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Capital Gains Tax Cut: Some Other Thoughts

March 15, 1992

Tom Petruno poses a number of rhetorical questions regarding the proposed capital gains tax reduction, "A Return to Rational Rates" (Jan 29): "If I risk my money in a productive business, shouldn't I be rewarded? Shouldn't one be rewarded for investing in a start-up business, or in the stock market?"

I think, for most people, the answers would be yes. The key phrase here, however, is "productive business." I'm no economist, but I do know quite a number of wealthy people. And I can tell you, none of them invest in start-up businesses. The lion's share of their investments are in the residential real estate market.

Again, I'm far from an expert in the field, but I don't consider this to be a "productive business"--it does not create jobs in any way (these are not new units), and in fact only serves to further inflate the housing market. It might be argued that on some level this ultimately contributes to homelessness--by forcing the middle class into apartments, which in turn forces out the lower-middle-class apartment dwellers.

I have nothing against rewarding valid business ventures, let's simply write the capital gains law so that it excludes residential real estate--and thus encourage truly "productive business" investment.

DAVE MATHEWS

Los Angeles

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