NCPA - National Center for Policy Analysis


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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