HOW WE BEAT THE '70S
March 17, 2008
With rising oil prices, rising unemployment, and inflation eating away at the economy, a powerful politician pushed for a populist tax hike in Washington 30 years ago. The year was 1978, the push for a tax hike came from President Jimmy Carter, and the tax in question was on capital gains. Carter wanted to tax capital gains at the same rate as ordinary income -- effectively doubling the rate for many taxpayers, says Mark Bloomfield, president and CEO of the American Council for Capital Formation.
Carter didn't get his tax hike. Congress passed a tax cut instead. The 1978 capital gains tax cut was an economic success, as we saw in the 1980s. What followed was a period of fluctuating capital gains tax rates. But a second round of substantial rate cuts came in 1997. Again the result was a clear benefit to the economy, says Bloomfield:
- The tax cut took the top capital gains tax rate to 20 percent from 28 percent.
- According to a 1999 study by David Wyss of Standard & Poor's DRI, an economic consulting firm, the 1997 tax cut increased GDP, investment and jobs, and raised federal tax receipts.
Rep. Charles Rangel (D-N.Y.), chairman of the House tax-writing committee, is proposing to increase the tax on capital gains. He is also calling for a full-scale and honest debate on tax policy. This is a debate we should welcome, says Bloomfield:
- The Organization for Economic Co-operation and Development (OECD) points out that nearly half of the 30 countries surveyed in a recent study do not subject individuals to any tax on capital gains.
- Consider that not keeping our capital gains tax at its current rate (15 percent) will put us at a disadvantage when competing for global capital.
On Jan. 20, a new president and a new Congress will begin work on a new economic policy. The lessons from cutting capital gains taxes over the past 30 years shouldn't be ignored, says Bloomfield.
Source: Mark Bloomfield, "How We Beat the '70s," Wall Street Journal, March 13, 2008.
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