President Bush should heed advice to reduce the deficit rather than undermine tax reform. Enacting the administration`s tax agenda would swell the deficit while burdening middle-income taxpayers and hurting America`s international competitiveness.
A tax cut on capital gains will encourage those who own stocks, bonds and real estate to cash in. The Congressional Joint Economic Committee reports that as of 1986, the wealthiest 10 percent of households owned 89.8 percent of all corporate stock, 88 percent of bonds and 49.2 percent of all real estate. The lesson of the Reagan years is that if you give the rich more money, they don`t save or invest it, they buy things with it-and they don`t buy American. Their consumption is foreign and exotic, as exemplified by luxury car sales. Between 1983 and 1986, U.S. sales of Jaguars went up 55 percent, BMWs 63 percent, Mercedes 35 percent, Porsches 40 percent, Saabs 83 percent.
Every dollar that the administration gives away in tax cuts for the wealthy means that the government will borrow another dollar, and borrowing more will keep real (after-inflation) interest rates twice as high as they are in Japan. This hurts working people, who need jobs here, not overseas, where investment dollars go to seek a greater return. As 80 percent of the privately held government bonds are owned by America`s wealthiest 2 percent, the rich don`t mind the deficit: They make money from it.
