Proposed Capital-Gains Tax Cut May Take Hugh Bite from Treasury

Article excerpt

WASHINGTON (AP) _ Republican proposals to cut the capital-gains tax may cost the treasury twice as much revenue as estimated officially, a senior congressional researcher said Wednesday.

House Republicans propose halving the tax on gains from selling real estate, securities and other assets, indexing the tax to exclude the effect of inflation and allowing individuals to deduct losses on the sale of their home.

According to Congress' Joint Committee on Taxation, the proposal would cost $54 billion through 1995 and $170 billion through 2005.

Advocates of lowering the capital-gains tax rate argue it would encourage investors to sell their assets to realize gains, promote investment generally, create jobs, stimulate the economy and, thus, would actually increase the government's revenue.

But Jane G. Gravelle, senior specialist in economic policy at the Congressional Research Service of the Library of Congress, said recent studies show a capital-gains tax reduction could cost twice as much as the joint committee estimated.

Some researchers have long contended that while temporarily changing the capital-gains tax rate can affect the timing of when taxpayers choose to realize gains, a permanent reduction in the tax would not increase the number of transactions in the long run.

Gravelle said studies, which attempt to screen out the timing factor by comparing transaction rates among states with different capital-gains tax rates, show little variation in transaction rates.

"If the findings in these recent studies are correct, the revenue estimates for the (capital-gains tax cut) .. could be more than twice as large as they would be based on current revenue estimating assumptions," she told the Senate Finance Committee. …