Masonry Magazine August 1997 Page. 18
The capital gains tax rate—that is, the rate that would bring in the most revenue to the Treasury—is somewhere between nine and 21 percent. The Capital Gains Reform Act, by virtue of the 70 percent exclusion, would set an effective top rate on capital gains earned by individuals at about 12 percent.
President Clinton recognized the importance of lessening the capital-gains tax burden by proposing to eliminate the tax on most gains earned on the sale of a home. That is a step in the right direction, but if a capital-gains tax cut is good for homeowners, it should be good for others who save and invest as well. I believe we ought to follow the Kennedy model and provide a permanent, broad-based capital-gains tax cut.
Estate-tax relief is the second item that should be accommodated within the limited amount of tax relief available under the budget agreement. I have proposed that such death taxes be repealed outright, as recommended by both the Clinton-sponsored White House Conference on Small Business in 1995 and the Kemp tax-reform commission in 1996.
The respected liberal Professor of Law at the University of Southern California, Edward J. McCaffrey, recently observed that "polls and practices show that we like sin taxes, such as on alcohol and cigarettes." "The estate tax," he went on to say, "is an anti-sin, or a virtue, tax. It is a tax on work and savings without consumption, on thrift, on long-term savings." The estate or death tax thus discourages the very activity that is necessary to help our economy grow and prosper.
The tax is particularly harmful to small businesses, including those owned by women and minorities. It is imposed on a family business when it is least able to afford the payment—upon the death of the person with the greatest practical and institutional knowledge of that business's operations. It should come as no surprise then that a 1993 study by Prince and Associates a Stratford, Connecticut consulting firm—found that nine out of 10 family businesses that failed within three years of the principal owner's death attributed their companies' demise to trouble paying death taxes.
In other words, instead of passing a hard-earned and successful business on to the next generation, many families have to sell the company in order to pay the death tax. The upward mobility of such families is stopped in its tracks. The proponents of this tax say they want to hinder "concentrations of wealth." What the tax really hinders is new American success stories.
The Heritage Foundation estimates that repeal will, over the next nine years, spur $11 bilion per year in extra output, lead to the creation of an average of 145,000 additional jobs, and increase personal income $8 billion a year over current projections.
My two bills—one providing a deep reduction in the capital gains tax, and the other eliminating death taxes—will probably not pass in their current form. The small amount of tax relief allowed by the budget agreement will not permit it if we are to provide child-tax credits, education credits, and other tax relief. But it is capital-gains and estate-tax reform that could help keep the economy on track, producing the revenues needed to bring the budget into balance.
As President Kennedy put it, "An economy hampered with high tax rates will never produce enough revenue to balance the budget, just as it will never produce enough output and enough jobs." Capital-gains and estate-tax relief should be at the top of the list when it comes time for Congress to write a tax bill this summer.
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18 MASONRY-JULY/AUGUST, 1997