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third-year tax cut. Do you agree with that proposal? No I don’t. The tax cuts were the only thing that working people got, and it wasn’t much at that. I would say if they touch any part of the tax cut given to working people, they should probably put a cap on it at some reasonable level so the working person gets his full share of the tax cut. The only chance we have for recovery is if the working people have something to spend. What happened was we took the plug out of the bathtub and now we are trying to fill the bathtub with the drain plug gone. The drain plug is the tax loopholes. Accelerated depreciation and the sell-atax-break loopholes we passed last year created such a drain on corporate tax revenue that we just don’t have enough money left. And the individual taxpayer is going to pick up the lion’s share of that shortfall. Business Week ran an article that said in 1960 corporations paid 23% of the income tax. In 1986, when the Reagan tax plan will have wound its way through our economy, the corporations will pay 7%. That means you are transferring an enormous burden of financing government onto the shoulders of the working people. And it was all sold under the charade of a plan that will help working folks. Several days ago, I heard you testify at the House Ways and Means Committee. You were discussing your “First Things First Credit Act” which concerns the way the tax system encourage corporate mergers and acquisitions and your plan to remove that encouragement. First of all, how does the tax system encourage mergers and what would your bill do to change things? Number one, you are able to borrow money to merge and you are able to deduct the cost of that borrowing on your corporate tax return. Number two, you are able to shop around for an acquisition and use the tax write-off that acquisition might have available to it to offset your tax liability. The U.S. Steel acquisition of Marathon, at least in part, according to things I’ve read, transpired because of a nearly one billion dollar tax write-off that’s now available to U.S. Steel. I think that the tax code is not neutral with respect to the question on concentration. I think our tax laws help finance this concentration of corporate power at the expense of the independent business person in this country. It’s crazy. We should not be financing that. Philip Hart, the former Senator from Michigan, spent a career on the Hill working on anti-trust issues and I really admire what he did. I hope that if I’m here for any length of time, that I can do some of the same kinds of work that he did. If anything is critical in America, it’s to preserve the free market. And those who are the free-market disciples today are doing more to destroy the free market than any group of Americans I know of. We pay a guy over at the Justice Department Mr. Baxter to be I just don’t want to get trapped in the old Democratic tradition of saying the way to solve every program is spend more money. the head of the anti-trust division, and he stands there shaking pompoms encouraging the mergers. He’s got be to fired. But, you know, this administration talks about the free market and then aids and abets those who are choking it. Doesn’t bigness lead to economies of scale and greater efficiency? Sometimes, sure. Because I’m against concentration doesn’t mean I think I can get a 727 jet airplane in my garage. I’m not stupid. I know that there are some concentrations and economies of scale that are natural and are good. So I’m not talking about that. I’m talking about when corporations grow beyond their natural size and natural efficiencies because of artificial inducements in tax laws or because of their interest and ability to restrict market competition. It’s a crime in this country to form a cartel or a trust and to fix prices. It’s a crime and it’s a crime for a good reason. Because part of the foundation of this freedom of ours is economic freedom and the only way you are going to have economic freedom is if you have a free market place. Teddy Roosevelt did some of the best work on that from his “bully pulpit.’ But there hasn’t been much done since and the problems is much, much worse today. Teddy Roosevelt would be incredibly shocked today to see what’s happened. You have also introduced a bill which you jokingly refer to as the Paul Volcker Retirement Act. Why are you so oposed to Volcker’s policies especially since tight money and high interest rates are supposed to be the best cure for inflation? Because I don’t think that you have to have high interest rates with tight money. I think that people have determined that you are either for tight money or you are for loose money, which is just not the case. I share the goal of restricting the money supply at some reasonable level. I think the Fed has been more restrictive than it should. But I think you have to allow the price to be the allocating mechanism. We can have a certain amount of credit out there and allow it to go out at a reasonable price so people can afford it. For example, the Farmers Home Administration today says we’ve got plenty of money to lend to family farmers who are in trouble, but it’s a Catch-22. Because they do have money available today, but when they sit down across the table from a family farmer and go down the line they say, “O.K., based on this you are going to need to borrow $60,000, our rate is 13 1/2%, and we discover that by using 131/2% you can’t afford to make the payments.” So they use an interest rate that prices them right out of the ability to make the payments. So they’ve got the money but they can’t use it because the interest rates are too high. I’m just saying that I think the Federal Reserve Board ought to be controlling interest rates, not money supply. They can do that. We may have to even pursue a more radical course. At some point, if interest rates don’t come down and the endemic rate of inflation stays around 6% or so, we may well have to put a cap on interest rates someplace near 3% to 4% above the rate of inflation. It will be a very tough step for the economy to take because most people around here view monetary policy as something that’s very mysterious and something they don’t understand. But I’m not sure interest rates will fall of their own accord. You have also argued, as you just explained, that high interest rates starve the mom-and-pop operations. And yet U.S. Steel or Mobil have no trouble getting credit. What do you see as the problems that causes? 10 AUGUST 6, 1982