Devil in the Details


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 . . .


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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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.


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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