LETTERS

LETTERS An admirable man Allen J. Lichtman's article ["Tommy the Cork: The Secret World of Washington's First Modern Lobbyist," February] contains inaccurate and misleading statements about...

...Yet congressional and treasury revenue experts are counting on the '86 capital gains tax hikes to contribute some $20 billion over five years to the government in tax receipts...
...KEITH ROBERTS New York, New York Charles Peters has the better of the argument, especially with his illustration of the mature DeadintheWater Corp...
...But also on the list of items in the contract were a $4.97 cartridge fuse, a $57.50 circuit breaker, and a $189 sensor...
...The article did not say it's reasonable to pay $435 for a hammer, and it did not defend the equal allocation formula as a proper method of accounting...
...Are you suggesting he will promote or oppose legislation depending on its effects on those industries' bottom line...
...Second, a significant capital gains differential doesn't cost Uncle Sam a nickel...
...Support labor costs were allocated to all items equally in the proposal that was the basis of negotiation between the Defense Logistics Agency and Gould...
...Yes, but I do not regret it, because contrary to my last few years in the Navy, I again enjoy my work...
...But how, precisely, does that make him, a public official, "the answer to the lobbyists' prayers...
...those parts priced at less than $385 must have been bought in a different lot, using a different allocation formula...
...Once this adjustment takes place, investors would buy no more new issues than before...
...Although the allocation of the reduction was done somewhat arbitrarily—it's simply easier to heap the reduction on a few items than recalculating everything—there was some reason...
...Therefore, they should have been allocated the same $385 or $422 as the hammer...
...In the same fashion, your proposal ignores the reaction markets will have to its effect...
...MICHAEL LOFTIN Chattanooga, Tennessee Mid-life bliss Bravo on your comments in February concerning mid-life career changes ["Tilting at Windmills...
...versus the start-up Alive and Vital Inc...
...Although the maximum federal capital gains tax declined from 50 percent in 1978 to 20 percent last year, revenues to the Treasury were 132 percent higher in 1984 (inflation and a bigger GNP aren't sufficient explanations...
...I was privileged to work with Arnold for 12 years, and I cannot recall any instance in which he was a lobbyist...
...Following Fairhall's thesis, these spares would have to have been priced with negative figures...
...As you said, "Whatever you decide to do, the point is to decide and move...
...My final resolve came from a short story written by Graham Greene, and although I do not remember the story, I did write the quotation down: "What is cowardice in the young is wisdom in the old, but all the same one can be ashamed of wisdom ." Which I interpreted as meaning that the safe, sane, and logical course is not always the best course to take...
...Much about the Pentagon does not make sense...
...raise a legitimate question: If costs were allocated equally—i.e...
...Court of Appeals for the District of Columbia Circuit...
...When it takes Orwellian logic ("some have more of an equal allocation than others ") to keep this theory alive, even paying $435 for a hammer begins to make sense...
...remained unanswered...
...In questioning the role of the equal allocation formula as an explanation of the $435 price, Brian-Bland et al...
...They were not...
...I've argued the same point in terms of the choice among investing in secure U.S...
...Within some reasonable range higher capital gains taxes lose government revenues, and lower capital gains taxes increase the Treasury's take...
...At $435, this might explain part of the high cost of the hammer...
...He and others in his firm were frequently appointed by the courts to represent all manner of persons on a pro bono basis, because his dedication to the public interest rather than to self-enrichment was so well known...
...Your law raises the after-tax gains on new issues...
...In fact, the availability of a market in "used" shares of stock greatly increases the value of "new" stock, as with cars...
...Moreover, 196 of the 420 line items on the list, nearly half, had unit prices lower than the amount that was supposedly added to the base cost...
...Not surprisingly, the nursing home industry is opposed...
...Do I feel the occasional twinge of doubt, having left a very secure and promising career for the iffy proposition of the mass media...
...The federal capital gains tax bite increases from a maximum of 20 percent to 33 percent and as high as 49 percent for some investors...
...Gould agreed to a lower total price for the entire contract...
...If there was an equal allocation of support costs, these prices would have to have been higher than either $385 or $422...
...Rather than reallocating the reduction to all 462 items, it simply reduced the prices of some items but not others...
...Second, the implication of the article is that Arnold was a Washington lobbyist in the style of Corcoran...
...Economic historians like Braudel credit the liquidity created by public resale markets with major responsibility for the economic triumphs of Holland and England from the 17th to the 20th centuries...
...Nine countries impose no tax on capital gains at all...
...That's because it is the investor who decides when to realize his capital gain and who, thus, is very sensitive to the tax rate on his investment...
...The editor replies: The ironically-intended title, "The Case for the $435 Hammer," seems to have blinded Brian-Bland, Riley, and Rasor to what the article says...
...As one who has also been there—a 13-year Naval career swapped in favor of return to academia and hopefully a future career in journalism—I too had similar fears concerning whether the decision was prudent and appropriate during my last year on active duty...
...Allan Lichtman replies: My article neither impugns Thurman Arnold's record as a public servant nor suggests that he was engaged in the same activities as Thomas Corcoran...
...Very quickly, the market would raise new issue prices to restore the same rate of return that prevailed before...
...Gould wanted the larger prices to be on items that would be shipped earlier, like the hammer, so they would get bigger payments up front...
...This is not just supplyside economics...
...In my case, the safe, sane, and logical position would have been to continue my naval career until retirement, but it would have been a wisdom to be ashamed of, as Greene said...
...All that would remain is the cost of your boondoggle, and a built-in lobby to sustain it forever...
...But the hammer did not cost $435 and a great deal of energy was wasted on that mistaken assumption rather than on attacking fundamental problems of defense procurement...
...Peters's point is even more telling when one considers that the 1986 tax reform debate failed to focus sufficient attention on the economic impact of the interaction of federal and state capital gains taxes (e.g...
...The record should be set straight in the interest of history and in justice to the memory of a remarkable man...
...He found the role of an appellate judge too passive, and he resigned from the court in 1945...
...The writers are with the Project on Military Procurement...
...Arnold is remembered as the most vigorous and uncompromising enforcer of the antitrust laws in the 97-year history of the Sherman Act...
...Governor doesn't answer prayers Your gratuitous crack about Tennessee's new governor, Ned McWherter ["Tilting at Windmills," February] illustrates not only your ignorance about McWherter the man, but also about the steps he has taken to ensure no conflicts between his service as governor and his investments in state-regulated businesses...
...You say that buying the used stock of DeadintheWater "produces no economic benefit," whereas the new issuer Alive and Vital will "hire and build ." That's true if you only look at the first move, but such thinking is no wiser in public policy than in chess...
...In fact, one of the first bills the McWherter administration has sent to the General Assembly would impose stiff civil penalties on nursing homes for health and safety violations...
...But, the combined federal and state capital gains tax increases are over 100 percent according to Arthur Andersen & Co...
...It's true, as you noted, that McWherter has "extensive holdings" in a bank, a trucking company, a nursing home, and a beer distributorship...
...Look at the actual historic evidence of the impact of higher and lower capital gains taxes on government revenues...
...DAVID ALAN CLARK Tequesta, Florida The case against the $435 hammer In his article ["The Case for the $435 Hammer," January], James Fairhall justified $435 for a hammer by applying the theory that an equal amount of support costs are applied to every line item, regardless of the price of that item...
...I'll go with Peters over Kinsley on the economics...
...The hammer remained $435, for instance, while a fuse cartridge was reduced to $4.97...
...He spent his years in private practice trying cases in the federal and state courts, institutions that are certainly not susceptible to influence peddling...
...By thinking no more than one step ahead, you have created a traditional liberal proposal: it attacks an evil directly, but ignores indirect consequences that may eviscerate the original intent, leaving only the cost and problems...
...He served as Assistant Attorney General in charge of the Antitrust Division for five years, from March 1938 until January 1943 when he was appointed by President Roosevelt to the U.S...
...First, Arnold is most emphatically not an example of a man "who serve[d] the public interest for a short time for the sole purpose of cashing in later...
...if they added $422 to the price of everything—how could it be that there were items with prices of far less than $422...
...According to the actual contract, however, 190 of the 196 items which would presumably be in this different lot were all, in fact, in the same lot as the hammer...
...He was mentioned only as a notable example of a New Deal official who drew on his governmental experience to establish a profitable law firm that has been deeply involved in political affairs...
...In the age of Gramm-Rudman, I worry about what the '86 capital gains tax changes will do to the deficit...
...During congressional hearings and in conversations with navy officials, however, the navy claimed that one of two figures was added to each line item in the Grumman contract, either $385 or $422...
...We find it remarkable that there are still proponents of this apology for what comes down to waste and inefficiency in the pricing of spares...
...Consider also what the Treasury Department's capital gains report (September, 1985) said on the subject: "Any effort to raise substantial revenue by increasing capital gains tax rates .. . is likely to be ineffective...
...And, since we're all now talking about international competitiveness, think about the fact that 11 industrialized and Pacific Basin countries, including Japan and West Germany, exempt long-term capital gains from taxation...
...We certainly didn't argue that all this makes sense...
...Rather, the point of the article is that while we paid too much, we did not pay $435 for the hammer, and because of the screwy system called the equal allocation method, we don't know how much we paid...
...What about these items...
...It is telling that he never once let on what this figure was...
...The answer is, like most things involving the Pentagon, a little complicated...
...Bloomfield is president of the American Council for Capital Formation...
...One step ahead Michael Kinsley's letter in your February issue was better than your answer ["Tilting at Windmills...
...the bottom line for the entrepreneurial investor...
...ABE KRASH Washington, D.C...
...Treasury bills or taking a chance with a potential IBM corporation...
...Indeed, on the first page of the article, James Fairhall wrote, "It's a good bet we paid too much for it [the hammer] (for reasons related in part to something called the equal allocation method and in part to larger problems in defense procurement...
...In trying to explain this anomaly, the defense has been made that these items were bought in two separate lots...
...MARK BLOOMFIELD Washington, D.C...
...You cannot, therefore, so simply distinguish the virtue of a new issue from an old...
...By the end of the article, the question, "What amount of money was allocated to the hammer...
...It is possible that he was retained as a lobbyist in some matter, but if so, lobbying was an extremely small part of his practice...
...DANIELLE BRIAN-BLAND JOHN RILEY DINA RASOR Washington, D.C...
...LETTERS An admirable man Allen J. Lichtman's article ["Tommy the Cork: The Secret World of Washington's First Modern Lobbyist," February] contains inaccurate and misleading statements about the late Thurman Arnold...

Vol. 19 • April 1987 • No. 3


 
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