Board of Contributors: Capital Gains: The Sequel
The president has now opened the second round of his drive to cut the capital-gains tax rate. That was expected, but it is nevertheless too bad. The whole struggle is a great waste of time and energy for the president, the Congress and the country.</br></br>There is at best only slight evidence that cutting the tax rate will have the positive effects claimed -- on saving, investment, productivity, jobs or revenue. In my opinion, the idea is logically, morally and economically offensive -- but it won't kill us. The important thing now is to get it over with quickly. Then perhaps we can get on with more serious business -- uplifting the underclass, educating our children, controlling drugs and crime, adapting the armed forces to a new security situation, and providing some models of civic virtue, for example.</br></br>Since there is no hope of escaping the capital-gains tax argument, I offer some suggestions that may strike reasonable people as reasonable.</br></br>Inflation Adjustment: There seems to be a great deal of agreement, probably more than is deserved, on adjusting capital gains for inflation. Two problems arise in this connection.</br></br>First, should the inflation adjustment apply to future inflation on assets currently held or should it apply only to inflation on assets acquired after the law is changed? The answer to that is clear, except, of course, to the present holders of assets. Since the motive for the change is primarily to increase the incentive to make a certain kind of investment, there is no point in rewarding the investments that already have been made. The adjustment should apply to assets hereafter acquired.