From: pdchapin@unix.amherst.edu (PAUL D CHAPIN)
Subject: Re: Reasonable men may differ: Capital Gains Tax
Organization: Amherst College
X-Newsreader: TIN [version 1.1 PL6]
Distribution: usa
Date: Fri, 16 Oct 1992 17:12:32 GMT

First a civil debate, now a thread with disagreements but no flames.  What's
the world coming to.

Pardon me while I edit down the extracted material.

Greg Trotter (greg@gallifrey.ucs.uoknor.edu) wrote:
: In article <Bw65F0.8JI@unix.amherst.edu> pdchapin@unix.amherst.edu (PAUL D CHAPIN) writes:
: >: But if the capital gains tax is cut to around 15%, the rich will invest
: >: more -- even though there is higher risk, they'll pay *less* in taxes,
: >: and that makes it worth it.
: >: 
: >Nice assumption, but a lot of us aren't convinced that the amount of 
: >increased investment will be that great.  
: 
: It's a chicken and egg deal, Paul. When the rich invest, jobs are created.

I know the theory.  I just don't believe it.  I don't accept that a
change in the tax laws is going to make significant difference in
investment patterns.  I am concerned that giving tax breaks for highly
speculative types of investments, usually described at purchases of
precious metals, art, land and the like are really going to help the
economy.  I am concerned that investors will liquidate assets to get
the tax break and then spend or invest the money in ways that will not
help the U.S. economy, i.e., invest overseas or purchase imports.  

Part of the problem is that we're in economic never-neverland.  I don't
think any economy has run federal deficits this large for this long.  It's
not clear to me that anybody has a good handle on what's going to work
anymore.  Ask any three economist and you'll get four answers.  I find the
certainity with which the candidates present their plans to be partly
amusing and partly frightening.

:Paul, Trickle Down/Supply Side *works*. The 80s proved that. The 80s were 
: properous for most of the USA. What doesn't work is tax and spend -- the 
: late 70s proved that, as did Congress when they pressured Bush to sign 
: the 1990 tax bill. Things were a lot better before that.

We could start an entire thread on how good the 80s were.  Poverty was
up, particularly for children. Middle class incomes progressed only
slightly.  The economics were very uneven and how good you thought
things were was highly dependent on who you were, what you looked at,
and what you compared it with.  Clearly it was great for the rich,
so-so for the middle class, and terrible for the poor.  Overall, to be
honest (proving that I'm not a politician) I would rate it good by not
great. Also to be honest, the last four years were bad, but not
terrible.  The extremes felt in both cases were as much psychological
as economic.

I would also add that I think most of the "good times" of the 80s were 
related to a) the drop in oil prices and b) the massive federal deficit.
With the U.S. as a society borrowing billions from overseas it's not
surprising that the economy did reasonably well.  Unfortunately, the bill
is coming due and even more massive spending can't help. I expect a lot
of suffering for a while and I don't see any way around it.

As for "tax and spend", is this in defense of the Reagan/Bush years with
the two highest tax increases in history, a near tripling of the national
debt, and the massive increase in the size of government we've seen in the
last four years?  I'll bet dollars to doughnuts that Clinton does better
than that.  (I wouldn't bet that he'll do as well as he says :-)
 
I don't even object to the Bush tax bill, just that he squandered it by not
making the tough decisions, and fighting Congress for them.  The Bush talk
of being "forced" to sign the tax bill causes me to flash on this image of
500 some members of Congress rushing into the Oval Office and forcing Bush 
to the wall.  If Bush could veto all those other bills, he could have vetoed
that one.  For better or worse, Congress and Bush have to share credit/blame
for that one.

Trickle down/Supply side didn't work.  To a great degree it never got the
chance.  The biggest tragedy of the Reagan/Bush years is that we never got
to see if conservative economics work or not.  Clearly, cutting taxes did
not generate all the increased revenues expected.  If they had, the deficit
wouldn't have taken off.  And the White House didn't have the will or the
ability to demand spending cuts.  All we learned was that massive government
borrowing makes the economy improve for awhile.  We've known that since
the thirties.

: >It should be noted that most of the Democratic candidates for President
: >including Clinton, but most notably Tsongas, have some form of investment
: >tax program.  The programs are much more narrowly defined to eliminate
: >tax breaks for non-productive capita gains.
: 
: So, what the hell is a "non-productive capita gain?"

I buy a Degas at $10,000, sell it at $100,000.  I get a $90,000 capita gain.
What have I done that's productive?  I buy a factory at a 1 million, sell it
at 2 million.  The factory was there before I started and after.  There was
no change in economic productivity.  Sure I was smart, but I don't see why
the Federal government should reward me. As I understand the Democratic
proposal, the break is limited to new, and presumably, productive investment.
: 
: >I'm not sure of the current Bush proposal, but the original was for
: >only a limited time and covered all capital gains.
: 
: Go back and reread the text of this year's state of the union address.
: 
The state of union address is no place for specifics.  They weren't there and
I won't expect them.

: >The time limit had the odd result of encouraging a lot of turn over of
: >assets to lock in the tax savings.  This would, of course, make the
: >budget look better in the short run, but would cause bigger debts
: >later when the assets would normally have been sold and taxed.
: 
: Look, I'm pretty sure the President's proposal was not a temporary one...
: if someone can point me to a good reference to the contrary, I'd appreciate
: that.

I clearly remember that the original proposal had a time limit.  I
think it was two years.  There was talk at the time how this made
things look good until after Bush was reelected. I do not remember
where I learned that, but the source was creditable - I mentally file
away things differently if I find the source dubious.  I do not know
if the current proposal is that way.  My knowledge is probably two
years old or older.  If somebody knows definitively, please say
something.

: 
: >If anybody knows the details of the current Bush proposal, please jump in.
: >Unlike the republicans, I don't want to misrepresent the opposition.
: 
: Unlike a few Democrats, I don't cringe when the truth is told.
: 
: 						- greg

Who's truth.  Depending on initial premises and assumptions, truth can
look very differently.  For better or worse, I think we're going to
find out what Clinton's truth is.

One final comment.  There use to be a big capital gains tax break.  Reagan
realized that the U.S. tax code was to confusing and that as a result
people felt it was unfair.  This is one of the few areas I agreed with
him.  (I think it still is).  As part of the negotiations to simplify
the tax system, Republicans agreed to get rid of the capital gains break if
the Democrats agreed to significantly lower the tax rate for the richest
Americans.  Now the adminstration wants their half of the deal back.  I
don't see many Republicans offering to raise the rates.  (Clintons increase
is fairly moderate and he is offering a limited capital gains tax cut.)












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