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Capital Gains Tax Cut: Some Other Thoughts

March 15, 1992

An ill-conceived "trickle-down theory," Tom Petruno's column is typical of the securities industry's shortsightedness and blind faith in a capital gains tax cut.

As a historical example, Petruno cites that in the past, income tax rates have been much higher, yet the capital gains tax was only 25%.

Yet the 1986 tax reform that lowered income tax rates overall while taxing capital gains at the usual rates has served us well. It has vastly diminished the unproductive industry of tax shelters, tax lawyers, accountants and unproductive tax loophole investments such as windmills and oil depletion allowances.

A capital gains tax cut will increase the already Gargantuan federal budget deficit. Who's going to bear most of the burden of that increased federal budget deficit? Middle-class taxpayers.

In the end, all of us pay for that deficit, including investors, and particularly those new industries being sapped of capital that's used instead for interest and debt on the deficit. Supply-side economics has proven to be a failure.

Petruno fails to recognize that the President--and Congress--have better ways to encourage individuals to save and invest. The most noteworthy is to expand the uses of IRAs, the only tax credit available to much of the middle class.

A reduced capital gains tax serves only one purpose: it transfers wealth to the very rich at the expense of the ever-growing federal budget deficit. It does nothing to encourage more savings and investment among the middle class.

DOUGLAS C. FRANKENFELD

Venice

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