Drop the Capital Gains Issue

September 27, 1990

"Most Americans are sick and tired of endless battles in the Congress and between the branches over budget matters. It is high time we pulled together -- and get the job done right."

Those words from President Bush are on the mark, and it's about time he listened to them. Month after month, he has continued to insist on a cut in capital gains taxes, an issue that has stymied a deficit-cutting budget agreement and has brought the government face to face with a breakdown in vital services as early as Monday.

Now, perhaps just in time, there are signs Mr. Bush is beginning to waver. The Republican leaders of the Senate and House have come out publicly with plans to bypass the capital gains proposal; other GOP lawmakers have stated the president is ready to negotiate.

"Ridiculous," says budget director Richard Darman to speculation about dropping capital gains cuts. But it would be more ridiculous if the president were to let the nation plunge into an economic crisis as signs of a recession multiply and war threatens in the Persian Gulf.

The game is not worth the candle as a stimulus to investment or a retreat from tax fairness. The Joint Committee on Taxation, controlled by Democrats, has estimated reductions in taxes on the sale of capital assets would result in an $11.4 billion revenue loss between 1990 and 1995. The Treasury, GOP controlled, has projected a $12.5 billion increase over the same period. In a $6 trillion economy, either figure is small potatoes.

House minority leader Bob Michel, in disclosing he would be willing to forgo capital gains cuts, even at the cost of outraging supply-side Republicans, said "the doggone price (demanded by Democrats) is too steep." How right he is. By clinging to capital gains cuts, Mr. Bush has given Democrats an opening to demand outsized trade-offs, including flabby controls on out-year spending.

If the president now puts capital gains aside, he may find his hand strengthened in holding down expenditures and imposing taxes that would bring in needed revenues while serving other policy goals. He may also be in position to push harder for such investment/savings initiatives as enterprise zones (a proposal mentioned by House GOP whip Newt Gingrich) and expanded use of Individual Retirement Accounts.

The nation is coming down to the wire in the budget fight. Unless an agreement materializes that can whip through Congress, Americans will find themselves in an unnecessary and unjustified crisis that will injure thousands of government workers and private citizens. It is President Bush's responsibility to seek compromise -- the essence of American government -- so this won't happen. It's time for him to "get the job done right."

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