Rangel at Ways & Means
Jude Wanniski
October 30, 1996


Memo To: Rep. Charlie Rangel [D-NY]
From: Jude Wanniski
Re: Ways&Means

It was nice to see the item about you in todayís Tax Report, on the WSJournalís front page. If the House goes back into Democratic hands, I have been assuring my clients that you would not be bad for business as chairman of the House Ways&Means Committee. If there is anyone in Congress of either party that has a greater interest in rapid economic expansion than you, and your Harlem constituents, I canít think of them. Iíve even contemplated a government that has Dole/Kemp in the White House, a GOP Senate with Trent Lott in control, and a Democratic House with you as chair at Ways&Means. The combination would be ideal for getting a new tax system by the 21st century, as I doubt a wall-to-wall GOP government would be able to work that out, because there are such serious cleavages within Republican ranks on what an ideal tax system should look like.

The Tax Report quotes you as saying you favor targeted cuts in the capital gains tax to help economically depressed areas. Charlie, the whole country is economically depressed, except for the people who happen to be at the top of the pile at the moment. If you do wind up at the top of the pile at Ways&Means, I hope you broaden your scope beyond your own district. Targeted cuts in capital gains is a self-defeating idea. Your object should not be to get me, a rich guy, to invest $100,000 in Harlem. It is too difficult for me to do that, as I live far from Harlem and have no way of knowing what opportunities exist there that are worth the effort of making an investment there. What you really want is a rising tide across the country, which puts upward pressure on the wages of all labor -- inside and outside Harlem. When businesses outside Harlem canít afford to pay the wages to produce goods and services that earn them the profits they need to sustain capital investment, they are forced to go where the labor pool exists. That is, either Mexico or Harlem. The tax system is now set up to favor Mexico over Harlem, which is why you never see much good from the kind of top-heavy expansion weíve been having. An elimination of the capital gains tax would mean an enormous increase in the rewards to equity investments by individual Americans, as opposed to big corporations. The capital formed first in Morristown, N.J., where I live, would flow into investments close by, and reach Harlem through the labor markets far sooner than they would reach Mexico City.

This is what was happening in the Reagan years, until the 1986 tax act caused an increase in the capital gains tax in 1987. If you recall, New Jersey shopping malls were having to rent buses to pick up employees from Harlem for free transport, and pay wages higher than New Jerseyís minimum, which was already higher than the nationís. This was the tip of the iceberg, shut down when the Big Guys got tired of seeing wages driven up, a great inconvenience. They prefer a reserve army of unemployed. When the Ď86 tax act pulled the props out from under entrepreneurial capitalism, the buses between northern New Jersey and Harlem stopped running. If they had continued, the next step would have been to send business being done in northern NJ to Harlem, to eliminate the inconvenience of transporting labor.

What you most have to guard against, Charlie, is that as soon as you are at the top of the Ways&Means pile, you will be wined and dined by the Big Guys, who will try to persuade you that a rising tide does not lift all boats, and that what I describe here is ďtrickle-down economics.Ē This leads to more of the deals that now litter the 7,500,000 words of our federal tax code.

P.S. Patricia and I had dinner in NYC last month with Leonard Farrakhan Muhammad and his wife Donna, the Ministerís daughter. Iíve been trying for the last year to help the Nation of Islam in its attempts to seek reconciliation with the Jewish community -- a hard thing as long as the Jewish leaders not only refuse to sit down with Farrakhan, but also use all their political powers to break the Nationís contracts with state and federal governments to provide security at public buildings. After the elections, Iím going to make another push and hope we can get together to discuss what the best course may be. It would be nice to break bread with you and Alma again.