Letters to the Editor: Why, Oh Why Do You Ignore Tax Indexation?
Why do you continually ignore the salubrious effects of indexing the basis of capital gains for inflation? Why do you maintain the House-passed capital-gains plan is a "temporary" reduction when it is not?</br></br>I think the reason is that you are confusing tax "rates" with tax "payments." Your Sept. 29 page-one story on the House-passed capital-gains plan is a good example. You lead readers to believe that the House reduced the capital-gains tax for two years only. You virtually ignore the tax-reducing power of indexation, which in many cases is more substantial than a lower rate.</br></br>The monetary tax benefit of indexation for all gains in excess of inflation can be measured using the following equation: tax rate, times inflation rate, times basis for the gain. Depending on the size of the gain and the rate of inflation, indexation can mean a lower tax payment than using the 19.6% rate without indexation. But in any event -- and this is the important point -- tax "payments" on capital gains will be lower with indexation than under current law, even though the tax "rate" is the same under both systems.</br></br>As you can see, the capital-gains reduction plan adopted by the House would not be temporary, but permanent. I hope that you begin talking about the plan's permanent and, in my view, most beneficial feature -- indexation.</br></br>Rep. Robert K. Dornan (R., Calif.)