Memo To: Floyd Norris, NYTimes
From: Jude Wanniski
Re: The Coverdell/Torricelli tax cut
It was with great interest that I read your "Editorial Observer" column on the Sunday Times editorial page, "Using Phony Numbers to Push for Tax Cuts." The reason for my great interest was the fact that only last week I had talked to Eric Shuffler of Sen. Bob Torricelli's office and Morris Goff of Sen. Paul Coverdell's staff, telling them how fortunate they were that you were now writing the economic editorials in The New York Times. This was after your predecessor, Michael Weinstein, attacked their bipartisan approach to tax policy in his "Economic Scene" column. (It was no big deal, but you might have noted that Torricelli is a New Jersey Democrat and Coverdell a Georgia Republican.) I told Torricelli that it was a badge of honor to be attacked on economic policy by the NYT and that he had now been "blooded." I also told the staffers that while I agreed with the provisions of their bosses' plan and believed they would be very good for the national economy if enacted, that their use of the Keynesian model to justify the tax cuts was not the best way to go. We don't need to increase the savings rate, I think you would agree, Floyd. We need to increase real GNP, which means an increase in consumption and savings. The "rate" of savings is not a useful concept. Japan, you know, has one of the highest savings rates of the industrial world, and yet its economy has been in the ditch for several years and now is in recession.
About your column, though, I have to disagree with your attack on what they wrote in the Times op-ed of February 8, "To Build Savings, Cut Taxes." It really amounted to nitpicking, and I have to say you picked the wrong nits. You chose to attack their following contention: "Taxes are at their highest levels since WWII. In 1997, the median income for a two-earner family was $55,000, $22,000 of which went to pay federal, state and local taxes. Adjusted for inflation, that is triple the burden it was in 1955. In other words, families would have had $13,000 more in annual income had the tax burden remained constant." You say it is "to the credit" of the Tax Foundation that it says, as you put it, "the burden for such a family in 1955 was 27.9 percent, compared with 37.6% in 1997. That is an increase, but it is far from a tripling."
You say you don't know why 1955 is a good comparison year, but it really can be considered the high-water mark for American living standards. It was a "Leave It to Beaver Year," when an ordinary worker could support a family of five on his income. It was actually the first year I had a real job, as a construction laborer in the NYC building trades. I was paid $88 a week for 35 hours. This was a princely sum to a 19-year-old lad whose father then worked as a bookbinder for George Schirmer & Co, the music publishers in Queens, for $83 a week. The difference was my work was backbreaking and the building trades could never be sure they could work more than two-thirds of the year. The skilled carpenters or electricians or plasterers in NYC were the highest paid in the nation, at $125 a week. This was $5,000 a year, Floyd, which meant their federal income tax was no more than $5 a week or $250 a year. I have no idea how the Tax Foundation finds a two-earner family paying 27.9 percent of their income to tax collectors, unless they were a husband-and-wife team of investment bankers or brain surgeons. As I recall, the tax on my $88 a week was not more than $1, and with my Social Security contribution, it was not more than $2. The sub-head on your column reads: "Has the tax burden tripled since 1955? Of course not." My educated guess, Floyd, is that the tax burden on ordinary workers easily has tripled since 1955. This is why there are now so many two-earner families compared to the number in 1955. The only way you can kid yourself into thinking nothing much has changed is to count as "real" GNP the work of millions of Americans who earn more than $75,000 a year in work that did not exist in 1955. These are the people who guide us through our chaotic tax structure, who defend us or prosecute us in our compliance or evasion of the tax laws, and who build the prisons and guard the prisoners who can't make a living as my father could in 1955. I call it the "Chaos Industry," one of our largest and most expensive, and most unnecessary, which exists because our national economy is smothered by our oppressive tax system and the even greater chaos of a floating money.
If I had my druthers, I would design tax legislation a bit differently than the Coverdell-Torricelli Plan, but it does exempt the first $5000 a year of long-term capital gains and the first $500 of dividends for a joint return. It also widens the space between the 15% bracket and 28% bracket by $10,000, which is all to the good. There is little doubt in my mind that each provision would bring more tax rates down the Laffer Curve, which simply means they are good, solid investments that would be readily financed by the bond market, as the Reagan tax cuts were in the 1980s. Please note, Floyd, that when the Clinton tax increase of 1993 went into effect, interest rates rose, a sure sign the market held its nose. In any case, in the spirit of bipartisanship in the post-impeachment era, I would think the NYTimes would do what it could to encourage Torricelli and Coverdell to keep going. You should leave the nitpicking to the final product, when you might pick some good nits.