|
 he
tax-cut proposal that has gained the most political momentum on
Capitol Hill of late isn't, strangely enough, even
part of the
Bush tax package. I'm speaking of a capital-gains tax cut, which
has picked up powerful backers in the House and Senate over the
past four weeks. Trent Lott, Don Nickles, Orrin Hatch, and Dick
Armey are all peddling various capital-gains-tax-reduction plans.
Even a handful of influential Senate Democrats — including Robert
Torricelli of New Jersey and Joe Lieberman of Connecticut are suggesting
that it's time for another cut in the tax on the sale of stocks
and other financial assets.
This is an exciting development in the tax fight, because there's
virtually no tax-reduction proposal on the table that would provide
the kind of immediate adrenaline burst to the economy and especially
the stock market that a capital-gains cut could. A cap-gains rate
cut should be the GOP's answer to the tax-rebate gimmick the Democrats
are now offering up for 2001-2. As we've said many times on these
pages, with 52% of Americans now investors, the capital-gains tax
cut is no longer just a tax break for millionaires.
What's bizarre about this issue is that the biggest obstacle to
getting the capital-gains tax down to 15% (from 20% now) may not
be congressional Democrats. It may be George W. Bush. You see, the
president's economic team has never shown much enthusiasm for cutting
capital-gains taxes. (What irony, given that this was the ONLY tax-cut
proposal George Bush Senior endorsed, though maybe therein lies
the problem. W. may not want to stub his toe on an issue that caused
his father four years of grief.) My friend Larry Lindsey, Bush's
senior economic adviser and a wonderfully solid supply-sider, has
always believed that the top priority should be to bring the income-tax
rate down to 33% and to cut the death tax, because those are the
taxes with the most onerous rates.
He's right. Those are critical priorities. But if we can get a capital-gains
tax cut now, why in the world won't the White House lend a helping
hand? One problem is a silly White House attitude that if it's not
in the president's plan, we're not interested. They regard any addition
to the original Bush plan as an unwelcome intrusion and a hindrance
to passing the broader plan.
The White House couldn't be more wrong. Bush should look to the
Reagan White House 1981 tax-cut effort for strategic guidance. Additions
to the Reagan 25% income-tax-rate cut were embraced by the White
House. Hence we got the bonus of business tax cuts, IRA expansions,
and tax-rate indexing in addition to the personal-income-tax cuts.
There was seldom this juvenile "not invented here," mentality
that has unfortunately crept into this White House's decision-making
process.
The Bush team is particularly wrongheaded to think that a capital-gains
tax cut would torpedo other high-priority elements of the president's
package. A capital-gains tax cut, if it is cleverly designed, can
(and certainly should be) scored by the Joint Tax Committee as a
revenue gainer. For example, a retroactive three-year temporary
lowering of the tax rate from 20% to 15% would raise money and provide
a nice supply-side buzz for the economy right now. The revenue raised
could then be set aside for making room for phasing in the Bush
tax plan even faster. This is called a win-win.
One of Larry Lindsey's arguments against making a cut in the capital-gains
tax cut a high priority is that we just did that in 1997, when the
rate was slashed from 28% to 20%. Well, he's correct, we did do
it; and it was an unequivocal public-policy success. The stock market
boomed, productivity and business investment rose, and the tax revenues
from the tax soared. The latest data released from the Congressional
Budget Office shows that the year before the capital-gains cut,
the revenues came in at $66 billion. In 1999, the tax raised $109
billion and for 2000 the estimated revenue collection is $129 billion.
In four years the revenues doubled after the rate was cut. The supply-side
story doesn't get any better than this.
If you start drilling and huge geysers of oil explode out of the
ground, you keep drilling; you don't explore somewhere miles away
instead.
So I will say it again: all that seems to be standing in the way
of a 15% capital-gains tax cut this year is George W. Bush. It is
my most fervent hope that the White House will object in the strongest
language to this piece. I oh so want to be proven wrong here. I
even relish the thought of having to write a retraction.
|
