Panel on capital gains cut falls victim to Democrats

March 20, 1991|By Peter Osterlund | Peter Osterlund,Washington Bureau of The Sun

WASHINGTON -- It was supposed to resurrect a notion critics thought they'd already killed -- a cut in the capital gains tax, championed as a top priority at the White House and, partisans claimed, the best medicine for an ailing economy.

But President Bush's plan to convene a blue-ribbon commission on the capital gains tax appears moribund, the victim of hostile Democrats who hope that the panel's stillbirth will smother the administration's designs to slash the tax.

Moreover, Mr. Bush's continuing efforts to resuscitate the initiative underscore the limits of his postwar political clout.

"It's stone-cold dead," said one White House official, who insisted on anonymity. "We just haven't announced the funeral yet."

The president has championed such a cut since his election campaign, though hopes for its implementation seemed --ed last fall, when White House negotiators dumped one such plan during 11th-hour haggling with Democrats over a five-year deficit-reduction deal.

But in his Jan. 29 State of the Union address, Mr. Bush pounded the pulpit anew for lowering the tax. Then he announced his intention to appoint Federal Reserve Chairman Alan Greenspan as head of a bipartisan panel that would settle disputes over the cost and potential economic benefits of cutting the federal levy on investment income.

The idea has sat idle since. Observers in both parties doubt that the commission will ever meet.

"It's going nowhere," said Senate Finance Committee Chairman Lloyd Bentsen, D-Texas. "I don't think anyone takes it seriously."

The problem for Mr. Bush and for his commission is that he invited House Speaker Thomas S. Foley, D-Wash., and Senate Majority Leader George J. Mitchell, D-Maine, to name "key congressional analysts" to the panel.

Both men oppose a cut in the tax, arguing that it would siphon needed funds from the Treasury and serve as a windfall for the better-off.

And so, they have responded by doing nothing.

"We haven't reached any conclusion," Mr. Foley said. "I don't regard it as an urgent matter, because I don't believe that capital gains reduction is justified."

Nor, for that matter, have all Republicans rushed to sign up, and as Democrats have held back, administration attempts to jump-start the commission have stalled.

House Minority Leader Robert H. Michel, R-Ill., for example, won't volunteer any of his charges until House Ways and Means Chairman Dan Rostenkowski, D-Ill., has resolved concerns that Mr. Greenspan's participation would undermine his independence from the administration.

Other Democrats have echoed Mr. Rostenkowski's charge that Mr. Greenspan, a Republican and known champion of the capital gains tax cut, could inadvertently tarnish the independence of the nation's central bank.

"I must say to you that it seems to me fraught with dangers for the Fed," Sen. Paul S. Sarbanes, D-Md., told Mr. Greenspan at a hearing last week of the congressional Joint Economic Committee. "I'm surprised that the chairman of the Fed would even consider being drawn into this situation."

Mr. Greenspan insisted that the commission would limit itself to "a technical evaluation of certain statistical data and concepts" that have "nothing to do with values, with the basic issues of one's views of capital gains."

Mr. Greenspan has also repeatedly stressed that he would not participate without the support of the "bipartisan leadership of the Congress" -- a stipulation that, one White House lobbyist conceded, could provide the Fed chairman with an excuse to back gracefully out of his commitment.

Although Republican hopes for the commission are fading, GOP lawmakers still express determination to press forward in the coming months with a package of "growth incentives" -- including a reduction in the capital gains tax. White House economists insist that a 15 percent reduction would invigorate the economy and increase federal revenues, though many independent analysts say it would cost the government money.

"We're getting ready to hit the ground running," said Sen. Phil Gramm, R-Texas. "Anyone who says that capital gains is dead doesn't know what he's talking about."

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