From Faneuil Hall in Boston; The Advocates.
Tonight's question: Should The Federal Government Reduce Everybody's Income
Tax 30% Over The Next Three Years? Arguing in favor is William Rusher, the
publisher of "National Review." Appearing as witnesses for Mr. Rusher are
Congressman Jack Kemp, Republican from New York and sponsor of the
Kemp-Roth tax cut bill, and Wendell Wilkie Gunn, commercial banker and a
Vice President of the Chase Manhattan Bank. Arguing against the proposal is
Stephen Schlossberg, head of government affairs for the United Auto Workers
Union. Appearing as witnesses for Mr. Schlossberg are Robert Dunn, Jr.,
Professor of Economics at George Washington University, and Congressman
Richard Boiling, Democrat from Missouri and Chairman of the Joint Economics
Committee of the United States Congress.
Good evening. Tonight The Advocates will be debating an
issue that a lot of you, a lot of us I should say, have been talking about,
tax cuts. And it looks as though quite a few congressional and state
elections may hang on this issue. How would you like a 10% cut in the rate
of your federal income tax next year, and a 10% cut the year after that, and
another 10% cut the year after that? An appealing thought, and that in part
is what the Kemp-Roth bill now before Congress would do. What we're going to
debate tonight is this: would such a tax cut help the economy, increase
production and employment, in other words, make every one of us the
beneficiary, or would it increase the national deficit, contribute to
inflation and make every one of us a victim? Advocate William Rusher
believes the federal government should reduce everyone's income tax by
Our federal government has made the delightful
discovery that if you tax people's income at progressive rates and then
chronically inflate the dollars they earn, you can push them into constantly
higher tax brackets and milk them drier every year without technically
raising taxes at all. The way to stop this nonsense, and at the same time
give the economy the stimulus it badly needs, is to lower the rates. And
with me tonight to propose exactly that are Congressman Jack Kemp and Mr.
Wendell W. Gunn.
Thank you. Advocate Stephen Schlossberg says,
Americans do need a tax cut, for their
well-being and for that of the economy, but tax reductions, must be
reasonable and responsible. Kemp-Roth is neither. It is a recipe for
frightening inflation. Economic poison disguised as magic potion. Taxes are
the price we pay for civilization. We fear the civilization Kemp-Roth would
bring. My witnesses tonight are Professor Robert Dunn, George Washington
University, and Congressman Richard Boiling.
Thank you. Benjamin Franklin warned us a long time
ago that in this world nothing is certain but death and taxes. While we've
always accepted death as inevitable, we've always considered taxes something
to complain about. We've been complaining for years, in fact, and for years
Congress has been reluctant to make any major changes, although from
time-to-time there have been minor adjustments. Now public pressure seems to
be making itself felt. It may surprise you to know that 3,400 tax bills have
been introduced in Congress this year alone. And it may surprise you even
more to know that that's not unusual. Thousands of tax bills are introduced
every year. But this year tax bills are getting a lot of attention. A
response to what is seen as a nation-wide revolt of the tax payers. Although
Americans are not the most heavily taxed people in the world, everyone wants
to pay less taxes. But what do you really want? The overwhelming approval of
Proposition 13 in California to limit property taxes, not income taxes as
the Kemp-Roth bill we're talking about tonight would, is being interpreted
in different ways. Many people want a cut in taxes even though they know it
will mean a cut in government services. And some, because it will mean a cut
in government services. These are the people who feel that government has
gotten too big, that a government that does everything for you, can take
everything from you. Some public opinion polls show a lot of interest in
cutting taxes, but little interest in cutting services. Others think that
there can be a cut in taxes without any significant cut in services, that a
tax cut will force the government to be more efficient. Still others, while
willing to go on paying high taxes, want some kind of reform to make sure
they're paying what they see as their fair share. And to be sure that their
tax dollar is buying them something they care about, say for streets, better
education, or cleaner air. And now for tonight's question. Mr. Rusher, the
floor is yours.
To a large extent, the activity of government
consists of taking money from the people in the form of taxes, and spending
it on various, more or less, necessary projects. But in a democracy like
ours, the special interests, like Mr. Schlossberg's big labor, that want
government to spend money on their projects, can bring more pressure to bear
on Congress than those who are trying to defend the general interests of the
tax payers. That is why your taxes have risen steadily, year after year.
Until today, the average American must work from January to May every year,
just to pay what government demands of his or her taxes, before starting to
earn money for himself and his family. Sooner or later, of course, the goose
that lays all those golden eggs is going to stop trying so hard. And there
is evidence that it is beginning to do just that. Our current tax rates are
so high that they are actively discouraging economic growth in this country.
Our chronic inflation is pushing more middle-income workers into the high
tax brackets and more low income workers into the middle tax brackets, so
that everybody's real income gets taxed more highly every year. The answer
is to lower the tax rates, and thereby restore incentive. And I call first
upon a man who proposes to do exactly that, Congressman Jack Kemp.
Congressman Kemp, welcome to The Advocates.
Mr. Kemp is Congressman for the 38th Congressional
District of New York, the Buffalo area. Congressman Kemp, what's wrong with
our present tax policy?
Well, it is too steeply graduated, and thereby has a
bias in the tax code against the worker, the saver, the investor, the
producer; those men and women of ambition that produce the goods and
services that make an economy healthy, create the jobs, provide the
opportunity for people to meet their own needs. Basically, if you tax
something, you get less of it. And generally speaking, if you subsidize
something, you get more of it. In America today, we're taxing workers,
savers, investors, producers, and entrepreneurs, and we're subsidizing
unemployment, non-work, welfare, debt, borrowing, consumption, leisure,
idleness and mediocrity. You get more of that which is subsidized. What I
believe has to be done, is to get the rates down to where you've done, as
you said, Bill, restore incentive for both workers and savers.
But what about the workers in your own district? Is
their incentive disturbed by the facts…
Well, this is one of the reasons why I introduced the
bill in the first place, and I did so two years ago. It is not just a
political gimmick, it was done in a time of very severe recession in New
York state, as well as the slow rate of growth in the United States. We've
got both inflation and recession at the same time, something the economists
told us could never happen. It is here, and one of the reasons, I believe ,
is that as inflation steadily pushes people up into higher tax brackets, it
reduces the reward for working and saving, thus discouraging the output of
our U.S. economy. So, the workers in Buffalo, or western New York, or New
York state or in the country, basically for the last ten years, because of
the steeply graduated nature of the tax code, had been working without an
increase in their after-tax incomes. For instance, the brackets are so
steeply graduated, that a six percent increase in a worker's wages, raises
their taxes nine to 10%. I think that is unnecessary and untenable.
What would your bill do concretely? What are its
Well, basically the Kemp-Roth bill, or the Roth-Kemp
bill depending whether you're in Delaware or New York, lowers all the
federal income tax rates on both the personal side and corporate side. About
90% of the tax rate reduction is aimed at individual tax payers because we
think this is the most important place to restore healthy investment and
saving and work climate. It reduces the bottom rates by about 50%, and
slowly works on up, right up to the top bracket. It reduces the top rates
about 25%. It was modeled after what President Kennedy did in 1964-5 fiscal
period. It took President Johnson to get it through the Congress, but it was
President Kennedy's strategy to get the economy moving again.
And he lowered the tax rates by 30% in one
Does it have any provisions about having to do with
I'm sorry, I couldn't hear.
Does it have any provisions to do with corporate
It lowers the corporate rate three points, from 48 to
45%. Something that President Carter, both democrats and republicans, all
pretty much agree, needs to be done to restore a healthy business climate as
Now, as I understand it, what you propose to do is
lower the tax rates. Is this a tax cut?
Yeah, the attack on this is that it is going to be a
vast tax cut and lose revenue.
Let me ask in general, what is the effect going to
be on revenue, tax revenue.
Well, we're not lowering the tax revenues, we're
lowering the tax rates to increase the reward for working and saving and
investing, thereby expanding the output of our economy, increasing the GNP,
leading to a creation of jobs, reducing the transfer payments, or the
welfare transfer payments that today are eating up close to 150 to 190
billion dollars a year. So, 1 don't know whether or not the revenues will be
fed back into the economy quick enough to finance it just by added revenue,
but I do know this, Bill, the additional increase in GNP, the growth of the
economy, plus the increased saving that will occur in our economy, will more
than anything else allow us to finance any short-term deficit, without
having the money supply expanding, thus leading to the inflation that was
mentioned as a threat to civilization.
Thank you. I have no further questions.
Thank you. Mr. Schlossberg, some questions for the
Congressman Kemp, six days ago, you said to
your colleagues in the Congress, and you said it again tonight that your
proposal is patterned after the Kennedy tax cut of 1964.
President Kennedy said he wanted to cut taxes
in the right way at the right time. Certainly we all did.
I want to make certain, for a moment, that you
and 1 are talking about the same time when we discuss such an important
economic move as the cutting of taxes in these dimensions. Inflation, in
1964, when the Kennedy tax bill was passed, was something in the
neighborhood of 1.4%. Isn't that correct?
And today, is it not a 7.8% and growing at a
double digit rate?
It is probably higher.
The federal budget deficit when the Kennedy
tax cut was passed was negligible then. Wasn't it about .2 billion
No, the federal deficit in 1963 was five billion. The
federal deficit in '64 was seven billion and in the 100 billion dollar
budget, that's a significant concern that many people had that inflation
would be a problem, although I agree, it was not as...
It wasn't a 50 billion dollar deficit we have
No, but we only had a 100 billion dollar budget, so a
seven billion dollar deficit in a 100 billion dollar budget is of great
concern. In fact, many conservatives voted against Kennedy because they were
afraid of inflation.
I realize that. Now—we're afraid of inflation
now, Congressman Kemp.
I'm glad to hear it. It's a real concern.
Let me ask you something. Now, mortgage
rates—weren't they about half of what they are now? And interest rates too,
weren't they about half of what they are now at that time?
Interest rates were lower, much lower, yes,
About half, and we were just coming off three
recessions, were we not?
We were coming out of—we were not coming out of a
recession, the reason that...
We had just finished three recessions, let me
say it that way.
We were coming out of a, we were in a recession, and
President Kennedy said the main road block to a full employment economy
without inflation is the heavy burden of taxes on the American people. All
I'm suggesting, Mr. Schlossberg, is that taxes are as high or higher today
than they were under President Kennedy.
Congressman Kemp, let me ask you, you said
you, you said to your congressional colleagues, that you wanted a tax cut of
similar magnitude as the Kennedy tax cut. Isn't your tax cut three times the
size of the '64 tax cut and double the amount in terms of the percentage of
No, it's not. It's less.
Let's talk about, let's talk about your bill a
little bit. The Joint Committee on Taxation tells us that your bill would
leave us with a federal deficit of 103 billion in 1982. Your own project,
your own projections, which you say are very hopeful, predict a federal
deficit of 64 billion dollars. We're going to have big deficits,
Congressman. I think that's true, is it not...
Because of the slow growth of the economy.
For whatever reasons.
I want to encourage the growth of the economy.
But with your tax cut we will still have a 64
billion...how do we deal with that? Does your bill tell us where we cut the
federal budget to make up for that deficit?
No, you just have to hold the growth of the federal
budget and not let it grow faster than the ability of the private sector of
the economy to finance the deficit, (a), and (b), as I've mentioned in my
answer to Mr. Rusher, savings of the American people in the private sector
will so expand that you can find...
...any short term deficit without the fear of
Is it not true that when you come to cut the
federal budget you know, as well as these people in this room, that
certainly a, the majority of the federal budget is uncontrollable. That the
defense budget, and so on. You're not going to cut the defense budget of a
100 billion dollars that's given to business and preferences. You want to
cut, and tell me if I'm right, social security, cause these are the people
you mentioned, transfer payments, welfare payments, school lunch...
Mr. Schlossberg, you're putting words in my mouth. I
do not advocate cutting social security. The greatest threat to the social
security system in America today is the slow rate of growth of our economy.
If we don't start expanding the tax base, such as that advocated by the
Kemp-Roth bill, the social security system will be in more severe trouble
than it is today.
We're going back to Mr. Rusher for some other
questions. Now I'm sorry Mr. Schlossberg, we'll come back to you in a
minute. Mr. Rusher?
Congressman Kemp, do the distinctions cited by Mr.
Schlossberg, between the economic situation in 1963 and situation today,
prove in your opinion that the same sort of tax rate reduction would have
wildly different consequences? Does it follow that the result would be
different, because of those differences?
I have never said, Mr. Rusher, that the conditions
today are exactly the same as they were in the early '60s. But the fear of
inflation was great in the early '60s. As I mentioned, my own party,
embarrassingly enough, voted against the tax rate reductions. This is a
bi-partisan strategy, it is not partisan. There are liberal democrats and
conservative republicans who believe that the way to restore a healthy
economy is to put incentive back into the economy for working and saving,
but the conditions are much like the Kennedy period because of the slow
growth of our economy and he said, as I pointed out earlier in the answer to
the question to Mr. Schlossberg, the main roadblock to a full employment
economy without inflation is the heavy burden of taxes on the backs of the
American people. He said the time has come to remove it, I agree. I think
the time has come to remove it, because they're higher today than they were
under President Kennedy in 1963.
Mr. Schlossberg, one final question for
You claim that the GNP, the Gross National
Product will skyrocket 160 billion dollars in one year. I assume your
evidence is that the GNP grew by 74% between '62 and '69. Is that
Ah, I didn't, I didn't put a static figure on the
growth of the GNP...
But isn't that the basis of your projection of
No, the basis of my projection is that the GNP will
grow. You will also increase the saving rate of the American people and as
Professor Heller pointed out in testimony before the Joint Economic
Committee when President Kennedy cut the tax rates, it financed itself in
the very first year of the cut.
But as you have admitted, those times were
Thank you, Mr. Schlossberg, Mr. Schlossberg, I'm
sorry—Thank you, Congressman Kemp, thank you very much for joining us on The
Advocates. Mr. Rusher, your next witness, please.
I call as my next witness, Mr. Wendell W.
Welcome to The Advocates.
Mr. Gunn is a commercial banker in New York City.
Mr. Gunn, in connection with the Kemp-Roth bill, there's been a lot of
discussion of the so-called Laffer Curve. Could you explain, simply for my
sake if nobody else's, what it is?
A Laffer Curve is just a graphical representation of
an old fact that you can, that there are two tax rates which will get you
the same level of federal revenues. A high tax rate on a low level of
production, or a low tax rate on a high level of production. The extreme
example is that at zero percent tax rate, you get zero revenues because no
tax is levied. And at 100% tax rate, you get zero revenues because either
all economic activity ceases, or it simply takes place out of the sight of
the tax collector.
What's the practical application?
Well, the practical application of that is that,
well, it points out that there is a danger in having tax rates too high
because all you’ll do when you get into a certain range of tax rates is
discourage investment or drive it off-shore, and end up getting less
revenues in the process.
The old law of diminishing returns,
It's the old law of diminishing returns applied to
Ah, can you give us an example of some governmental
entity that has had this experience?
Well, I guess a fine example would be New York state,
who on top of a progressive federal tax schedule, has a progressive state
income tax schedule, and during the last four or five years, New York state
has lost about 700,000 jobs, and it becomes more attractive to go someplace
in the Sun Belt, so that you can keep more of what you produce.
What is your reply to the charge that the Kemp-Roth
bill will contribute to inflationary pressures?
Well, I disagree with that charge. I think it's based
on the old assumption that inflation is caused by too much money chasing too
few goods, or too much demand, as it were, and I think that trying to fight
inflation by decreasing demand is a bit barbaric. Kemp-Roth seeks to fight
inflation by increasing the supply of goods.
But critics of Kemp-Roth say that production,
increase in supply, can't be increased fast enough, and the result will just
put more dollars into the economy and cause inflation.
Well, then ray question to those critics would be,
what kind of production can't respond that quickly? I think there's an
assumption there, that increased production means more typewriters, and more
paper clips, and more automobiles. But, businessmen invest in research and
development to produce better typewriters, better paper clips, and better
automobiles. And the other thing, is that we're not just, so we're not just
talking about quantity. And there are a lot of goods and services that are
produced. And they're also saying that it takes three years to bring a plant
on-stream. But we don't wait three years, and the plant drops out of the
sky. Somebody produces that plant during those three years, and that plant
is part of that production.
Since Kemp-Roth proposes to cut tax rates, some
people are afraid the government revenue is going to drop sharply, and
government expenditures will have to be cut. What do you say to that?
Well, I think that Kemp-Roth, the Kemp-Roth approach,
gives us the, gives us a method for affording the kind of cuts in government
expenditures for social programs to take care of people who are out of work,
they're only there because people are out of work. But if you restore
incentive to the private economy, then we'll be better able to take care of
people who absolutely cannot work by having a healthy private economy that
employs those who can.
No further questions.
Thank you. Mr. Schlossberg, your cross examination
of Mr. Gunn, please.
Thank you. Good evening, Mr. Gunn.
This is a short yes or no question. I just
want to ask you if you and Congressman Kemp were together—he disowned the
Laffer Curve, said it was, said his bill does not rest on it. Do you
disagree with him there?
Well, you know, I can tell you that even if, even if
revenues did not go up, if you drew people off the welfare rolls and into
work in the private sector, you could reduce the need...
Oh pardon me, I respectfully suggest that's
not an answer...
Wait, let's go back once more to the Laffer
We'll go on to the next question, cause he's
not going to answer that one.
You say that automatic cuts in welfare and
unemployment will take place because of this booming economy you're going to
produce through these massive tax cuts.
Now, 90% of our welfare payments go to mothers
and infant and small children. Have you got a place in this new society to
put these children to work? Never mind the child labor laws. Where will they
work, where will the children, the infants of the dependent mothers
The best thing we can do for a poor child is have an
environment where his father or his mother can get a job.
I agree with that, I agree with that. Don't
you think we have a different kind of unemployment today? Don't you think
that our unemployment today is more chronic, minority, untrained young
people, unskilled? The skilled workers are in very short demand, as you
know. This employment, unemployment is chronic. Which jobs do you offer
them, the unskilled, the young, the minorities?
There are only two kinds of unemployment, that's
people who can't work because they are handicapped or aged, and other people
who can't work because there's not enough incentive for somebody to hire
Let's talk about the new style productivity
you predict. No more new products, no more giant factories producing so much
goods. Production for use, is what I understood you to say. If we build
cars, like we traditionally built homes in this country, a Ford automobile
would sell for $100,000. Is the kind of economy you envision under Kemp-Roth
an economy we can live with where unskilled, undereducated, unemployed young
people are going to build $100,000 cars, and do R and D?
Well, when the businessman gets ready to evaluate an
investment, he estimates the cost and the revenues and the costs include the
cost of possible training of unskilled workers.
And if the, if the, returns are good enough, he
undertakes to train them himself.
You and I both know that's not done
It's done where I work.
Now, you're a loan officer at Chase
Manhattan. Surely you know about very high interest rates, how tight money
discourages growth and investment. What do you think the federal reserve
board would do when faced with a massive deficit which even Congressman Kemp
has admitted, would come with Kemp-Roth.
The major component of high interest rates is a high
expectation for inflation. If you decrease, decrease the incentive for
producing goods and at the same time gun the money supply, you'll have that
inflation and high interest rates.
Well, let me tell you what I think they'll
do. William Miller, the Chairman of the Federal Reserve System, who's going
to be in for 14 years, says that inflation's the most serious problem… He
says, he's a self made millionaire, by the way, he says Kemp-Roth is unwise,
highly inflationary, and will create huge deficits. How high do you think he
will raise the interest rates to combat those deficits?
Well, #1, I don't think Mr. Miller controls interest
rates, but the other thing is, where 1 disagree with Mr. Miller, is that
inflation is really only a problem because it erodes my purchasing power.
And the people who would want to solve it, would want to erode my purchasing
power further by raising my taxes. That's kind of like giving poison to a
Let's get this straight, Mr. Gunn, nobody on
either side of the issue in this room wants to raise your taxes. We know
that inflation has pushed middle income people into higher brackets. We all
want to cut taxes. What we want to do is cut it in a way that will help the
society and keep the society on an even keel.
That's what Kemp-Roth does.
Alright—Mr. Rusher, one more question.
Mr. Gunn, I think we have already had from the
representative of big labor tonight, a whiff of a demagogic argument yet to
come, that this is a bill for the rich. What do you think this does, if I
may ask you sir, for the poor?
Well, I'm not interested in making rich people
richer. I'm interested in making poor people richer. But if you have tax
rates that are so high on rich, people, that it becomes more profitable for
them to invest off-shore, or set up their plants in Mexico, ah then, the
people who have, the poor people who have only their labor services to
offer, don't have anywhere to take them.
Mr. Schlossberg, one last question.
Yes, I’d like to respond to the name calling
over there. Mr. Gunn, the former chairman of the Council of Economic
Advisors, Herbert Stein, under Nixon and Ford, said that there may be as
much chance for Kemp-Roth to boost government revenue and spur the economy
as there is life on Mars. Logically, he said he would not seek a MacDonald
franchise on the planet Mars. If I sought one as a law officer of the Chase
Manhattan, would you tell me that I have a friend at Chase Manhattan?
If you did—I didn't hear the question.
Shall I try it again?
Alright, thank you, Mr. Gunn. Thank you for
joining us on The Advocates. Mr. Rusher.
I guess Mr. Schlossberg didn't have time to tell
you that Mr. Stein on balance is however for the Kemp-Roth bill. Remember
how, just a little over a month ago, the people who were opposed to the
passage of Proposition 13 in California were telling us that the sky would
fall, the "Chicken Littles" of tax rate reduction in California. Well, the
bill passed anyway because the people of California had the courage of their
principles. And it didn't fall. The sky is still there. The important
services of California are still there, and they will stay there. What is
happening is that the people are getting control, again, of their
Thank you, Mr. Rusher. For those of you who may
have joined us late, tonight's debate is about a reduction in the income tax
rate. The question: Should The Federal Government Reduce Everyone's Income
Tax 30% Over The Next Three Years? Advocate William Rusher has just
presented his case in favor of the proposal, and Advocate Stephen
Schlossberg will present his case against. Mr. Schlossberg.
Thank you. The distinguished Mr. Rusher
mentioned Proposition 13. I would ask the opponents where the $5 1/2 billion
surplus that was in California is in the federal government? A great writer
said, 30 years ago, "inflation is a tragedy that makes a whole people
cynical, hardhearted and indifferent". Surely that is not true of Americans.
But there is mistrust. A search for demons who keep us from buying the
better life. Kemp-Roth has found their demons. They blame the poor, the old,
the sick, and the unskilled young. They say big government takes from us and
gives to them, and in my America there is no us and them, that is only, we.
Their cynicism is dangerous. Contagious, too. Kemp-Roth pretends that
drastic tax-cuts will multiply government revenues. When that fails they
would leave it to government, without any guidance, to cut services and levy
new taxes. We would face a staggering national debt, and a disillusioned
society. Kemp-Roth is nothing more than a something-for-nothing fantasy. Its
hidden agenda is even more pernicious. The crippling of a federal
government. I call as my first witness, Professor Robert Dunn, Jr.
Mr. Dunn, welcome to The Advocates.
Professor Dunn is a Professor of Economics at
the George Washington University and a former economist for the Federal
Reserve System, Board, excuse me. Professor Dunn, there's been some talk
here about Herbert Stein, the Nixon-Ford Council of Economic Advisors'
chief. He said, "I wouldn't bet the nation's economic policy on the
assumption that the Kemp-Roth tax cut will increase the revenue". Would you
bet on that policy, Professor?
No, I would not. Herb Stein's a very good economist,
and I'm inclined to follow his advice on this one. Those who claim that the
Kemp-Roth tax cut would ultimately raise total federal revenues provide very
little hard statistical evidence to support their views. If you try to chase
down the assumptions that are necessary to get that result, they turn out to
be a little tortured. As noted earlier, Rep. Kemp, himself, cites a
statistical study in his support, which indicates that in 1982, the federal
deficit would be $33 billion greater with his tax cut than it would be
Now, let's talk for a moment about the Laffer
Curve. You wrote an article which many of us read, in which you called it a
dangerous mirage. Now, I want you to talk to us. I know you're a brilliant
economist, but I want you to talk to us in English that people can
understand. We want to understand this very complex, complicated economic
problem. And say it in English, please.
Mr. Gunn did a very good job of explaining what the
Laffer Curve is. The problem is, that the supporters of the Laffer-Kemp
position provide no evidence that this country's tax system is in fact to
the right of that peak. It may be to the right, it may be to the left.
Wait a minute, Mr. Dunn, what do you mean by to
the right of that peak?
Well, the tax rates are now so high that a reduction
in taxes would have such strong incentive effects that it would generate
more revenues. No evidence is produced to support that.
They base their claim really on the success
of the Kennedy tax cut in 1964. They've said that over and over again. Why
isn't that proof?
The economy now is in a very different circumstance
than it was in 1964. We are now three and one-half years into a fairly
strong recovery from a recession. The inflation rate is not one percent, as
it was then. It's eight approaching ten. Interest rates are very high. The
federal deficit was very low then. Now it's 50 billion. There's no analogy
between the state of the economy, now and then. The nature of the
unemployment is very different now from what it was then. The labor force is
quite different. It's younger, it's less skilled and it's more prone to
Alright, Professor, what happens to the
nation's economy in your view if the Kemp-Roth tax cuts become law?
This depends in part on how the Federal Reserve
System responds. If the Federal Reserve System takes a passive posture, and
holds interest rates about where they are now, in my opinion one could
expect a rather wild bout with inflation. I wouldn't guess how high it would
Tell us what inflation means. We've heard
here that it's something about dollars chasing goods. What does inflation
mean to people in this room and to people in America?
Well, it means a lot of things. (1) that people
ultimately lose confidence in the currency, and to some degree in themselves
and the country. Now, Charles de Gaulle felt strongly that the soundness of
a currency had a great deal to do with the country's self-image. Mainly is a
nasty, brutal, tax on those who have saved for their future and their
children's future. It is an attack on the retired who have pensions and
annuities who see their real income shrink. Anybody who thinks that you can
raise the federal deficit by 33 billion bucks between now and 1982, above
what it otherwise would be, without adding to inflation, has got to be
Alright now, Professor Dunn—excuse me,
Very quick question, I'm sorry.
We're painfully aware that our tax system is
inequitable, with terrible loopholes for the rich and the super rich. In
fact, my information is, that the Laffer Curve was drafted on the back of a
napkin at a three martini lunch. Or was it a four martini lunch? What does
Kemp-Roth do to reform the tax structure?
It is not a tax reform bill, it's simply a slash in
Alright, we'll go to Mr. Rusher now, your chance
to cross-examine Mr. Dunn.
Mr. Stein, ah, Mr. Dunn, since you're such a great
respecter of Mr. Stein's, why don't you agree with him in supporting the
Well, because I think that is an unfair way to go
about it. What he argues is that, first you cut the taxes and you use that
as a way to slash away at expenditures. That puts the cart before the horse.
The Laffer-Kemp argument is that you really don't even need a horse, the
cart will go by itself.
It's too bad that Mr. Schlossberg did not find it
possible to mention that Mr. Stein was for the bill in the process of
quoting for it.
It does seem to me that those who argue for a large
tax cut, have an obligation to provide both halves of the package. Really,
it's a two sided package. You've got tax cuts, you've got expenditure cuts.
What's happening is, you're holding one hand behind your back and saying,
here's the nice half of it, here's the tax cuts. Show us the other half. Let
me see the other hand...
Let me ask you...
Put together a balanced program.
Let's hear Mr. Rusher's..
of tax and expenditure cuts.
Maybe some of us can support it.
Let me ask—maybe and maybe not, Mr. Dunn. Let me
ask you something about the level of taxation. I understand even you to
admit that some level of taxation would be counterproductive.
Alright, now, would you give us your best estimate
as to what that level might be?
I don't want to get involved in guessing...
I know you don't.
It's suffice to say, that there are a number of
countries that have tax rates higher than ours. Some of which even have as
high per capita GNPs as we do. I would like a tax cut. But, I think that's a
rather strange argument to put up for it.
In any case, you're arguing that the old goose
still has a few golden eggs left.
I think there are a few. I would also note that
there are specific taxes that could be cut that might help. I would note
that Representative Ullman of Oregon, the Chairman of the House Ways and
Means Committee, today suggested the integration of the personal and
corporate income tax. Personally, that strikes me as imminently sensible.
You are using a hammer, a sledge hammer, where a tack hammer is called
Course Mr. Kennedy,
Mr. Kennedy used precisely what you call that
sledge hammer, and I quote what Walter Heller, before he learned this is to
be a political issue, said about the Kennedy tax cut, "It did seem to have a
tremendously stimulative effect, a multiplier effect on the economy. It was
the major factor that led to our running a $3 billion surplus by the middle
of 1965 before escalation in Viet Nam struck us".
I would merely note that the economy was in a very
different state then with regard to the federal deficit, inflation and
I wanted to ask you about that, I wanted to ask
you. You mentioned one of the distinctions being that the unemployed today
are less skilled. I happened to have been in Youngstown, Ohio talking to
some labor union people in February. Are you suggesting that the people who
were laid off in Youngstown Sheet and Tube are not skilled?
No, I'm not. There are regions and areas of this
...where particular industry has been hit, where
there are problems. You deal with problems like that with tax policies or
economic policies that are aimed narrowly at those regions and those
Why? Why can't you deal with it in a way that will
make the economy as a whole healthier?
Because you over-inflate those parts of the economy
which are not greatly unemployed now.
Let's find out about that, now.
You're using a shotgun where something much narrower
is called for.
Well, let's see. You mentioned some foreign
countries. Let's take two. The United States today has a maximum tax rate in
the neighborhood of 70%, marginal tax rate. What about Germany? How high is
the marginal, maximum tax rate there?
I am not an expert on the German economy.
Fifty percent, to save you the trouble. And how
would you say the German economy compared today with the American?
It does rather nicely...
Thank you very much.
In part because the government does not run large
Now let's take the...
The money supply growth is held down, so they don't
have much inflation.
Right, and one of the reasons they don't have
large deficits is that they have the revenues that that kind of a tax rate
produces. What about Britain? How high is the highest possible tax rate in
It's pretty easy to get to 85%,
Well, you can actually get to 98%,
I would not argue for the British tax system.
Neither would the British at this point.
Would you like to argue for the health of the—I
dare say they wouldn't. Maybe they would like a Kemp-Roth bill if there were
time for it and possible to crawl back to. Do you think the British economy
is healthier because of that high tax rate?
The argument for an across the board, very large tax
cut, I think, might be somewhat stronger in Great Britain than it is
Yes, I think so too.
But note, they start out with a very different tax
system and a very different state of their economy.
And if you wait long enough, the argument will be
still better here.
Mr. Schlossberg, another question for Mr. Dunn,
Germany, for your information, Mr. Rusher,
Germany taxes 35.22% of the Gross National Product, about 17% more than
America. If sound economics, Professor, is not behind the Kemp-Roth bill,
what is behind it?
I think, one, just blank frustration with high
expenditures, high taxes, the whole business with politics, what-have-you.
More importantly, I think there's a hidden agenda. The notion that, first
we'll get the tax cut, the nice side of the package, and later we'll show
them the other hand. Then we'll hack away at expenditures. I think they have
an obligation to show us both halves of the program at the beginning. Tell
us where you're going to cut the expenditures as you go along. Don't show us
just the nice half and hide the other half.
Mr. Rusher, one final question for Mr. Dunn,
Were you pleased and relieved when Mr. Schlossberg
managed to change the subject of the German economy from the income tax
maximum to the aggregate tax maximum? That's quite a difference isn't it?
And it makes the difference. Actually the German maximum tax, income tax, is
in fact, substantially lower than that in the United States. Is that
But they also have very high sales taxes which
Well sure, they have other taxes. We're talking
here about income tax.
Thank you, Mr. Dunn. Thank you very much for
joining us here on The Advocates. Mr. Schlossberg, your next witness.
I now call Congressman Richard Boiling, who
is the author of the Budget Act, and the Chairman of the Joint Economic
Committee. Congressman Boiling.
Welcome to The Advocates, Congressman
Congressman, there's a lot of frustration
about taxes in this country. People in this room feel it, I feel it, you
feel it. Are you against tax cuts for Americans?
Of course not. As Chairman of the Joint Economic
Committee I testify regularly before the Budget Committee and other places
for sensible tax cuts.
But a massive tax cut like Kemp-Roth, this
give-away program, is politically popular. Why aren't you jumping on the
I learned a long time ago not to rely on snake
oil, fraud, or just plain stupidity. This is a very very bad
Tell us, please, Congressman Boiling, who
would be hurt by Kemp-Roth? We've been told how great it is, how it will put
the unskilled to work building quality products. Tell us, who would be hurt
In my judgment, and I worked with Jack Kennedy on
that tax cut long before it came to Congress, in my judgment this is exactly
the wrong thing. It might very well lead to disaster in this country, first
through inflation alone, perhaps then through depression. It's precisely the
wrong way to do it.
So, you're saying everybody would be hurt by
Everybody will be hurt.
Who will it fall the heaviest on?
It will fall the heaviest on the weakest people
in the country. The old, the young who are untrained, minorities, all the
weak in the economy will be the worst hurt.
Well, let me ask you a kind of philosophical
question, if I may? The choice seems painfully clear. Can this country
withstand a tradeoff between narrow self-interest and social
Absolutely not, and that's the key to this issue.
I don't think it happens to be with Jack Kemp. I think he believes in his
proposition. But many of the people that support it know exactly what
they're doing. They are special interest, representing the strongest special
interest in the country, the very rich.
Now, your colleague, John Rhodes, the
Republican House Minority Leader in the Congress, has called Kemp-Roth—great
compliment, Congressman Kemp—the Republican party's answer to the nation's
What do you think of that?
It's not that. It's the Republican party's answer
to the Republican ills. They're down to snake oil to try to win an
The backers of Kemp-Roth give us a choice
between what they call big government, big government, and the limitless
virtues of business. Can we rely on business, big and small, to preserve the
rights and the needs of the people of this country?
The last time we did we had the great depression,
and that was a very long time ago. But business today is taking the most
remarkably recalcitrant position I've ever seen. Right after World War II,
there was cooperation between business and labor for good programs. Today
business is fighting more than ever for its own selfish interests.
Isn't it true, today, with all of our huge
government expenditures, that about $100 billion a year of tax expenditures
goes to big business and to business?
Well, there's no question that vast sums do. I
think 100 billion would be a pretty good estimate.
And do you think—you know we always hear, and
especially from Mr. Rusher who's very expert on this, about how bureaucrats
rip us off, politicians rip us of. Did you know that the late Senator Phil
Hart said that the American people are ripped off about §25 to $30 billion a
year on car repairs, and would you comment on whether we can rely on the
self-interest motive of the profit-makers to protect us on these basic
Never worked in our history nearly as well as it
does when the people of the country insist on having a government that
represents them all. The social interest of the country is far more
important than that of any particular special interest.
Alright, Mr. Rusher, some questions for
Snake oil, fraud, that's what you think it's
Yes, sir, Mr. Cheap Shot Artist, that's why I
boiled up. You fired three cheap shots at the beginning of every one of your
And you think, and you think that the people of
California were all taken in by the snake oil and the fraud, ah?
No, sir, I don't think that that is anything like
the same thing. I don't even think that was a fraud. I think it's the kind
of thing that I might have supported if I'd lived in that state, and the
state had an enormous surplus.
This is an entirely different situation.
Let's find out, Congressman. Do you believe that
compassion has to be as costly in government terms as it is today?
No, sir, I don't think it has to be as costly,
and the reason that I don't think it has to be costly is that we have a very
confused system, forced on the people in government by those who want to be
sure that the costs don't come out of progressive taxation. The whole
purpose of this exercise is to see to it that the bills that have to be paid
to provide decency for people in this country don't come out of progressive
The supporters of Kemp-Roth want it to come out
of the most progressive system that we have, they want it to go back, they
don't want it to come out of that system, they want it to go back to the
state systems which are almost totally regressive.
Bear with me, Congressman. Last month alone, you
know this is an issue of spending and costs as well as the taxation which is
just the other side of that—last month alone, you voted against the 2%
across the board reduction in the non-mandatory items of labor and health,
education and welfare, didn't you?
I certainly am proud of it, too. And let me
explain to you why, since you read. It's almost that kind of across the
board cut which is a classic technique, is almost as mindless in my
judgment, in terms of its effect, as is Kemp-Roth. There's a good analogy
there. It does not accept the responsibility of saying when it cuts income,
where you're going to cut expenditures.
Alright, and you wouldn't vote either, did you,
for a 2% reduction in the housing and urban development and independent
And you were against a 2% cut in the Interior and
the Energy Department?
No, I'll stipulate, I've been voting against
silly cuts for many, many years.
And you were against the 2% cut in the Agriculture
Department, aren't you?
I have been doing it for a long time.
You've been voting for big government for
No, sir, I haven't been voting for big
government, I have been voting for services for the people of this country
and responsible effort abroad and at home.
Let's take the services of the largest department
of them all, Health Education and Welfare, which comes in this next fiscal
year for $189 billion. Now, in the last fiscal year, Congressman, they
themselves found $7 billion in fraud in their own agency, which is double
the amount that you wouldn't vote to cut them.
That has nothing to do with it.
It has nothing...
It has nothing, I can shout as loud as you can,
without cheap shots.
You can be wrong.
No, I can be right, too.
Let's cut out the name calling about cheap
Let's have the Congressman answer the
Answer the question.
Please, let's have the Congressman answer the
The answer is very simple. I would vote for a cut
for any fraud identified.
Yeah, sure, as soon as somebody else does your
work for you, you'll be for it.
I would not think of voting blind on any cuts
because the administration might make a serious mistake without guidance
You wouldn't and didn't vote for a $4 billion cut
in a $185 billion agency at a time when they were finding $7 billion worth
of fraud in their own agency.
If I'd had a chance to vote on the fraud, I'd
been happy to.
I'd bet you would have changed your mind if you'd
known about it at the time, yes, You complain...
I didn't say that, I didn't say that....
No, sir, I surely didn't.
Oh, you would, that's right, you want the fraud to
be established first, and if they will go in and establish that, then you
will agree to cut the costs I
We don't try people and convict them all at the
No, but we can cut the budget...
Even those corporations which make up so much of
the business community are not convicted when they are found guilty of fraud
and bribery. And so on, as 58% of the corporations involved in the biggest
business lobby organization in the United States have been.
You speak of the social costs...
We'll need a very quick question.
What about the social costs of the current tax
rates? Is there any, the cost of trying to give your children a decent
education, the cost of trying to improve the quality of your life, the cost
of being unemployed in the stagnant economy that you and your party and your
economics have been produced?
Well, I'm so sorry that you said that last thing.
This was all produced, by I guess your party, if you're a member of the
Oh, did it? When did it?
It was all produced, the recession and the very
deep recession began in Nixon...
Yeah, but what Congress was involved?
We're going to go to Mr. Schlossberg now.
That was very little to do with what we're
We're going to go to Mr. Schlossberg. Mr.
Schlossberg, one question for Congressman Boiling.
Congressman Boiling, as the author of the
most responsible piece of legislation in years, the Congressional Budget
Bill, would you please tell us, can government be both competent and
Of course it can, and it would do better if we
got a single, or even a dozen republican votes on the resolutions dealing
with the budget problem. The republicans have boycotted action on the Budget
Mr. Rusher, one final question for Congressman
You and Mr. Schlossberg, you and Mr. Schlossberg
have wept tonight over the unskilled youth for whom you have so much
compassion. Why did you vote against a minimum wage differential for those
youths so they could get jobs?
Because I think it's asinine and I know the
reason for it. The design is to see to it that those youths take the places
of adults who support families.
So let 'em starve,
That's the purpose.
That's it, let them starve.
Thank you, Representative Boiling, very much for
joining us on The Advocates. Now let's go to the closing arguments. Mr.
Did you notice that not even the other side
tonight has dared to argue that taxes are not too high? But when we propose
constructively and concretely to reduce tax rates, then they say, no, not
this bill, not this much, and so on. Well, somebody, somewhere must be in
favor of these high taxes, else why are you paying them? Did you hear all
those predictions from the other side of huge deficits if tax revenues go
down? That's because these people have no serious intention of cutting one
thin dime from the federal budget. They say these huge expenditures are
necessary to provide essential social services for the poor. Does that
accord with what you personally know about the welfare system in this
country? Health, Education and Welfare found $7 billion fraud alone in its
$175 billion budget. Someone said that, had the consummate gall to say that
Kemp-Roth bill was a proposal to give the taxpayers a free lunch. It was
Walter Heller. It is no such thing. It is a proposal to let them keep enough
of their own money to pay for their own lunch. Taxpayers, let's hear your
voices tonight. From Maine to California, vote "yes".
Of course, we are all in favor of a tax cut.
But the economics of Kemp-Roth are deeply flawed and its politics are
cynical. In the end the issue is very simple. Shall we have a wise tax cut
and try to control the cruelest tax cut of all, inflation? Or shall we put
tax policy on a radical path to the unknown? John F. Kennedy, President of
the United States, said, "Ask not what your country can do for you, ask what
you can do for your country". And Richard Nixon perverted that. He said do
what you can for yourself. Kemp-Roth is an exercise in such narrow
self-interest. I say to you, enlightened self-interest requires a faith in
responsible compassionate government. Kemp-Roth threatens America's future.
It distorts American values. Let us turn away from its dangerous vision.
Reject this snake oil, and vote against it.
Thank you. Tonight you've heard two sides of an
issue concerning all Of US: Should The Federal Government Reduce Everyone's
Income Tax Rate 30% Over The Next Three Years? Let us know what you think
about the question and send us your vote on a post card to: The Advocates,
Box 1978, Boston, 02134. And if you'd like a transcript of tonight's debate,
or transcripts of any of our previous debates, please mail a check or money
order for $2.00 to that same address: The Advocates, Box 1978, Boston,
02134. Two weeks ago, The Advocates debated the question: Should The Equal
Rights Amendment Be Ratified? The response to this question, the largest
vote we've had since January, was 5,464 for ratification; 8,877 against. The
total vote, 14,341, reflected an organized vote of more than 50% on each
side of the issue. Tonight's debate is the last debate I'll be moderating
this season. During the next program I'll be out of the country, and the
gavel and my other pleasant duties will be in the capable hands of
Congressman Michael Harrington of Massachusetts. That debate will be the
final debate of the season, the program that was originally scheduled for
last June 22: Should United States Policy Discourage Investment In South
Africa? Among the participants will be Roger Fisher, Professor of Law at
Harvard University, Randall Robinson, a Washington attorney and Executive
Director of TransAfrica, and Dr. Alex Boraine, Member of the House Assembly,
South African Parliament. Thanks very much for joining us. Good