For Republicans, it is the El Dorado of tax cuts, enabling
business, entrepreneurs, and property holders to reinvest more of
their profits and thereby spur the economy.
For Democrats, it is a "trickle-down" nod to the rich that will
inflate the deficit.
After a decade of debate, its time may have come.
House Republicans have included a capital-gains tax cut in their
"Contract With America," a 10-point agenda they vow to bring to a
vote in the first 100 days of the new Congress.
With the Republican transition on Capitol Hill, two ardent
supporters of the cut now preside over the committees that have
jurisdiction: Rep. Bill Archer (R) of Texas in House Ways and
Means, and Sen. Bob Packwood (R) of Oregon in Senate Finance.
And President Clinton intends to reintroduce his plan for a
"targeted" capital-gains tax cut, the more selective approach that
he pushed last year.
The Republican proposal, called the Job Creation and Wage
Enhancement Act, targets investment taxes and regulation.
The act would reduce the capital-gains tax -- the tax on profits
from stocks, bonds, art, and other investments -- by 50 percent,
and index capital gains to inflation. If the measure passes,
individuals would pay a maximum 19.8 percent tax on capital gains,
down from the current 28 percent. Companies would pay 17 percent,
down from 35 percent.
Republicans say the plan would cost $56 billion in lost revenue
over five years, but are vague on how to pay for it.
Does the act signal a return to the "cut taxes, cut spending"
days of supply-side Reaganomics? Agreement among economists
splinters over the tax cut's long-term effect on the economy.
"The supply-siders" -- economists ascendant during the Reagan
era -- "say the effect will be immediate and large," says Barry
Bosworth, an economist at the Washington-based Brookings
Institution. He disagrees. "Capital is very important to output,
but the effect on output takes many years to build up."
The Republican plan also would allow big business essentially to
avoid taxes on investments in plant and equipment through a
"neutral cost recovery" provision; increase the deductions for new
small businesses from $17,500 to $25,000; ease the transfer of
family businesses from one generation to another by raising the
estate-tax exemption from $600,000 to $750,000; and decrease
regulation and end "unfunded mandates" -- all to create jobs and
increase wages. …