As the world waits to see whether or not Vermont Sen. Jim Jeffords decides to jump off the Republican ship, there was a little-noticed but important Senate vote on the capital-gains tax cut in the last 48 hours.
As we now know, the overall tax bill easily passed the Senate on Wednesday by 62-38. But as we also know, there is very little economic-growth stimulus in this tax package. In particular , the top personal tax rate drops only four percentage points to 36%, and the rate cut is not effective until 2007. There’s nothing in the bill for capital formation in 2001 — this year — and investment stimulus for the next couple of years is also virtually non-existent.
That said, Sen. Judd Gregg of New Hampshire sponsored an amendment which would have reduced the capital-gains tax rate to 15% from 20%. This of course is exactly the sort of pro-growth stimulus the economy needs, especially after the Federal Reserve deflated over $4 trillion of stock market capital last year. Sagging investor spirits could use a boost from higher after-tax investment returns. So could venture-capital financing of innovative new job-creating companies.
Unfortunately, the Gregg amendment was defeated 47 to 51. This bodes poorly for cap-gains votes later this year, including the somewhat whimsical notion that somehow an outside-the-budget deal tying a cap-gains tax cut to a minimum-wage hike could pass. Even worse, eight Republicans — that’s right, eight Republicans — voted against the Gregg proposal. This Dishonor Roll includes: Lincoln Chafee of Rhode Island, Pete Domenici of New Mexico, Charles Grassley of Iowa, John McCain of Arizona, Mike DeWine and George Voinovich of Ohio, Olympia Snowe of Maine, and the aforementioned now famous Jim Jeffords of Vermont.
Now remember, because the Joint Tax Committee scores cap-gains cuts as a budget-busting revenue loser, despite all the evidence of the 1997 cap-gains-cut experience where revenues skyrocketed, this bill would have required a three-fifths majority to pass. So, in that sense, it was really a free vote on the Senate floor, what you might call voting your basic instinct since everyone knew the cap-gains amendment would not garner the necessary 60 votes.
Still, eight Republicans could not see their way to supporting a much-needed economic-growth tax cut. Hopefully, Steve Moore’s Club for Growth will take notice and file the naysaying Republicans on the defeat list come primary season next year.
On the brighter side, seven pro-growth Democrats voted in favor of cap-gains reduction, and they were joined by one surprising pro-growth Republican from the liberal Northeast — namely Susan Collins of Maine. Bravo, Ms. Collins.
Meanwhile, on the Democratic Honor Roll, include Sen. Bayh of Indiana, Cleland and Miller of Georgia, Torricelli of New Jersey, Lieberman of Connecticut, Wyden of Oregon and — hold onto your hats — Sen. Chuck Schumer of New York. Makes me proud to be a Manhattanite.