Archer Hits Target
Jude Wanniski
November 26, 1996


Memo To: Bill Archer (Chairman, House Ways & Means Committee)
From: Jude Wanniski
Re: Hurray on Capital Gains!!

Congratulations! Your appearance on "Evans&Novak" this weekend was enormously encouraging. You are the first Republican political leader to state on national television that a cut in the capital gains tax will produce domestic capital investment, as opposed to international capital investment. I don't think President Clinton understands the implications of what you are saying. The U.S. economy is suffering even though it appears to be doing well enough to people on the top. The top of the economy, represented by our multinational firms, is less concerned with domestic trade than with international trade, because the world has six billion people who are potential customers. As long as the Congress helps them along with trade pacts and corporate subsidies, they will prosper by making profits internationally. They have a vested interest in keeping domestic wages low, in order to remain competitive at the world level. This is one reason why it has been so difficult in getting a capital gains tax cut these past dozen years: The big guys find ways to throw sand in the gears. (For the same reason, multinationals and bigger domestic employers push the Fed toward higher interest rates whenever they see upward pressure on wages or the loss of key employees who go off to start their own businesses.) Unhappily, there are many Republicans, especially in the Senate, who listen more to the top of the economy than to the bottom.

For the last few years, I have been discussing exactly this issue with leaders in the black community, those Americans who are most affected adversely by a top-heavy economy. Congressman Charlie Rangel understands that a lower capital gains tax he even supports indexing will create more good jobs domestically. He's correct, I think, in wanting the federal government to continue playing a role in job retraining and education. The people at the bottom of the pyramid who are his highest priority need some government assistance in getting the skills for even the lower rungs on the ladder.

Even more important than a lower rate is the retroactive indexing of gains, to liberate the $7 trillion of inflated gains that are trapped in Treasury's definition of "cost." The President should be encouraged to make this change by executive order at the outset of the 105th Congress.