From: E7L8ALL@TOWSONVX.BITNET (Andrew Allen)
Newsgroups: bit.listserv.politics
Subject: Brett's primers on supply-siders...
Date: 6 Nov 92 21:24:17 GMT
Comments: Gated by NETNEWS@AUVM.AMERICAN.EDU
X-Envelope-to: politics@ohstvma.bitnet
X-VMS-To: IN%"politics@ohstvma.bitnet"
MIME-version: 1.0
Content-transfer-encoding: 7BIT
Comments: To: politics@ohstvma.bitnet

Just for a few laffs, I thought that I'd comment on some material that
Brett' posted from interviews in Forbes magazine (rather than just calling
Brett' a few derogatory names) some of our more recent additions to the
list might want to take some notes...

What Brett' appears to be advocating is that what we need is *more* tax
cuts for the wealthy, as opposed to demanding that they pay their fair
share and cutting off the loopholes and dodges that they currently
utilize to avoid paying.

What I suspect that Brett' and I agree upon is that there is currently
inadequate economic growth and there is a need to rebuild infrastructure.
We probably also agree that we need to encourage long-term investment,
balance the government's budget and eliminate the deficit

Where we disagree is what the government's role should be in correcting the
problem.

I certainly agree that tax cuts can stimulate the economy; however, I think
that we've been giving them to the wrong people. What I would suggest is
that we phase in drastic tax cuts on lower and middle income people by
progressively raising the level of income at which one pays no taxes.
For example we could over say a period of four year at a rate of 1,000.00
dollars a year increase the exempted income level from $4,500.00 (to
8,500.00). Additional amounts could be exempted based on the number of
dependents on the income.

This would serve a number of functions; first it would stimulate consumer
spending in the "basic" areas (food, clothing, shelter, cars, etc.) that
would stimulate our ailing industrial base. Second it would allow us to
downsize the IRS.

I have a number of ideas about changes that can be made in the tax code
(that I have posted in the past and won't bore the old timers on the
list with) among which would be the imposition of an universal accounting
method for calculating income, a limit of 10x the salary of the lowest
paid worker to be deducted for executives as well as a limit on the
number of supervisory/management staff (as a ratio to production workers)
costs that can be deducted.

As far as taxing capital gains goes, if it is the sole source of an
individual's income, I would tax it the same as income obtained from
employment. If it is in addition to income, I would implement a sliding
scale that would encourage investment (small gains that are a less
than a quarter of a person's total income would be taxed at a very
low rate) by middle class people. I would, of course continue the
exception for the one time exemption from capital gains for senior
citizens selling a house.

In order to encourage long-term investment, I think the best thing
that we can do is to discourage short-term speculative investments
(not to mention junk bond trading schemes, etc.). What I would
propose is a transaction tax on the sale of stocks, bonds and
other securities. The tax would not apply to first issues or stocks/
bonds/securities that have been held in excess of 10 years.

Now on to a few comments on the texts of Brett''s postings:

From the Laffer portion of the postings (also the latter portion):

>For some reason unknown to politicians, people don't work to pay
>taxes, and if necessary will stop working to avoid taxes....
>       [Or funnel more money into tax-free investments--Brett]

I have never met anybody who has avoided working for the fact that they
will have to pay some portion of their income in taxes. It seems to me
that the people who go to the greatest lengths to avoid paying taxes
are the people who don't actually work, but obtain their income solely
through investment.

>       The US worker is not stupid.  When faced with taxes that are too high,
>they will shunt money into tax free investments.  They will work for cash and
>bypass the tax man.  When rates are lowered, people pull their money out of the
>shelters and invest it in stocks and other taxed securities.

The choice that most workers face with their paychecks is not whether to
invest in tax-shelters but whether to pay the gas&electric bill or to
buy food.

>  Every preceding tax cut for capital gains had caused a rise in
>revenues.  It makes you wonder about those opposing new cuts in the capital
>gains tax rate.

And reducing the price of goods 50% will encourage consumers to buy more
goods, but in the long run you still get 50% less and all you are really
doing is buying time. If you want to increase revenues, put a limit on
tax shelters.

From the Forbes interview with Milton Friedman:

>       Aren't markets now supposed to discipline central banks?

That's the idea, except the Federal Reserve is supposed to prevent
them from failing, so there is no real discipline. One of the most
amazing episodes of this occurred when the Hunt brothers decided
to try to corner the market on silver, the Fed all but ordered the
banks not to loan out money for speculative ventures of this nature,
the banks went ahead and lent hundreds of millions out anyway. When
the market applied "discipline" (when the bottom fell out) the Fed
bailed them out, wiped their noses, dried their eyes and bandaged
their knees.

>       Four years ago, when we interviewed you, our cover line was "Why
>liberalism"--in the American sense of interventionist government--"is
>obsolete."  Well, if liberalism is dead, why won't it lie down?

>       There are too many good jobs at stake.  You have this enormous
>bureaucracy in Washington, and also in every city and state, all dependent upon
>the continuation of New Deal and Great Society kinds of programs.
>       Instead of Licoln's government of the people, by the people, for the
>people, we have government of the people, by the bureaucrats, for the
>bureaucrats--including among the bureaucrats the elected bureaucrats.

I disagree; the reason is that at the bottom of it we do not trust the
private sector (markets) to invest in and take responsibility for
infrastructure. Government may not be perceived by many as a good
or efficient provider of such, but it is more trusted than the private
sector.

>       Forbes: How do you explain Bush?  Because it's not as if the Reagan
>policies were unsuccessful.

>       Friedman: They _were_ successful.  My answer to that is that principles
>matter a great deal even in politics.  Mr. Reagan had very strong principles.
>Mr. Bush has some strong principles, but not about the domestic economy.

Reagan may have strong principles but unfortunately his principles created
"rolling recessions" and a great deal of unemployment; this is fine for
the wealthy who enjoyed a great deal of prosperity at the same time that
the unemployment drove down the cost of labor, ie., meant that the
average american worker made less money and had a lower standard of
living.

>       What bothers me is not so much the historical debate, but what's ahead.
>The combination of political and technological change opens up a vast amount of
>low-cost labor.  There may be half a billion to a billion potential workers in
>China, Eastern Europe and Latin America.  And that constitutes a real
>revolution in possible cooperation between capital-rich countries and
>labor-rich countries.  It could give us another industrial revolution....

Or it could just create more domestic unemployment, economic stratification
and ultimately another depression. The good news is that the products
imported from these "labor rich countries" will be cheap, the bad news
is that few will be buying.

>       Well, I think our friends down south have eloquently put down any
>supply-side nay-sayers.  The proof is in the pudding, so to speak.  We are
>today approaching the point Mexico was at last decade.  They are using the same
>methods we used to boom in the 80s.  Why have we turned away?  Collective guilt
>at being wealthy?  Tired of success?  Willing to rest on our laurels?

Why have we turned away? Simple, supply side economics are not good for
the common man, the majority of voters do not like what the "blessings"
of supply side economics have brought us, high unemployment, enormous
deficits, social stratification, etc.


>Brett

-other Andy
Comments: Gated by NETNEWS@AUVM.AMERICAN.EDU