Why Does W. Oppose a Capital-Gains Tax Cut
White House is the only obstacle.

Mr. Moore is president of the Club for Growth
May 1, 2001 9:15 a.m.

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.