Newspaper article THE JOURNAL RECORD

Tax Overhaul: Big Changes for Stocks, Little Protest

Newspaper article THE JOURNAL RECORD

Tax Overhaul: Big Changes for Stocks, Little Protest

Article excerpt

NEW YORK (AP) - For the stock market, the 1986 tax bill is indeed a landmark event, since it brings an end to the time-honored special treatment of profits made from long-term capital investments.

Under existing rules, investors can exclude from their taxable income 60 percent of any profits they collect from selling such investments as stocks or bonds held for more than six months.

This means that people in the highest income brackets pay no more than an effective rate of 20 percent on their long-term capital gains. Many small investors pay less than that.

The new system would treat all capital gains, no matter what the holding period, as ordinary income exactly like salaries, bank interest and dividend income.

At first glance, this holds out the prospect of dramatic changes in the behavior of investors and the corporations that they collectively own. Some observers have expressed concern that removing tax incentives to invest for the long term poses serious problems for the whole capital-raising system in this country.

Nevertheless, there have been remarkably few cries of protest from Wall Street. This calm response can be explained in large part by the fact that the tax bill makes many other changes that are widely regarded as positive for investments like stocks.

One of the most important is the basic provision that lowers the maximum tax rate on all income from 50 percent to 28 percent (actually 33 percent for top earners, under a technicality in the measure).

That means the maximum tax rates on short-term capital gains and dividends paid to stockholders would be substantially lowered.

""In our 32 years in the business, we have been subject during most of them to a capital gains rate in the general area of 28 percent and occasionally higher,'' said Anthony Tabell, an analyst at the investment firm of Delafield, Harvey, Tabell Inc. in Princeton, N.J. ""We seem to remember, during those years, some pretty good stock markets.

""It is suggested in various quarters that venture capital will immediately disappear and entepreneurship cease to exist. …

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