Capital Gains Tax

Recent publicity depicts the controversy over the Republican-sponsored legislation to cut capital gains taxes as a rich versus poor issue. Most Democrats believe that a cut in the capital gains tax is unfair because it mainly benefits the wealthy. Nothing could be further from the truth. Anyone selling a home, farm, business or shares of stock is potentially subject to capital gains tax at a maximum rate of 33%. Persons with wage and ordinary incomes of less than $10,000 realize 21% of all gains.

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.

With the Clinton administration and Congress apparently headed toward a cut in capital gains taxes, sales of companies could ratchet up, said David H. Troob, chairman of the Geneva Cos., an Irvine merger and acquisition services firm. The mergers and acquisitions market is already very active, Troob said, with company owners looking for ways to cash out of the businesses they've built. Reduced taxes on profits from these deals "should drive it even further," he said.

Apparently, Kevin Phillips, in "The Fat Cat Tax Cut" (Opinion, April 6), is unaware of the IRS data on capital gain or loss items included in tax returns. Facts are that 70% of returns reporting capital gains or losses have gross incomes of less than $100,000 and between 40% and 50% have less than $50,000, like mine. He must also be unaware that tens of thousands of families must dispose of family heirlooms, homes, farms and small businesses to pay confiscatory estate tax rates. And most, if not all, of the supposed gain on these assets is phantom, caused by inflation, which, for example, amounted to 105% from 1980 to 1996.

Increased capital gains taxes could harm the U.S. economy and reduce total tax revenue, according to congressional opponents of elements of the U.S. Treasury Department's proposed tax simplification plan that would tax capital gains income as ordinary income. Sen. Alan Cranston (D-Calif.) and Rep.

Cutting the capital gains tax rate in 1978 and 1981 bolstered government revenue and should give a modest boost to long-term economic growth, according to a detailed study released Friday by the Treasury Department. The report provides evidence in support of "supply-side" economists, who advocated the tax cuts at the time by arguing that lower taxes on investment profits would produce greater income tax revenue than keeping capital gains tax rates high.

QUESTION: I have been reading about President Bush's proposal to cut the capital gains tax rate, and many commentators have suggested that this will only affect the rich. My wife and I are in our early 60s, and plan to retire in a couple of years. We have made a lot of money by virtue of our house appreciation, and I am concerned that we will have to pay a lot of tax on our profit when we sell. We are not rich. Could you explain what this capital gains issue is all about?