence and The Truth Machine

When Michael Steinhardt was running his famous hedge fund, he was asked to reveal the most important thing the average investor could learn from him. “That I’m their competition,” he said.

Think about THAT the next time you decide to buy or sell a stock based on a hunch (though better a hunch than a tip, I’ve found).

Of course, trading amongst tiny companies, like a few I dabble in, you won’t find the Steinhardts or many other big-time pros — one of my current favorites had a market cap of just $6 million until recently, which means Steinhardt or his ilk would have had to buy the whole thing to make it even vaguely interesting. But tiny companies carry lots of risk and, often, high spreads between the price you have to pay to buy them and the price, seconds, later, you would realize selling them.

Yet another argument for low-expense no-load mutual funds.

Tomorrow: Your Kids and the Twentieth Century Giftrust

I’ve never been too enthusiastic about annuities, for reasons I’ve detailed from time to time. They’re heavily promoted (because the sales commissions are high), but that doesn’t make them a good investment. Once you get sucked into an annuity it’s not so easy to get out or even switch managers. And you have annual administration fees and a “life insurance component” that cuts into your return.

Yes, they grow tax deferred, like a giant nondeductible IRA. But why not buy municipal bonds, which are not just tax-deferred but tax-free? Or why not buy growth stocks outside the shelter of a variable annuity? Tax on their appreciation will not only be deferred until you sell them but, very likely, subject to a favorable capital gains tax rate. (Within an annuity, any capital gains advantage is ultimately lost — the gains are fully taxable as ordinary income when withdrawn.)

So I’ve been pretty down on annuities forever — not that this seems to have thwarted in any detectable degree the army of sales folk who sells tens of billions of dollars worth every year.

But what’s really appalling — I just read that a large percentage of annuities are sold to people for their retirement plans. Their IRA rollovers and Keogh Plans and so on.

This is nuts. Those funds are already tax-deferred. Why on earth would you accept the sales and administration costs of an annuity product — the only real justification for which is the tax deferral aspect — when your funds are already sheltered from tax?

If you are one of the thousands of investors making this mistake — quit it! If a financial advisor put tax-deferred annuities into your tax-deferred retirement account, I’d consider not just switching advisors but even inquiring as to possible “remedies.” You’ve been the victim of something that either is, or appears to me to verge on, professional malpractice.

Tomorrow: Your Competition

I ran a series of “open letters” in Daily Variety a few years ago trying to make actors and directors and producers think twice about promoting cigarettes.

Sometimes they do it for cash. (Philip Morris paid $42,500 to get Lois Lane to smoke Marlboro lights in one of the Superman movies and $350,000 to get James Bond to smoke Larks in License to Kill.) More often, they do it inadvertently.

But really: why did environmentalist Robert Redford, who directed A River Runs Through It have to have his two wonderfully healthy, attractive young stars out fly-fishing in the clear crystal Montana air (well, or someplace like Montana) be smokers?

If you start looking for this in movies, as I do, you may be surprised to find smoking in almost every movie — and usually by a very sexy character. Sometimes, true, it’s “the bad guy” who smokes, or there may be jokes about smoking’s being bad for you. But to a rebellious fourteen year old, this just makes smoking all the more appealing. Better, when smoking is not really necessary to the story, to leave it out.

“Ah,” you say. “Movies would not be believable without smoking.”

But do you find the general absence of smoking on TV unbelievable or annoying? If the actors/role-models on “Friends” and “Seinfeld” smoked, would you enjoy those shows more? NYPD Blue? Baywatch? Would the ratings go up?

Nah.

All this came to mind last week when I saw A Time to Kill. It’s a good movie — and the Tobacco Institute’s dream.

There you have Matthew McConaughey, on the covers of four national magazines and the man every teenage girl is swooning over, in a movie with Sandra Bullock, young, thin, beautiful, sexy, smart-as-a-tack — what every young girl wants to be. And sure enough, for almost two hours, Matthew wants Sandra. What young girl seeing this wouldn’t want to be exactly like Sandra?

The good news — the great news for the tobacco industry is that Sandra Bullock smokes.

Not in real life, of course. She’s too smart for that in real life. She only smokes in the movie.

Yet most young girls don’t know this (or that in real life McConaughey might prefer her as a nonsmoker). They see a beautiful, healthy, snappy smoker desired by Matthew McConaughey and they want to be just like her.

It’s the best kind of free advertising, especially because the target audience is young.

Watch from now on: you will find smoking in almost all the movies you see. Why not urge the movie folks to adopt the same voluntary restraints as the TV industry? (And why not ask the TV folks to stop what appears to be a slide back from decades of such restraint?)

If we’re expected to suspend our disbelief and accept that Matthew McConaughey could introduce stunning new information in his “summation” at trial (something no lawyer could get away with in real life) why would it be straining credulity to ask us to believe that Sandra Bullock’s character, the bright, liberal law student, impassioned against the death penalty, doesn’t smoke?

It’s a question that doesn’t seem to occur to most actors and directors. But because smoking is the nation’s leading cause of preventable death, it should.

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

“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.

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

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