Kemp, the Truthteller
Jude Wanniski
July 15, 1999


Memo To: Jack Kemp
From: Jude Wanniski
Re: Peeing Into the Wind

Now that you have decided to be a Truthteller, you are beginning to find out how little market there is for truth in the political market. Truth is non-negotiable, which means it can't be turned automatically into "ready cash," that wonderful term used tongue-in-cheek by Sen. Phil Gramm [R-TX]. It is intellectually and spiritually exhilarating to be a truthteller, saying what is really on one's mind, not what one thinks he should say to make him popular. But it makes you unpopular, like the boy who points out that the Emperor has no clothes. You looked over the GOP tax proposals last week and decided they were all pretty sad. You put out a press release at Empower America saying so. And you simply peed into the wind. Nobody paid any attention. A search of the global news files on the Internet indicates nobody gives a you-know-what for your opinion. You may have been the political architect of the Reagan tax revolution, which took the nation out of its tailspin and put it on a heavenly trajectory. (I think that revolution could not have happened without your courage.) You may have been the man selected by the GOP leadership to preside over the National Tax Commission in 1995. But because you have thus far refrained from endorsing the presidential candidacy of George W. Bush, you are peeing into the wind. NOBODY, BUT NOBODY has commented on your press release. I post it here in the interest of truthtelling. And I congratulate you, Jack, for finally breaking away from the establishment and telling the truth as you see it.

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Says House Plan Pointless and Senate Proposal Lacking

Washington, DC, July 12, 1999-Today, Empower America co-Director Jack Kemp criticized the two main tax-cut proposals recently announced by the chairmen of the congressional tax-writing committees. Regarding the plan outlined by House Ways and Means Chairman Bill Archer (R-TX), Mr. Kemp stated:

"I applaud my good friend Bill Archer's announced intention to provide broad-based, across-the-board tax rate reductions to the American people -- all of them -- but I fear the House proposal is a bill with no conceivable winning strategy. It is based on the wrong principle and it is not politic.

"While the proposal pays lip service to the principle of economic growth, it undermines that principle by embracing fiscal austerity and limiting the tax rate reductions to fit within the straightjacket of retiring the national debt at a rate determined by the static revenue estimates. The result is a puny 10 percent tax rate reduction that takes 10 years to implement. Adding insult to injury, the Clinton Administration has said already that the President will veto the bill because it is fiscally profligate and does not retire the debt fast enough. Far from competing with the President over who can inflict the greatest degree of austerity on the American people, Republicans should denounce debt retirement as an ill-conceived, ill-advised, and inefficient economic growth strategy.

"I believe we make a serious mistake by severely limiting the magnitude of the tax rate reduction because we insist on adopting an austere budget framework that pretends to protect Social Security surpluses in a so-called 'lock box.' Since there is no way to 'reserve,' 'set aside,' or 'save' excess social Security tax receipts, it is, in my opinion, misleading to the public for the Republican Party to go along with the pretense that spending the Social Security surplus on general debt retirement is somehow more economically productive and protective of Social Security than devoting these surpluses to tax rate reduction."

Mr. Kemp also voiced concerns over the plan outlined by Senate Finance Chairman William Roth (R-DE), which likewise strives to remain within the fiscal straightjacket of debt retirement: "I am delighted to see my old comrade-in-arms, Bill Roth, back in the tax-cutting business but I say with affection his proposal also suffers from misplaced austerity. I also have another problem with the Roth proposal in that it violates the fundamental precept of fairness that Ronald Reagan articulated and the Senator himself and I reflected in the original Kemp-Roth tax cut proposal: Marginal tax rate reduction should be for everyone. The Roth proposal cuts marginal tax rates only for those taxpayers in the bottom bracket, which totally ignores the fact that since President Reagan reduced marginal tax rates in the early 1980s, everyone else has been hit with two massive tax rate increases in the name of 'deficit reduction.' Surpluses have replaced deficits, and it's time to repeal those two tax increases.

"The Roth proposal is also disappointing because it does not contain a cut in the capital gains tax rate nor does it give any kind of estate tax relief. This fact alone illustrates how a static mindset and an austerity mentality distort the legislative process to no good end. A recent study of the estate tax by Gary and Aldona Robbins estimates that for every additional dollar raised by the 'death tax' at current rates, it reduces national output by $3.67. Hence, reducing estate taxes would generate sizable economic gains with little revenue loss during the coming decade. In the longer run, the relative gains from the faster rate of capital formation engendered by repealing the 'death tax' would be even higher, producing a whopping $5.18 of additional national output for every dollar of static revenue loss. Likewise, in a recent study of the 1987 capital gains tax rate reduction, the economics firm of DRI found that instead of losing $275 billion in revenue through 2009, the tax rate reduction will actually produce sufficient additional economic activity to raise revenues by $5 billion. Overall, economists estimate that the American tax system is currently so inefficient and burdensome that every additional dollar in revenue raised through it reduces overall economic output by about $1.50. It is no exaggeration to say that keeping tax rates high so the federal government can run massive budget surpluses and retire the national debt is literally like taking two steps forward and three steps back. Quite simply, a strategy of fiscal austerity will take us in exactly the opposite direction from where we wish to go.

"If Congress is interested in helping working people and wants to maintain the flourishing economy, it should immediately get marginal tax rates down to no more than 25 percent, which John Maynard Keynes said is the maximum tax rate anyone should have to pay during peacetime."