One More Vote for Dole, Then on to Other Stuff

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