February - March 1998

"THIS JUST IN"

March 26, 1998

Supermajority requirement in New Jersey would help restrain government
Taxes rose five times faster in states without supermajority requirements, Cato expert says

"Supermajority requirements merely ask legislators to reach a broader consensus when they want to take more money out of their constituents’ pockets," Cato Institute analyst Dean Stansel told a New Jersey State Senate committee today. The legislature in Trenton is considering a bill that would require that all tax hikes be approved by a three-fifths supermajority of both houses.

Stansel noted that there are now 13 states with supermajority provisions—six of them have been adopted since 1990. "Residents in states that already have supermajority requirements found that their tax burdens increased by only 1.1 percent from 1980 to 1996, while residents in states without such requirements saw state taxes as a share of personal income go up by 5.4 percent," Stansel told the senators.

"Supermajority requirements also have proven to have a noticeable impact on top tax rates," Stansel reported. "In 10 states—all without such requirements—residents face higher top personal income tax rates today than they did in 1990. None of the 13 supermajority requirement states have higher top rates than they did in 1990, and 3 have reduced their top rates."

Stansel concluded, "Today, Americans have to spend more on taxes than they do on food, clothing shelter and transportation combined. Is it too much to ask that more than a simple majority be required to make that burden even higher?"

March 26, 1998

Ban on buying and selling organs for transplant costs lives
Analysis shows that cost of current approach is endemic shortages

"Ten Americans die each day while awaiting an organ transplant, and the problem is becoming more severe. Between 1988 and 1994, the median waiting time nearly doubled. It is imperative, then, that society find ways to increase the supply of organs, even through buying and selling," according to the authors of "The Rationing of Transplantable Organs: A Troubled Lineup" in the latest issue of the Cato Journal.

Authors Charles T. Carlstrom and Christy D. Rollow note that "organs are not the only goods rationed in the United States—they are just the most controversial." During the 1970s gasoline was rationed largely on a first-come, first-served basis, leading to long lines at the gas pumps. During World War II basic foodstuffs were rationed using a coupon system. In each case, prices alone were not permitted to allocate the commodity. Instead, someone was put in charge of managing distribution on the basis of some notion of equity or efficiency, a task that is always tough. "Determining the most equitable way to allocate gasoline and food is difficult, but deciding how to allocate transplantable organs is infinitely more complex," the authors acknowledge.

Since 1984 the buying and selling of internal organs has been prohibited by provisions of the National Organ Transplant Act. In the absence of market-based allocation, a nonprofit group called the United Network for Organ Sharing (UNOS) rations available organs using several methods, all of which lead to questionable allocation. It uses a "sickest first" policy to rank liver and heart patients, which leads to situations in which people like baseball hero Mickey Mantle receive a liver transplant after two days on the waiting list, "despite the fact that the average liver transplant patient waits 67 days." Mantle, who suffered from hepatitis, liver cancer and years of alcohol abuse, died two months later. That was not surprising in light of the fact that "the two-year graft (organ) survival rate for patients who are in intensive care prior to their liver transplant is approximately 50 percent, compared to 75 percent for those who are still relatively healthy." Giving available livers to healthier patients, in other words, "would save more lives."

Without market-based allocation of organs, supply has remained almost flat while demand has grown dramatically over the past decade. "To increase donations, we need to consider financial incentives mimicking those that prices provide in a market economy. Perhaps the simplest approach is to give tax incentives to families who agree to donation." Even if such incentives do not eliminate the need for rationing, "each additional organ procured will reduce the difficult, and sometimes arbitrary, decisions that UNOS must make. While many feel that the distribution of organs is too important to be left to market forces, ultimately, it is too important not to be."

Charles Carlstrom is an economic advisor at the Federal Reserve Bank of Cleveland. Christy Rollow is a research associate at the Federal Reserve Bank of Richmond. The views expressed in the article are theirs alone.

Cato Journal 17, no. 2 (http://www.cato.org/pubs/journal/cj17n2.html)

March 26, 1998

Unilateral U.S. sanctions against Burma have been a "comprehensive failure"
Main victims are the Burmese people themselves, study finds

"In the final analysis, U.S. policy toward Burma is irresponsible moral posturing," according to a new Trade Policy Analysis from the Cato Institute. "The sanctions policy against the government in Rangoon never had any chance of working because of the refusal of ASEAN, Japan, China, and the European Union-Burma's largest trading and investment partners-to support it."

The paper, "U.S. Sanctions against Burma: A Failure on All Fronts," by Leon T. Hadar, notes that in recent years unilateral trade sanctions "have become a staple of U.S. foreign policy." "Sanctions are an inherently flawed strategy," Hadar explains, "because the kind of regime likely to become the target of U.S. sanctions-an authoritarian regime in a less developed country such as Burma-is also the least sensitive to unilateral U.S. economic pressure."

In the case of Burma, America's potential leverage "has always been marginal at best. The United States is only the fifth largest foreign investor in Burma," and "in 1994 the United States accounted for about 1 percent of Burmese imports and took in about 7 percent of that country's exports. . . . Cutting U.S. economic ties with Burma will only reduce the already limited leverage the United States has on Rangoon."

Moreover, there is no consistent standard applied when the United States attempts to impose unilateral sanctions. "The notion that diplomatic and economic relationships with a decaying communist regime in Hanoi are proper from a moral perspective, while similar ties with a military junta in Rangoon are not smacks of hypocrisy," Hadar declares.

"When it comes to advancing political and economic reforms, U.S. companies in Burma are part of the solution, not the problem," Hadar maintains. "They promote democratic values, set a positive example, and improve the general quality of life by providing fair pay, safe working conditions, and health and education benefits."

Leon Hadar is an adjunct scholar at the Cato Institute and a Washington-based journalist who covers international politics and economics with a special interest in East Asia and the Middle East. His paper is the first to be issued by Cato's new Center for Trade Policy Studies, which opened earlier this year.

Trade Policy Analysis no. 1 (http://www.freetrade.org/pubs/pas/tpa-001.html)

March 24, 1998

New asylum laws are putting human lives in danger
Undermining the American tradition of offering a safe haven, study says

The new asylum laws included in the 1996 Illegal Immigration Reform and Immigrant Responsibility Act are "like unnecessary surgery following an outdated diagnosis, performed with an ax rather than a scalpel," according to a new Cato Institute Policy Analysis.

"The 1996 changes were based on a sensationalized and misleading portrayal of U.S. asylum law," writes Michele R. Pistone, advocacy fellow at the Center for Applied Legal Studies at Georgetown University Law Center. "Contrary to popular belief, it is not easy to get political asylum," which is made plain by the fact that four of five applications are rejected by the United States.

The legislative changes enacted in 1996 were passed before the effect of regulatory changes put into place the year before could be evaluated, Pistone argues. In 1995, the Immigration and Naturalization Service "established procedures permitting the speedy identification and granting of meritorious claims" and the referral of the rest to immigration court. "The 1995 regulations also eliminated the automatic grant of a work permit when an application for asylum is filed," and thus "the prospect of receiving work authorization, long perceived as a magnet for frivolous asylum claims, was eliminated."

The 1996 law imposed a one-year deadline for filing asylum applications, which in practice has harmed asylum seekers who "are typically running away from personal danger and are primarily concerned with saving their lives. When they arrive in the United States, they often cannot express their fears of persecution immediately or meet the application filing deadline necessary for asylum protection," she notes. The law also set up new expedited procedures for sending people who arrive without required documents back to their countries of origin. But "those who travel without proper documents often do so out of necessity because their governments, which would normally grant them such documents, may also be their persecutors. It is unrealistic to expect those people to ask their government for travel documents so that they can flee the country or to require them to show their own passports to their persecutor at flight."

"Now, the prognosis for genuine victims of human rights abuses is bleak. Because of the legislation, many people will die," Pistone concludes. "In keeping with America’s tradition, every effort should be made to lessen the random impact of the new laws on genuine victims of human rights abuses. . . . In the long term, the utility of the asylum and removal provisions should be revisited. Let us not end America’s ideal of offering a haven to the world’s oppressed."

Policy Analysis no. 299 (http://www.cato.org/pubs/pas/pa-299es.html)

March 20, 1998

Keidanren and Cato to hold symposium in Tokyo on April 6
Japanese and U.S. experts to discuss deregulation in the global marketplace

A symposium on "Deregulation in the Global Marketplace: Challenges for Japan and the United States in the 21st Century" will be held in Tokyo, Japan, on April 6, 1998. It is being cosponsored by the Cato Institute and Japan's major business and industry association, the Keidanren (Japan Federation of Economic Organizations). It is the first event of this type that the Keidanren has jointly sponsored with an American think tank in Tokyo, and it will bring together experts on Japan and the United States to examine issues ranging from "The Role of Government in the 21st Century" to "The 'Big Bang' of Financial Market Reform" and "Pension Reform and the Savings Imbalance."

Brink Lindsey, director of Cato's Center for Trade Policy Studies, noted that "both Japan and the United States have economies that are functioning at less than their full potential because of the burden of government regulation. And both countries would benefit enormously by shifting from government-run pension systems to ones in which retirement savings are placed in privately owned investment accounts. This unprecedented conference gives us the opportunity to explore these and related issues at a time when there is a recognition in both countries that making such changes is both necessary and inevitable."

Speakers at the April 6 symposium will include Masaya Miyoshi, president of the Keizai Koho Center; William Niskanen, chairman of the Cato Institute; Kazuo Nukazawa, senior managing director of Keidanren; Murray L. Weidenbaum, former chairman, President's Council of Economic Advisers; Kensuke Koga, chairman, Nisshin Steel Co., Ltd.; Alan Reynolds, Hudson Institute; Hajime Karatsu, Tokai University; Brink Lindsey, Cato Institute; Naoki Tanaka, president, 21st Century Public Policy Institute; Keikichi Honda, chairman, Sun Microsystems Japan; Jesper Koll, vice president, J.P. Morgan Securities Asia; Haruo Shimada, professor, Keio University; José Piñera, co-chairman, Cato Institute's Project on Social Security Privatization and former secretary of labor, Chile; and George Melloan, deputy editor/international at the Wall Street Journal.

The day-long conference will be held at the headquarters of the Keidanren in Tokyo.

March 19, 1998

Barring ATM fees "would only harm consumers," study says
Surcharges allow banks and nonbanks alike to offer consumers "time-saving option"

"Prohibiting ATM surcharges would only harm consumers by slowing the expansion of ATMs and reducing the number of ATMs currently deployed without making anyone better off," according to a new Briefing Paper from the Cato Institute. Urged on by consumer groups, small banks and credit unions, Sen. Alfonse D'Amato (R-N.Y.) has proposed a federal ban on ATM fees. But such a ban "would limit the number and location of ATMs and inconvenience customers," according to the paper's author, John Charles Bradbury.

In "ATM Surcharges and the Expansion of Consumer Choice," Bradbury notes that operating automatic teller machines is expensive. "Allowing ATM surcharges has encouraged firms outside the banking industry, as well as banks, to put ATMs in more convenient locations where, without surcharges, ATMs may not generate enough bank customer traffic to be profitable." Much of the growth in ATMs has been due to nonbank and nonthrift firms, which accounted for nearly half of all the new shipments of ATMs in 1996. They have led the placement of ATMs in places like supermarkets, convenience stores and airports, where surcharges make them economically viable.

"The fact that such ventures are increasing is an indication that consumers are willing to pay fees for the convenience they are receiving," Bradbury observes. "Customers who are unwilling to pay a surcharge incur the cost of inconvenience, while those who value the convenience more than the cost of the fee have the option of paying for it." In short, consumers have a choice, and a surcharge ban "would serve only to deny an important time-saving option to consumers who are willing to pay for the convenience of ATMs."

Cato Briefing Paper no. 36 (http://www.cato.org/pubs/briefs/bp-036es.html)

March 16, 1998

Kansas City experience leaves no doubt: money can't solve school problems
New Cato study findings are crucial to congressional debate on education bill

"Kansas City did all the things that educators had always said needed to be done to increase student achievement—it reduced class size, decreased teacher workload, increased teacher pay, and dramatically expanded spending per pupil—but none of it worked," concludes a new Cato Institute Policy Analysis published today. In his study, Paul Ciotti looks at an important but little appreciated lesson from Kansas City’s 12-year experience with a massive desegregation experiment ordered and managed by a federal court judge. The results have profound implications for the congressional debate this week over federal education policy.

In "Money and School Performance: Lessons from the Kansas City Desegregation Experiment," Ciotti describes in detail the efforts of federal Judge Russell Clark, from the time he took partial control of the Kansas City schools in 1985 until he finally withdrew a year ago this month.

Clark "invited the school district to come up with a cost-is-no-object educational plan and ordered local and state taxpayers to find the money to pay for it. Kansas City spent as much as $11,700 per pupil—more money per pupil, on a cost of living adjusted basis, than any other of the 280 largest districts in the country. The money bought higher teachers’ salaries, 15 new schools, and such amenities as an Olympic-sized swimming pool with an underwater viewing room. . . . The student-teacher ratio was 12 or 13 to 1, the lowest of any major school district in the country," Ciotti notes.

"The idea was that Kansas City would be a demonstration project in which the best and most modern educational thinking would for once be combined with the judicial will and the financial resources to do the job right." By the time the experiment ended, Clark’s plan had gone through more than $2 billion.

"The results were dismal. Test scores did not rise; the black-white gap did not diminish; and there was less, not greater, integration. . . . The situation in Kansas City was both a major embarrassment and an ideological setback for supporters of increased public schools."

Ciotti’s exhaustive examination of the failure of the Kansas City experiment is must reading for members of Congress this week, as they debate a White House plan to spend billions in federal funds to hire 100,000 new teachers, build or modernize 5,000 schools and increase spending on other programs. "The structural problems of our current educational system are far more important than a lack of material resources," Ciotti concludes.

Policy Analysis no. 298 (http://www.cato.org/pubs/pas/pa-298es.html)

March 11, 1998

Line-item veto is "one of the taxpayers' best friends"
Cato's Stephen Moore tells Congress it doesn't tilt power too far toward the White House

"The line-item veto has shown itself to be one of the taxpayers' best friends-and lord knows, taxpayers have far too few friends in Washington already," the Cato Institute's director of fiscal policy studies Stephen Moore told members of Congress Wednesday. He testified before the Subcommittee on the Budget Process of the House Rules Committee.

"In 1997, President Clinton used this new budget-cutting tool 82 times to delete unnecessary expenditures in 11 spending bills, saving a total of nearly $2 billion over five years," Moore noted. "Virtually none of those projects served the national interest." They included a $2 million dredging project in Alaska that would benefit a single tour boat operator.

Moore appended a list of two dozen federal projects that were not vetoed in last year's appropriations bills but easily qualify as "pork-barrel" spending. "My complaint is not that Bill Clinton used this veto too recklessly-but too sparingly. The 1998 Energy and Water bill contained 423 unrequested projects -- just about one in every district. Clinton canceled just 8 of them. Most of the other 415 deserved the same fate."

The main problem with President Clinton's use of the line-item veto so far has been a failure "to provide any coherent justification for why some projects have been terminated and others have passed muster," Moore said. "Establishing clear standards of use is the best way to refute the charge that the line-item veto is being used capriciously."

Moore reminded the subcommittee that far from being an unprecedented power shift in the direction of the White House, the line-item veto "partially restored the rightful authority of the executive branch that was improperly snatched away in a power grab by the post-Watergate Congress in 1974." The Budget Act passed that year took away the president's authority to impound funds, "a power that was exercised routinely by every president from Thomas Jefferson through Richard Nixon."

And what should Congress do if the Supreme Court finds the present line-item veto law unconstitutional? "Fix the legislation immediately so it will pass constitutional muster. The line-item veto is not inherently unconstitutional. All that is being challenged is the legality of the procedures for the particular version passed in 1995."

Stephen Moore's testimony "The Line-Item Veto after One Year" can be found at the Cato Institute Web site: http://www.cato.org/testimony/ct-sm031198.html

March 3, 1998

NATO expansion will bring expensive and dangerous obligations for U.S.
New Cato book comes as Senate rushes to judgment without serious debate

Expanding NATO to include Poland, Hungary and the Czech Republic "will establish expensive, dangerous and probably unsustainable security obligations for the United States," according to a new book published today by the Cato Institute

In NATO Enlargement: Illusions and Reality, 18 authors contribute chapters that examine in detail the hazards involved with expanding the Atlantic alliance. The book's release today comes as the U.S. Senate approaches a vote on whether to approve the expansion negotiated in Madrid last July.

Cato vice president for defense and foreign policy studies Ted Galen Carpenter notes that "advocates of enlargement sometimes act as though a bigger NATO is merely an institutional mechanism whereby everyone can gather in the center of Europe for a group hug. It is not. It is an unnecessary and provocative initiative with perilous implications."

Major sections of the book describe "Problems of Cost and Credibility," "NATO Enlargement and Russia's Relations with the West," "Creating a New Division of Europe," and "Alternatives to an Enlarged NATO."

American University professor Amos Perlmutter notes in his chapter in the NATO book that what former Warsaw Pact countries really need is stronger economic ties with Western Europe, not membership in a military alliance. "NATO enlargement, if it is to occur at all, must follow enlargement of the European Union. In all likelihood, EU enlargement would make NATO enlargement unnecessary."

NATO Enlargement: Illusions and Reality is edited by Ted Galen Carpenter and Cato associate policy analyst Barbara Conry.

To order copies of the book ($11.95 paper, $21.95 cloth), call: 800-767-1241, or click on "Publications Library" on the Cato home page: http://www.cato.org.

Generosity can flourish only in a free society, author says
Machan: generosity is not an enforceable duty

"To be generous is to voluntarily help others," philosopher Tibor Machan argues in a new book from the Cato Institute. Thus, he argues, the moral virtue of generosity "cannot flourish in a welfare state or in any sort of command economy. It will, however, flourish in a free society."

In Generosity: Virtue in Civil Society, Machan explains in detail why people who believe generosity can be expressed through redistributive government programs are wrong: the welfare state "is coercive, presumptuous, and insulting, in the end, rather than kind and generous." Virtues like generosity are the pillars of civil society, and virtue will invariably flourish in a free society based on individual rights. The welfare state, on the other hand, "fosters resentment, bureaucratic inefficiency, and frustration—but most of all, it blocks the only way moral excellence can flourish, by way of free choice." Free choice is the foundation of civil society, in Machan’s view: It makes it possible for people to "build and sustain human communities that exhibit care, compassion, and kindness alongside prudence, industry, courage, and other virtues."

Machan notes that there is ample room for institutional generosity in a flourishing human community. Businesses, clubs, churches, schools, and other groups can serve as vehicles for individual generosity. But government is ill equipped to do so. Any generosity that it exercises runs two major moral risks: First, those who appropriate others’ resources for public use are distributing things they never produced or owned. Second, government appropriators may violate the trust of those they ostensibly serve by favoring one person or group over another.

Machan is the author of 14 other books, including Individuals and Their Rights and A Primer on Ethics. On leave from his post as professor of philosophy at Auburn University, he is currently professor and distinguished fellow at Chapman University in California. He is also a research fellow at the Hoover Institution at Stanford University and has been a visiting professor at the U.S. Military Academy at West Point.

To order copies of the book ($8.95 paper, $16.95 cloth), call: 800-767-1241, or click on Publications Library.

February 23, 1998

Developing countries benefit most from free markets
Theories of development pioneer Peter Bauer vindicated after half century

"The real plight of underdeveloped countries is not market failure but government failure—that is, the failure of government to protect property rights, enforce contracts, and leave markets alone," writes James A. Dorn, vice president for academic affairs at the Cato Institute, one of three editors of The Revolution in Development Economics, a collection of essays dedicated to noted British economist Peter Bauer. "Lord Bauer was among the first to clearly see that fact."

The book examines the shortcomings of conventional development theory and contrasts it with the new approach to development economics that focuses on the role of institutions, incentives and information in determining economic performance. In addition to Bauer, the contributors include Karl Brunner, Deepak Lal, Julian Simon, Alan Rufus Waters, Paul Craig Roberts, Sir Alan Walters and Alvin Rabushka.

The other editors are Steve H. Hanke, professor of applied economics at The Johns Hopkins University, adjunct scholar at the Cato Institute, and recently, the focus of intense media coverage in his role as a special adviser to Indonesian president Suharto on that country’s currency and banking crises; and Sir Alan Walters, vice chairman and director of AIG Trading Groups, Inc., and former chief economic adviser to Margaret Thatcher.

Václav Klaus, former prime minister of the Czech Republic, writes in the book’s foreword, "Human history and our own experience prove that social and economic progress spring both from the individual’s efforts to do something positive and from his freedom to follow his own objectives and interests."

"Where [social institutions] emerge from the power of government," says Klaus, "they bring oppression rather than freedom, corruption rather than the rule of law, and decay rather than efficiency and equity. This general rule is valid for the whole world, for developed and developing countries, for arctic cold and equatorial heat, for mountains and lowlands, for all of us."

To order copies of the book ($14.95 paper, $22.95 cloth), call: 800-767-1241, or click on Publications Library.

February 19, 1998

Antitrust law is "increasingly irrelevant" to global high-tech marketplace
Government’s "browser war" on Microsoft is waste of time and money

Microsoft’s "tie-in" of its browser (Internet Explorer) with its operating system (Windows 95) poses no greater threat to competition "than the packaging of tires with automobiles, cream with coffee, laces with shoes, even left gloves with right gloves," according to a new study by Cato Institute legal scholar Robert A. Levy.

In "Microsoft and the Browser Wars," Levy warns that the Justice Department’s antitrust action against Microsoft, one of the most successful enterprises in American history, threatens a marketplace where competition and innovation are so extraordinarily vigorous that monopoly power simply cannot last. "This kind of government meddling will do nothing but chill innovation," Levy points out.

"America’s century-old antitrust law is increasingly irrelevant to our modern global information technology market," according to Levy, senior fellow in constitutional studies at the Cato Institute. "The pace of innovation in information technology is so rapid today that a firm like Microsoft will simply lose its customers if it does not offer the very best products; a dynamic market makes it almost impossible to sustain monopoly power."

"To be sure," Levy adds, "there are monopolies that government ought to control—the very monopolies government created in the first instance. It is government, and only government, that confers and perpetuates monopoly power by erecting and maintaining barriers to market entry, ordinarily in response to political pressures from special interests. We can hardly justify government imposition of antitrust laws on private parties when the underlying problem is government itself."

"Today’s software industry, where innovation proceeds at an astonishing pace, stands in stark contrast to the sterile marketplace that would emerge if government were to butcher the incentives that lead to new and improved products," Levy concludes.

Robert A. Levy is Cato's senior fellow in constitutional studies.

Policy Analysis no. 296 (http://www.cato.org/pubs/pas/pa-296es.html)

February 12, 1998

Supreme Court’s First Amendment theories could "encourage censorship"
Expert urges the court to revisit and reconsider "pervasiveness" theory

Twenty years ago the Supreme Court introduced a new rationale for the regulation of broadcast media: the "pervasiveness" doctrine. In FCC v. Pacifica Foundation, the court upheld government regulation of indecent radio broadcasts on the grounds that they threaten to enter homes when children might be listening. In a Briefing Paper released today by the Cato Institute, First Amendment expert Jonathan D. Wallace argues that the recent re-emergence of the doctrine could serve as a "dangerously broad and vague excuse for speech regulation."

In "The Specter of Pervasiveness: Pacifica, New Media, and Freedom of Speech," Wallace explains how the doctrine of pervasiveness threatens the speech interests of Internet users as well as traditional media, and how that doctrine denigrates the principles of personal property rights and individual responsibility. If the doctrine of pervasiveness "applies to any medium, it should apply to all media. . . . The Supreme Court should dispel this specter of censorship by rejecting the pervasiveness doctrine," he writes.

Wallace suggests that advocates of Internet freedoms should be especially concerned by the pervasiveness doctrine. Despite the fact that advocates of the Communications Decency Act were unsuccessful when they based their arguments on that doctrine, technological advances threaten to invite its wider application. As the Internet becomes a medium for broadcast-like communications, courts relying on the pervasiveness doctrine could find relevant similarities between the Internet and the regulated broadcast media.

Wallace concludes that "the Court should guarantee that the principles of property rights and individual responsibility pervade our lives and stop worrying whether the media do."

Jonathan D. Wallace, coauthor of Sex, Laws and Cyberspace, is a software executive and attorney in New York City.

Cato Briefing Paper no. 35 (http://www.cato.org/pubs/briefs/bp-035es.html)

February 4, 1998

Moore: end the "middle-class squeeze"
Cato expert calls for cutting tax rates on middle-class workers

Workers with yearly earnings between $30,000 and $50,000 "pay the highest marginal tax rates under our federal tax system" and deserve a tax cut, according to Stephen Moore, director of fiscal policy studies at the Cato Institute.

Testifying today before the House Ways and Means Committee, Moore criticized the way the federal tax code places the heaviest burdens on the middle class. "They pay a 28 percent federal income tax rate on top of a 15 percent payroll tax. The combined rate of 43 percent is higher than the top income tax bracket for even the wealthiest Americans at 39.6 percent," he said.

Moore suggested that the 15 percent tax bracket should be stretched to compensate for hikes in the "regressive" payroll tax. "Under current law the 28 percent tax bracket creeps up on single workers at an income of $25,350 and on married couples at $42,350. The 15 percent bracket should be stretched to $35,000 for singles and $50,000 for married couples. This would reduce federal revenues on a static basis by $25 billion a year—or roughly the amount of the budget surplus now being projected," he said.

"The principle here is simple: all middle-class families in America should be in the 15 percent tax bracket, not the 28 percent tax bracket," he said.

Moore also suggested that Congress should follow this tax cut in a year or two "by flattening the income tax, or better yet, by adopting a national consumption tax."

Stephen Moore’s testimony "Tax Cuts in 1998" can be found at the Cato Institute Web site: http://www.cato.org/testimony/ct-sm020498.html

February 2, 1998

Richard Gephardt, Jack Kemp and Richard Lugar discuss tax reform
Lawmakers compare flat tax, national sales tax and 10% tax

On Monday, February 2, the Cato Institute sponsored a Policy Forum featuring three advocates of fundamental tax reform: House Minority Leader Richard Gephardt, 1996 Republican vice presidential nominee Jack Kemp, and Sen. Richard Lugar (R-Ind.). Gwen Ifill of NBC News moderated the discussion.

Rep. Gephardt argued for his 10 percent tax plan. According to Gephardt, the plan "will dramatically lower everybody’s tax rates, so that 75 percent of all Americans will pay just 10 percent of their income in taxes, and the rest all pay lower rates as well; [and] require a national referendum before Congress could raise tax rates. . . . There is one single deduction that this plan protects--the deduction of interest on home mortgages."

Jack Kemp, codirector of Empower America, chaired the National Commission on Economic Growth and Tax Reform. He evaluated the various plans for tax reform that have been proposed in terms of the commission’s six core principles: economic growth, fairness, simplicity, neutrality, stability and visibility.

Senator Lugar is an advocate of a national sales tax on goods and services. He recently said, "I believe that IRS practices are intrusive and burdensome and will continue to be so as long as we have an income tax. The income tax restricts savings, investment, economic growth and job creation. We need a complete end of the income tax and the IRS that collects it." The national sales tax would be collected by the states.

The Policy Forum was held from 10 a.m. to noon in 345 Cannon House Office Building (the Caucus Room) of the U.S. Capitol.

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