Doleful Responses

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