Rep. Kent Hance (D-Tex.), attempting to make good on a promise that failed earlier this year, announced plans yesterday to introduce legislation reducing the capital gains holding period to six months and lowering the long-term capital gains tax rate from 20 to 15 percent.
Prospects for the proposal, however, are weak at best. Hance co-sponsored the Reagan tax cut bill and as a result is out of favor with many of his Democratic colleagues on the Ways and Means Committee, including Rep. Dan Rostenkowski (D-Ill.), the chairman.
Hance announced his plans to sponsor the capital gains changes to a highly sympathetic group, the Securities Industry Association, at a meeting in Boca Raton, Fla. The organization strongly backs the shortened holding period because it would increase the volume of transactions and therefore increase commissions to brokers.
In fact, the securities association was brought on board as a firm backer of the Reagan tax bill as part of a deal engineered by Hance in which the holding period for capital gains was to have been reduced from one year to six months.
In return for the reduction, members of the securities group pulled out the stops in a massive lobbying campaign in support of the Reagan bill as stockbrokers from across the country pressured wavering members of the House to line up behind the GOP measure and against the Democratic alternative.
In the final hours of the House-Senate conference committee session, however, Rostenkowski killed the provision, prompting many Wall Street stock brokers, who felt they had an administration commitment to protect the change, to complain that they had been betrayed.
Asked what the chances of the Hance proposal are, one key source said "about zero on a scale of one to 10." Another said many of the Democrats "still have a bad taste in their mouth" over the way Hance slipped the reduction of the capital gains holding period into the House version of the GOP tax cut, and they would be adamantly opposed to giving the Texas congressman favorable consideration now.
Others were critical of the basic concept on two grounds: Lessening the tax burden on capital gains helps a tiny but generally very affluent segment of the taxpaying community, which already did well under the Reagan bill, and shortening the holding period to allow the more favorable capital gains treatment of income could function simply to encourage speculation instead of long-term investment.
The 1981 tax bill did lower the capital gains rate from 28 to 20 percent, significantly below the rate on ordinary income of 50 percent, as of Jan. 1, 1982.