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Simple Tax Rate Change Will Stimulate Saving

November 20, 1994

In "GOP Poised to Cut Capital Gains Tax--and Clinton Could Join It" (Nov. 11), columnist Tom Petruno discusses the possibility and benefits of a cut in the long-term capital gains tax rate. It appears to me that the primary deterrent to such action is that some people would consider it to be a reward for wealthy (Democrat and Republican) political interests.

An obvious and fair way to create this economic stimulus would be to make a simple change in the income tax math. The first $25,000 of net long-term capital gains would be subjected to a specific tax rate of, say, 10%. This amount would be indexed to protect against future inflation. All other parts of the calculation would be unchanged (with or without the present 28% cap).

Although the IRS would lose $4,500 on a few returns, the "wheeler-dealers" would see little benefit, while average working people would find a strong incentive for saving through serious investment. Of course, such a policy would have to contain the expectation of being permanent (unlike the betrayal of the "workers' $2,000 IRA"). Over a few years, the impact on the economy would be truly dramatic.


Mission Viejo


Tom Petruno addresses cuts in capital gains taxes as a means to create jobs: More private investment creates more private sector jobs.

If the above were true, we would not have passed through a multiyear recession while the market hit record highs and volumes. As a dabbler in finance, I suspect the money firms raised on their offerings went to pay debt acquired in the "merger mania" '80s. Little went to expand capital investment and create jobs. Instead, companies desperate for shareholders cut personnel to streamline.

The real question is: Will a capital gains cut lead to another deep recession?


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