Devil in the Details

TAKING STOCK

Washington has a curious intellectual dynamic: The less understood
an idea is, the faster it spreads. On May 9, a Wall Street
Journal
op-ed by Lawrence Kudlow announced that cutting the
capital gains tax would balance the budget immediately. Within
days, a panelist on the PBS program Washington Week in Review
repeated this remarkable finding while the assembled talking
heads nodded sagely. Whence this windfall? Kudlow explains:

The capitalized asset value of U.S.
stocks has increased more than $3 trillion since 1994. Should
only 15% of investors decide to realize their gains at the new
20% rate, then the Treasury could reap a conservatively estimated
$90 billion in windfall revenues, more than enough to cover the
projected deficit.

Everything in that passage is true,
in the same sense that the sentence "Should only 15 percent
of the foreign population voluntarily decide to turn its life
savings over to the U.S. Treasury, the national debt would quickly
disappear" is true. Getting people to sell their stocks more
quickly raises short-term tax revenue, because capital gains aren't
taxed until they're sold, and the sooner people sell the sooner
the government gets the money. The House Ways and Means Committee
makes a wildly optimistic assumption that lowering the capital
gains tax from 28 percent to 20 percent will cause a 50 percent
increase in stock sales. Kudlow assumes there would be an additional
$450 billion in sales ($450 billion times 20 percent equals $90
billion in tax revenues). That would constitute a 240 percent
increase. In other words, almost three and a half times more people
than last year would sell their stocks next year, just so they
could pay 8 percent less tax.

The main point, of course, is that
even if Kudlow's prediction came true, it wouldn't solve long-run
budget problems. All the extra revenue brought in by a sudden
tax windfall would mean a lot less revenue in the future. You
can only sell something once. Then again, if the capital gains
tax cut made bondholders so grateful that they decided to forgive
the national debt . . .


LEGACY GONE AWRY

It's almost unfair to heap more scorn
on top of John F. Kennedy, Jr.'s oft-ridiculed political glossy
George, but after opening its July issue to a Letterman-esque
feature, "Oops! Top 10 Laws That Lashed Back," it's
impossible not to say something. Evidently tired of being criticized
for its content-lite editorial policy, George decided to
comb through American legislative history and compile a list of
ten bills that had taken "revenge on their makers and do[ne]
the opposite of what was intended."

So what pieces of legislation caused
enough "bitter and unforseen [sic] consequences" to
make George's top ten? The magazine highlights a couple
of obvious choices—the Garn-St. Germain Act of 1982 that deregulated
thrifts and ushered in the savings and loan crisis, and the supply-side-inspired
Economic Recovery Act of 1981 that cut taxes and increased the
national debt—and makes a somewhat convincing case for some not-so-obvious
ones. But when it comes to assessing New Deal and Great Society
legislation, George's choices are, to put it mildly, curious.

For example, the Social Security Act
of 1935, which established America's greatest and most lasting
universal program, is selected for the top ten on the logic that
its provision creating aid for dependent children eventually grew
into the recently repealed welfare program of Aid to Families
with Dependent Children (AFDC). The Civil Rights Act of 1964,
which outlawed segregation in public places and ensured the right
of equal employment, warrants a spot on the list since the bill
unwittingly instituted a system of racial preferences. And last
but not least, the Voting Rights Act of 1965, which gave blacks
in the South the right to vote, is picked since it weakened the
Democratic Party by driving benighted southern Democrats into
the welcoming arms of Republicans.

Certainly, there is room for reasonable
debate between liberals and conservatives over the relative merits
of AFDC, racial preferences, and the Democrats' loss of the South.
But for George to suggest that these consequences constitute
"legislation gone awry," when these same pieces of legislation
are responsible for a disproportionate amount of the social progress
this country has achieved in the past 60 years is, to say the
least, unexpected. Perhaps it demonstrates unusually muddled thinking
in what is already a dumb publication, or maybe it betrays a shockingly
right-wing bias in a magazine purported to be "post-partisan."
Either way, it's not likely the type of legacy the previous generation
of Kennedys had in mind.



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GOP FECKLESSNESS

Congressional Republicans have sought
$8 million for high-profile House and Senate probes of political
money, but when it comes to funding the Federal Election Commission
(FEC), the agency that enforces election laws, the Republicans
turn downright stingy.

Budget constraints have made it increasingly
difficult for the FEC to do its job: Since 1994 the agency has
experienced a 30 percent increase in the number of complaints
it has received and a 10 percent decrease in full-time staff.
Politicians in both parties have found it politically expedient
to call for a crackdown on campaign finance abuses, while financially
handicapping the one agency charged with policing the system.

In the first months of 1997, FEC officials
persuaded President Clinton to ask Congress to appropriate additional
funds to the agency. But House leaders, after initially going
along with Clinton's request and promising an extra $1.7 million
for fiscal 1997, quietly reneged on the deal when FEC officials—who
sought the additional funds to pay for more staff and other investigative
needs—refused to go along with House Appropriations Committee
Chairman Bob Livingston's stipulation that the extra money be
spent on upgrading the agency's computer information systems.
An Appropriations Committee spokeswoman told the National Journal
that Livingston thought killing the additional funds was "good
government management of taxpayer dollars." Or perhaps the
Republicans like the control of investigations they have in Congress
and don't want the FEC to have the resources to do its own properly.


WITH FRIENDS LIKE THESE

Republicans in Congress have been trumpeting
a series of "family-friendly" amendments to the Fair
Labor Standards Act, including a proposal to allow workers to
take an hour and a half of paid compensatory time off in lieu
of receiving standard overtime wage rates, for every hour that
they work overtime. The result, Senator John Ashcroft claims,
will be greater flexibility for American families and more free
time for American workers.

Sounds great—except that on closer
analysis, it's clear the bill would primarily benefit businesses,
often at workers' expense. Why? Because employers have a financial
interest in having their workers choose comp time rather than
the higher overtime rate. Nothing in Ashcroft's proposal stops
businesses from assigning overtime work only to those workers
who agree to choose comp time. And nothing ensures employees
will be able to decide when they can take their time off.

Furthermore, unlike overtime hours,
hours of comp time won't be included in the total number of hours
worked. A worker who takes Monday off could be forced to make
up the time on Saturday, without any of the benefits of overtime,
since he or she would not have met the 40-hour limit. Making the
problem still worse, this would often amount to a cut in benefits
and pensions, since many benefits are based in part on the total
number of hours worked.

The U.S. Chamber of Commerce and the
National Association of Manufacturers have been vocal in their
support for the measure, but it is telling that organized labor
and many family advocates have been opposed. Some workers may
welcome the opportunity to take extra time off, but others depend
on overtime pay to support their families—two-thirds of those
who worked overtime last year earned a standard wage of less than
$10. Without effective safeguards, workers won't be given a genuine
choice; the result will be increasing hours (as overtime becomes
cheaper for employers) and decreasing pay (as overtime compensation
falls). Working families could use some friends in Congress, but
longer hours at less pay isn't what they expect from them.




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