Opinion Editorial | |
| Monday, November 29, 1999 | |
Forbes Is Right On Capital Gains |
Henry Kissinger, who was once a professor at Harvard University, is said to have noted that the reason why academic disputes are so vicious is because the stakes are so low. This may explain why some of the dirtiest fighting among the Republican Party's presidential contenders is among those currently bringing up the rear. In recent weeks, some of the campaign's nastiest comments have been made by Gary Bauer about Steve Forbes. In the latest national poll from CNN/Time, Bauer and Forbes were at 4 percent and 7 percent, respectively.
Bauer, for whom I used to work in the Reagan White House, seems intent on painting Forbes as a lackey for Big Business and a shill for the nation's richest citizens. On November 11, Bauer lashed out at Forbes' flat tax proposal as "a huge windfall to business and a setback to working Americans." He went on to excoriate Forbes for wanting to exempt capital gains from taxation, calling it a "mega-loophole for Wall Street."
On this issue Forbes is 100 percent right and Bauer is 100 percent wrong. The purpose of not taxing capital gains under the flat tax is to eliminate the current triple taxation of corporate income. It is taxed first when businesses pay the corporate income tax, which goes up to 35 percent. The same income is taxed again when paid out to shareholders in the form of dividends, at rates up to 39.6 percent. These two layers of tax alone thus put the effective tax rate on corporate income at as much as 61 percent.
The capital gains tax is really another layer of taxation on the same flow of income. If a share of corporate stock rises, it is only because of an increase in profits or dividends, both of which are already taxed. With short-term capital gains taxed as ordinary income and long-term gains taxed as much as 20 percent, the ultimate tax rate on corporate income therefore is between 69 percent and 76 percent. (The estate tax is actually a fourth layer of taxation that can raise the total tax burden to more than 90 percent, but both Bauer and Forbes favor eliminating this tax.)
Abolishing the capital gains tax is not a give-away to the rich (see figure). Indeed, the Supreme Court once held that in principle capital gains are not income at all and ought to be free of tax -- though a later court reversed its stance. Taxing capital gains reduces investment and saving, which hurts all Americans by stifling job creation, lowering productivity and holding down wages. Bauer should find a better way to differentiate himself from Forbes than by attacking his position on capital gains.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 29, 1999.
The National Center for Policy Analysis is a public policy research
institute founded in 1983 and internationally known for its studies on public policy issues.
The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.
Julie Hillrichs, Dallas, TX 972-386-6272 Sean Tuffnell, Dallas, TX 972-386-6272 Joan Kirby, Washington, DC 202-220-3082 Internet: http://www.ncpa.org Home | Support Us | All Issues | Social Security Debate Central | Contact Us |
