Jude Wanniski
May 30, 2001


We asked Trent Lott a few minutes ago if he plans to bring a capital gains tax cut to a vote later in the session and he said, "Absolutely, and you can tell anyone you like that I plan to do so." Lott, who will shift jobs to Senate Minority Leader from Senate Majority Leader when Jim Jeffords later this week officially votes with the Democrats, agrees the floor vote last week that showed eight Democrats voting to cut the rate to 15% from 20% indicates there is a good likelihood it can succeed. As we noted when the measure failed, with nine Republicans opposing the amendment in its 52-to-47 defeat, Senate Finance Chairman Chuck Grassley did not believe he could get the tax bill through the Senate on final passage if he had allowed this and other amendments being offered to attach themselves to the core legislation. In other words, there should easily be the 60 votes for the capgains cut in the Senate if it is offered as an amendment to a package including an increase in the minimum wage. Because of existing Senate rules, 60 votes would be needed to overcome a procedural block by opponents of the measure.

As it begins to appear that it can pass, there should be an impact on the monetary side of the ledger as a 15% rate would absolutely increase the demand for liquidity. Because of the Catch-22 we remain subjected to, the price of gold would decline, increasing the deflation pressures the economy is struggling with. On the other hand, the NASDAQ would surely react favorably relative to the DJIA, as the tech stocks are much more sensitive to risk structure of the economy than the mature corporations. Lott is well aware of the Catch-22 but hopes the monetary issue will be dealt with by the White House and the Fed as there is little he can do with it. He is from Mississippi, a commodity producing state, which is taking the heaviest brunt of the deflation.

Sen. Bob Torricelli of New Jersey is the Democrat who has been selling the idea on his side of the aisle of cutting capgains, bringing liberals like Schumer of New York and Feinstein of California aboard last week. Recall that I supported Torricelli in his 1996 Senate run because he had become persuaded that a lower capgains tax would spur the economy and bring in more revenues from all other sources than what might be reckoned on static analysis. I told Lott at the time that I was doing so because there were no Democrats in the Senate who would proselytize as Torricelli would. Now he faces the threat of an indictment by the Bush Justice Department for campaign finance irregularities, which means Republicans who do not care about the capital gains issue are rooting for his removal while others are feeling kindly toward him. My assumption is that he will survive the legal problems he faces and if he does will probably win re-election next year.