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Stock Market, Deficit and a Tax Hike

October 31, 1987

After the recent drop in the stock market it seems that almost all I've heard from television commentators, newspapers and Congress is that this represents a message from the American people to President Reagan to solve the deficit by approving a tax hike. I find this difficult to swallow.

My message to Congress is don't spend so much so fast. Last year's tax bill hasn't even had a chance to take full effect and already it's called ineffective in allowing the economy to reduce the deficit.

Under the old tax laws, there was an incentive for holding gains on capital for at least six months. Since the incentive has been done away with, this might play some part in so many sellers cashing in their plans at the same time rather than waiting for more favorable tax treatment. I am somewhat surprised that I haven't heard anyone yet mention what a boost in tax revenue the government will be receiving from all the profit-taking at a slightly higher tax rate than in the past.

Perhaps the one change that Congress should consider making in the tax law is to exempt the first few thousand dollars in interest income. This would give the American people an incentive to save as the Japanese do and decrease our reliance on them to fund our debt. That would result in lower interest rates and less federal spending for interest on the deficit.

DANIEL T. HUMM

Los Angeles

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