Relief for Investors
August 26, 2002
President Bush is considering some new tax measures to stimulate investing and cushion the recent faltering market's blows to investors' portfolios, by forcing the government to share more risks -- and not just rewards.
Here are some items he is considering presenting to Congress when it returns:
- Allow investors to "expense" capital losses -- that is, making it possible for them to deduct that full amount of realized losses from their taxable income.
- Increase the amount of money workers can contribute to their 401(k) plans -- now limited to $11,000 this year.
- Relieve the double taxation of corporate profits.
- Possibly cut the capital gains tax rate -- relieving mutual fund investors of the extra taxes they pay.
Expensing capital losses would simply be fair, since at present the government gets 20 percent of all profits -- but shares only $3,000 of losses, a limit which has not been increased since 1978.
Increasing 401(k) contribution limits would afford hard-hit workers the opportunity to catch up and raise the level of their retirement savings to where it was before the stock market tanked.
Double taxation of corporate profits must be eliminated because they are now being taxed 25 percent at the corporate level and by as much as 39 percent at the individual level -- for an effective rate of as much as 60 percent.
There is probably no single action the federal government could take that is more certain to have a positive impact on stock prices than cutting the capital gains tax rate.
Source: Bruce Bartlett (National Center for Policy Analysis), "Bush's Tax Cuts for Investors Will Boost Market," Wall Street Journal, August 26, 2002.
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