End Tax Policies that Discourage Savings
		     NYC Tribune DECEMBER 4,1990
	Early proposals for tax reform favored an even flatter
structure because home mortgages would not be deductible.  Yet both
private and corporate debt deductibility lead to an overdependence on
thusly subsidized_ debt whose demand puts upward pressure on interest
rates.
	Moreover, this subsidy causes many leveraged buyouts (LBOs),
as well as short-term leveraged corporate thinking in general, because
it makes it cheaper to borrow than invest. By contrast, Germany and
Japan [1989] have no long-term capital gains tax at all, leading to
long-term corporate strategies based on market share rather than
return on investment.
	We further discourage long-term thinking by taxing both
corporate earnings as well as the dividends the individual investor
receives from them. In an era where corporate ownership is largely via
institutional holdings such as pension fund, this is also unfair.
	Peter Drucker has referred to our corpoorate ownership as
"pension fund socialism," implying that capitalism has better provided
for worker ownership than did the system that Marx himself devised!
Ironically, though, those pension fund socialists have been the major
force behind LBOs! And in these troubled times, LBOs have reappeared,
even as seller-financed retirement capital gains tax minimization
schemes.
	Then we also have the oft-decried double deficits of, trade
and government budgets, causing interest rates to rise even more. But
we forget that countries with much higher decits can better sustain
them because the underlying current-accounts deficit is lower due to
higher savings.
	How, then, should we encourage such savings?  Perhaps if we
didn't tax long term capital gains or dividends at all.  And if these
were made totally exempt, we would more preerve the spririt of tax
reform than if we established preferental rates.
	Historians point out that this country has had a trade deficit
from 1607 to World War I; Liberals attack this by pointing out that
then the trade deficit at that time went into investinent rather than
consumption. Well, eliminat- ing the short-tern bias in our tax
structure would correct this as well.
        Moreover, such tax cuts would be more in line with
the tax cuts and tight money proposed by ecomomics
educator Robert Mundell in his supply-side-founding
1971 Princeton essay, The_Dollar_And_The_Policy_Mix.
	Tax cuts especially are a prescription for supply shocks -
such as the Saddam Hussein oil shock we are experiancing right now.
        One should never raise taxes during supply shocks!  And
homeowners would be compensated for mortgage nondeductibility by
ending the capital gains taxes on their homes.
	And if Mario Cuomo wants us to raise taxes so much, we should
eliminate sate tax deductibility as well so that other states would
not have to finance his presidential campaign and New Yorkers would be
pained enough to finally kick him out.
	As an aside, let us study revenue neutrality. Just as Arthur
Laffer extended Phlllip Cagan's optimal inflation- tax analysis to
taxes in general, it may be possible to extend the decade-old rational
expectations analysis that found a never-again unexpected jump in the
money supply is non-inflationary,
	While one would hope that politicians learned a taxing lesson
in the 1990 elections, should they find it totally unavoidable to
raise taxes, making this plan non- revenue-neutral may be the best way
to raise taxes because it would at the same time stimulate
productivity and capital formation.
	Moreover, it would not provide a ratchet for legislators to
play with at will, as would the current proposals for capital gains
tax preference. We should recall that the 1982 Bob Dole recession was
caused by a deal in which the Demagogue Party agreed to three dollars
in spending cuts for ever dollar in tax increases, the result, by the
way, was three dollars in spending increases for every new tax dollar.
        So, rather than reading the flips on no new taxes, perhaps we
should restructure ourselves into _better taxes, by eliminating
mortgage and corporate debt deductibility and taxes on long term
capital gains and dividends.
				- - -
	Vasos Panagiotopoulos is a businesman and conservative
activist in New York City.