Newspaper article St Louis Post-Dispatch (MO)

Let Everyone Roll over Investments

Newspaper article St Louis Post-Dispatch (MO)

Let Everyone Roll over Investments

Article excerpt

Some sort of tax relief is inevitable in the new session of Congress. But since President Bill Clinton will veto a cut in tax rates on income (Bob Dole proposed that one, remember?), the best we can expect is a child credit and a capital-gains reduction.

Capital gains are profits on assets. If you buy 100 shares of Microsoft Corp. at $30, and the price rises to $80, you've got a $5,000 capital gain. You pay taxes when you sell the stock, at a top rate of 28 percent.

Rep. Bill Archer, R-Texas, chairman of the Ways and Means Committee, wants to cut capital-gains rates in half. So do most Republicans and even some Democrats, who believe the change would help increase our dismal rates of savings and investing, which have been falling since the 1960s. Clinton has hinted he might go along - even though foes claim a capital-gains cut would mainly aid the well-off. Here's a better idea. Leave the rate where it is now, and give every American the same deal that rich members of the Clinton Cabinet get: a tax-free rollover that lets you move from one asset to another. As long as you keep your money invested, rather than spending it, you won't have to pay taxes on your capital gains. Consider Robert E. Rubin, who, as secretary of the Treasury, is America 's chief tax collector. When he left his job as co-chairman of Goldman Sachs Group in 1993, he had to divest many of his investments, because they posed conflicts with his government work. To sell his stocks and partnerships would mean incurring capital-gains taxes, which, Forbes estimated, "could come to millions of dollars." But under a 1989 law, top officials such as Rubin don't have to pay taxes on such gains - as long as they roll them into Treasury bonds or diversified mutual funds. It's the same break homeowners get. If you buy a house for $100,000 and sell it for $150,000, you can defer the taxes on that profit, if you buy another house for at least $150,000. Why not apply this reasoning - which helps boost real estate - to stocks, which are shares in companies that provide jobs and income to tens of millions of Americans? The rollover would also be allowed for mutual funds, which are bundles of stocks and bonds managed on behalf of small investors. Many of those same small investors were frightened in November when Fed chairman Alan Greenspan warned of "irrational exuberance" in the stock market. They thought of shifting some of their stock holdings into less risky short-term bonds or money-market funds. But under our absurd tax laws, making such a shift would mean paying capital-gains taxes of about 33 percent (federal plus state) on profits that have built up over the years. (About one-third of those "profits" result from inflation!) Small investors are locked in. Lately, such incarceration has been pleasant, as the market hits new highs. …

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