Capital gains tax cut aids state's richest

The federal ledger

September 10, 1990|By Mick Rood | Mick Rood,States News Service

WASHINGTON -- A liberal tax research group here has kicked up another tax policy storm, claiming that most taxpayers would have to foot the bill for the capital gains tax cut President Bush is pushing.

Using a computer model to analyze Internal Revenue Service and congressional data, Citizens for Tax Justice said last week that in Maryland, the top 1 percent of joint filers with an average income in 1990 of $784,000 would get an average tax cut of $21,776. The group said couples filing jointly were used because they derive the vast bulk of benefits from reductions in the percentage of capital assets subject to taxation.

By contrast, the bottom 80 percent of joint filers in Maryland whose incomes are below $71,000 would receive an average capital gains tax benefit of $53. And since most families in Maryland and elsewhere own virtually no capital assets other than their homes, most of the 80 percent would get no tax break, according to the study.

"This time, people shouldn't be fooled again," said Robert S. McIntyre, director of Citizens for Tax Justice. "If an elite group of the very richest people in Maryland and around the country get gigantic tax cuts, we all know that middle-and low-income families will end up paying the bill."

McIntyre's numbers are based on a 15 percent cut in capital gains taxes that is believed to be what the president is pushing in budget summit negotiations between White House officials and congressional leaders. Republican lawmakers have introduced several bills that would achieve a similar reduction. The same proposal passed the House last year but failed to clear the Senate.

The group scoffed at administration arguments that a capital gains tax cut would spur investment and increase U.S. competitiveness, thereby helping the deficit. It said that theory has been found specious by non-partisan analysts at the Congressional Research Service and the bipartisan Congressional Joint Committee on Taxation.

But the classic supply-side argument is hotly contested in Washington, where the conservative Heritage Foundation last week released a "six-plank platform to save the economy from recession." At the top of the foundation's list of solutions was "encouraging more savings and investment by reducing the lTC capital gains tax to 15 percent."

Heritage senior fellow Daniel J. Mitchell argues in his manifesto that a cut in the tax rate to a flat 15 percent on asset sales was the key. The tax rate would be indexed to protect savers and investors from paying taxes on nominal gains.

Mitchell said Allen Sinai, chief economist for the Boston Co., estimates this proposal would raise the gross national product by 0.4 percent annually through 1995, adding 2.5 million new jobs and generating a needed $30 billion to $40 billion in new tax revenues.

Even conservative supporters of a capital gains tax cut concede that the whole topic sets off fierce differences among economists. Hudson Institute research fellow Stephen Moore noted in a paper commissioned by the National Chamber Foundation that President Bush had "marketed" his capital gains proposal as a deficit reduction tool. Moore wrote that while Bush said the proposal would slash the federal deficit by $12 billion over five years, the Joint Committee on Taxation projected the tax cut would lose $11 billion over the same period.

In the budget summit setting, most Democrats have been arguing that various tax increases are needed to meet Gramm-Rudman-Hollings Deficit Reduction Act targets.

Most Republicans are going for the capital gains cut, on the theory that the resulting expanded economy will pare the deficit.

The issue doesn't cut straight across party lines, however, and Citizens for Tax Justice chided Maryland Democratic Reps. Roy P. Dyson, Beverly B. Byron and Tom McMillen for voting to keep a capital gains tax reduction in a budget bill last year.

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