Capital Gains -- Again

February 14, 1991

If George Bush doesn't know better, Alan Greenspan should. Having the chairman of the Federal Reserve Board, who happens to be the arbiter of monetary policy, preside over a fiscal policy commission to review the pros and cons of a cut in the capital gains tax is just plain improper. It crosses over a sub-section of the separation of powers concept that is essential to good governance.

Granted, the great divide between fiscal and monetary policy is not enshrined in the Constitution along with the separation of the executive, legislative and executive branches. But since the Fed was created in 1913 as this nation's version of a central bank, with large control over money supply, interest rates and international exchange, its independence from White House and congressional meddling has been a goal worth fighting for. Often when elected politicians have gone haywire over spending and revenues, sound monetary management has acted as a corrective.

Yet now we have a situation in which Mr. Greenspan has allowed himself and his agency to be compromised. Why he agreed to chair a capital gains tax review commission has drawn forth the usual answer -- because the president asked him to. That response does not pass muster. When the president over-reaches on such a sensitive matter of principle, persons of principle should say no.

Mr. Greenspan's reappointment, by no means assured, is coming up this summer. He is loudly -- perhaps too loudly -- on record not only for the reduction but the elimination of the capital gain tax, which hardly attests to his impartiality. He must know, as much as anyone, that once you re-visit the capital gain issue, it's open season for Democratic efforts to reduce the payroll tax -- and the deficit be damned.

For these reasons, plus the widespread suspicion in Washington that setting up a study commission was a non-starter sop to conservative Republicans, the Fed chairman should call the White House and say he has changed his mind. Or perhaps the Democrats may save him from being used or mugged by refusing to serve on his commission, thus allowing it a quick and merciful death.

This would be a favor to President Bush. His obsession with capital gains cuts, with benefits mainly for the rich, gives his critics a renewed opportunity to hammer him on the "fairness" issue. Surely, he remembers how his poll rating dropped last fall when he was hung up to dry on taxes.

The Greenspan commission idea is a clunker. It is bad economics, bad politics and, above all, bad governance. Let's scrap it.

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