There is a strong link between changes in capital gains taxes and Standard & Poor's 500 stock market index (adjusted for inflation), as well as the economic growth rate beginning two years after the changes.

• From 1954 through 1967, with a 25 percent capital gains tax rate and low inflation, the S&P 500 rose more than 5 percent a year; economic growth averaged 4.1 percent annually from 1956 to 1969.

• From 1968 through 1980, when higher tax rates combined with high inflation, the index fell about 5 percent a year; economic growth averaged 2.1 percent annually from 1970 through 1982.

• From 1981 to 1986, with a 20 percent capital gains tax rate and steadily falling inflation, the index rose more than 6 percent a year; economic growth averaged 3.9 percent annually from 1983 through 1988.

• From 1987 through 1994, with the top tax rate back up to 28 percent, the S&P 500 went up 4.7 percent a year; economic growth dropped back to an average of 2.1 percent annually beginning in 1989.

There is also a strong link between capital gains tax rates and changes in the tax revenues generated (again adjusted for inflation):

• From 1954 to 1967, revenue from capital gains rose 7.5 percent a year, excluding the surge of gains realized in 1967 as people rushed to avoid higher tax rates in 1968.

• From 1968 to 1980, capital gains revenue rose 4.7 percent a year, excluding the steep decline in 1980 as people waited for President Reagan's tax cuts.

• From 1980 to 1986, capital gains revenue rose 7.2 percent annually, excluding the surge of gains in 1986 as people rushed to escape the higher tax rate of 1987.

• From 1987 through 1994, revenue from capital gains fell at an average annual pace of 2.5 percent.

Of the more than 10 million tax returns showing capital gains in 1993, more than 7.4 million, or 73 percent, came from taxpayers making less than $75,000 a year.

Source: Robert S. Stein, "The Critical Cap-Gains Tax Cut," Investor's Business Daily, June 26, 1995.