Letter to Sununu
Jude Wanniski
October 21, 1991


The Hon. John Sununu
Chief of Staff
The White House
Washington, D.C. 20500

Dear John:

I was happy to see you take such an aggressive position on capital gains yesterday on the Brinkley show. There is no way you can get a capgains cut without being forceful and assertive, as General Schwarzkopf was in the Middle East and as Clarence Thomas was in the Senate. When Sam Donaldson threw the fairness issue at you, you should simply have quoted Paul Tsongas, who says it is "idiotic" for the Democratic Party to oppose capital gains!

Dick Darman, on the Evans & Novak Show, was by contrast a weak fish. I'm at least happy that he is finally pointing out that the economy would be stronger now if the Democrats had not blocked capgains over the last two years. But he's still talking as if the economy will be growing nicely without a capgains cut, but that it would be "desirable" to have one. He still is devoted to balancing the budget, a fetish that always results in bigger deficits. It struck me that Dick is like a knight on a chessboard, who can only move in "L" patterns. If he is not willing to break the Budget Agreement, which locked in the recession, he will not be able to get us out. I've urged him to give the Democrats their higher tax rate for million-dollar incomes, just as I urged him last summer to trade the bubble for capital gains. He's dug in.

As for Nick Brady, quoted in the Journal Friday to the effect that it is "political posturing" to bring up a tax bill in an election year, I continue to believe he is the greatest burden to President Bush's re-election. He has never understood the maxim, "Nothing ventured, nothing gained." He will only fight if he knows he can win! This is the curse of most men of inherited wealth, who devote their lives to protecting their inheritance. It's hard for me to see how you can make much progress on a growth package with Brady in this most stubborn posture. I'm told on Capitol Hill that you even had to wait for Brady to go to Bangkok in order to unfurl an Administration growth initiative. Everything stops when he comes home, however. On economic policy matters, the Treasury Secretary is the Queen piece on the chessboard. Brady is pinned by a pawn.

Michael Boskin is no help to you, nor can he be as long as he remains fixated on the national savings rate. The savings issue is total and complete nonsense, as I attempted to point out at Camp David in 1989, as you may recall. The problem is that American business is being forced to save its potential. Instead of working, men and women are standing on unemployment lines, saving their ability to generate goods and services. The auto industry is then forced to save, holding back auto production. Construction workers are saving like crazy. People who should be starting businesses, willing to work nights, days and weekends to achieve something, are also saving their sweat. All this potential is frustrated by a prohibitive tax on risk-taking, opportunity and enterprise. The savings issue is a phony issue that exists only in a demand model, and demand models are only useful in serving corporate socialism. Boskin is trapped in his own version.

Darman tells me my horse race metaphor is the most powerful argument for capital gains he has ever heard. It's this: Suppose you have a race of six horses, the favorite going off at even money, the long shot at 40-to-l. The longshot wins, but when you take your $2 ticket to the window to cash it in, an IRS agent takes all but $4. In the future, bettors only bet the front runner and only those horses guaranteed to win are entered. Nick Brady's kind of track! Think of the U.S. economy being a track, where new businesses have to run for several years before we can know if they are winners. After several years of inflation, the fruits of their victories are essentially confiscated by the unindexed capgains tax.

Nothing else than relief from that tax will spring loose the unutilized potential in the economy. Nothing. All the other measures you mentioned on the Brinkley Show will do nothing, singly or in combination, to solve the problem caused by the capital gains tax. IRAs, R&D tax credits, home owner credits, investment tax credits are all baloney. So is Lloyd Bentsen's $300 child tax credit. It is as if the owners of the race track decide to offer bettors coupons worth 50 cents off their next $2 bet. Or, to tell the horse owners that there will be a purse for all horses who enter the race. Mike Boskin's scheme to hand out tax breaks for low-capitalization corporations is pure corporate socialism, the kind of manipulation of capital that has rotted out the Soviet Union. You have insisted over and over that the Boskin Plan is as good as a capital gains cut. Do you also believe it doesn't make any difference whether you award prizes before a race or after a race?

In 1961, President Kennedy got his investment tax credit and the economy did nothing to show its appreciation. It wasn't until he went to Germany in May, 1962, that Ludwig Erhard identified the source of our problem at the time -- the 90% personal income tax on the highest brackets, and so forth down the line. It wasn't until 1964 that the Kennedy tax cuts took effect, but we then had one of the biggest booms of the century in the three years that followed until LBJ was talked into an income surtax, and then Nixon was talked into doubling the capital gains tax. The economic advice President Bush has been getting has not been much better, as the economy indicates by its performance.

I'm taking this time today to make this position as clear as I can because I sense there is within you a genuine desire to make another run for the roses, to get the economy rolling in time to avoid another one-term Presidency. I'm not sure you have the influence or the flexibility to get the White House horses all running in the same direction, but I'm delighted that you are making the attempt. Please let me know if there is anything I can do to help bring home a winner. 
Sincerely, as ever,

Jude Wanniski