Where Bob Dole Would Find the Money to Pay for His Tax Cut

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