Memo To: President Bill Clinton
From: Jude Wanniski
Re: Kemp to Lott to Clinton
Of course you are itching to veto the tax bill as soon as Congress gets back to town. It may surprise you to learn that Jack Kemp, tax-cutter extraordinaire, also would veto the bill if he were President and it came to his desk. He said so last week in a letter to his old pal, Senate Majority Leader Trent Lott. I received a copy and thought it would be helpful if you were to hear his sentiments. He told me Monday that it would be okay to post the letter here and fax it to you directly, just in case you forget to check my website today.
August 18, 1999
The Honorable Trent Lott
United States Senate
I hate to bother you on vacation but I am profoundly disturbed by the drift in our party and by the possibility of another interest rate hike by the Fed. During his recent appearance before the House Banking Committee, Fed Chairman Alan Greenspan told Congressman Paul Ryan (R-WI) that there was no need to debate whether tax rate reductions would improve economic performance since the economy was growing about as fast as it possibly could, implying that pro-growth tax rate reductions would be inflationary and might even have to be offset with higher interest rates. He went on to urge Congress to make retiring the national debt our number one fiscal priority and to hold off cutting tax rates until we really "need them," i.e., when we confront a recession.
I wrote to the Chairman and told him that while I hold him in the highest regard and have great respect for what he has accomplished as Fed Chairman, I resolutely disagree with him in two areas. First, I strongly disagree with the Fed's currently deflationary monetary policy, which results from targeting economic growth and unemployment rather than commodity prices and other financial indicators. Second, I fervently disagree with the Chairman's advice to Congress to opt for debt retirement over tax-rate reductions. This is precisely the kind of demand-side, slow-growth austerity that the IMF has been inflicting on developing nations around the world, causing them such economic misery. And can you believe it? The IMF is now urging the Fed to increase austerity in the United States by raising interest rates even more to slow the economy's growth. Far from producing prosperity and political stability, the empirical record reveals that austerity retards economic performance and is politically poisonous. That is why I believe it is time for the Republican Party to alter its course and denounce a debt-retirement economic strategy as ill-conceived, ill-advised and counterproductive under current circumstances.
The entire debt-reduction strategy, in my opinion, is misplaced. And, the so-called "lock box" puts our party in a lock box. Our current tax code, as you know, is unacceptable; it's counterproductive and it inhibits the industry and genius of the American people. Everyday that this tax code remains in place, it is harming our economy far more than any beneficial results one conceivably could hope to achieve through debt retirement. I know the political constraints you face, Trent, and I appreciate the forces of austerity against which you are laboring valiantly. However, I must tell you, if I were President, I would veto this tax bill, albeit for far different reasons than the demagoguery coming from Clinton and Gore. Although the bill contains some very good provisions (i.e., a capital gains tax-rate cut with indexing, repeal of the estate tax, AMT relief and expansion of IRAs), its centerpiece, the one-percentage-point reduction in tax rates, phased in over 10 years and tied to a debt-retirement condition no less, is a disgrace to and a retreat from the memory and legacy of Ronald Reagan and from everything you and I fought for in the late 1970s and early 1980s. It sets such a horrendous precedent that we all would be better off if it never becomes law. Since the President is going to veto this turkey anyway, wouldn't it have been far better for our party to have passed a tax bill that defines our vision and establishes the foundation on which our presidential candidate could seek a national mandate for tax reform and pro-growth tax rate cuts?
It is vitally important to use the opportunity of this tax bill to educate the electorate to the fact that only sustained and robust economic growth can save Social Security and Medicare as well as reduce the size of the public debt relative to size of GDP, which is what counts. The party of Ronald Reagan should not be competing with Bill Clinton over who can inflict more austerity on the American people in the name of "saving Social Security." Instead, our Party should emphasize the need to significantly reduce tax rates across-the-board to generate the kind of sustained, non-inflationary economic growth necessary to preserve retirement security in the 21st Century.
When the President vetoes this tax bill, please Trent, take the opportunity to change the entire nature of the debate. You must use his veto as a means to get us back to growth arguments. The arguments are not new. They are tried and tested. They are the same persuasive arguments on which the Kemp-Roth bill and Ronald Reagan's economic program were based 20 years ago: The best way to increase the "after-tax return" on working and investing is to reduce tax rates across the board in a manner that will expand the economy without creating inflation, which will enlarge the pie and provide government with the revenues to perform its essential functions. If this is the basis on which we make our case for cutting tax rates now, I am convinced that voters will demand more of the same in the 2000 elections, and the GOP will be able to enlarge our controlling majority in the Congress, regain the White House and be an example to other nations in the 21st Century.
Very sincerely yours,