When you say "capital gains" to the average taxpayer, you trigger thoughts of real estate speculators and Wall Street manipulators who reap rich profits and pay bargain rate taxes.
In Sunday's Business and Finance section, economics editor Hobart Rowen told us that the Carter administration is considering the elimination of preferential treatment for capital gains. And because many Americans are fed up with loopholes for the rich and with tax laws so complicated that even a Philadelphia lawyer can't be sure what they mean, there will be much support for wiping out the capital gains law.
However, some of that support will come from people with modest incomes who are unaware that they, too, may some day realize an important capital gain. For the average citizen, it will be a once-in-a-lifetime gain, not the quick profits made by wheelers and dealers.
When a farmer too old to continue doing heavy farm labor must give up his farm and move into a retirement home, he's likely to get a good price for his land.
When an elderly widow must sell her house and move into a nursing home, she may find that the property her bridegroom bought for $10,000 is now worth $85,000.
When a Sears employee retires, he may find that his profit-sharing payout amounts to more than $200,000.
In each case, the value of the capital asset has grown by a modest amount each year, so that in several decades it has become - substantial sum. Under our present law, the entire amount of growth becomes taxable in the year in which the asset is sold, even though it was accumulated over a period of many tax years. and without some kind of preferential tax treatment for this type of once-in-a-lifetime gain, the tax bite becomes enormous.
It seems to me that whether or not the other tax reform proposals are adopted, we should revise our present capital gains tax. Assets held for as little as 9 months should not qualify for bargain rates as they now do. To provide a rational basis for tax relief, the holding period ought to be at least two years. Then it could be argued, "It took this asset two tax years to reach its present value, so it wouldn't be fair to tax it as if it were all acquired in a single tax year."
For assets held longer than two years, a sliding scale of rates ought to be levied, with the maximum amount of tax relief given to assets held for 40 or 50 years. The effect of such a sliding scale would be to protect the once-in-a lifetime gains that the average citizen realizes, but do it without providing a new bonanza for the wheelers and dealers who turn quick profits.
Under such sliding scale treatment for capital gains, a gain achieved in the minimum holding period of two years should qualify for only a small reduction from the "ordinary" tax rates the citizen would otherwise pay in his income bracket. A gain held for 40 or 50 years ought to qualify for the greatest reduction, perhaps all the way down to the minimum rate in the tax schedule, which is now 14 per cent. The details aren't important, but the principle is. The tax rate should be directly related to the length of time an asset is held.
Under our present capital gains law, the fellow who makes a quick killing in 9 months gets the same treatment as the fellow who works for a lifetime to accumulate what he hopes will be enough to see him through the vicissitudes of old age. That's not fair, Mr. President, and I hope that when you propose reforms in our tax laws you won't replace one injustice with another. "TWAS EVER THUS
"The shortest distance between two points," notes Bob White, "is the path that kids wear in your lawn." PUN FUN
Herm Albright says that what this country needs is less busing and more bussing.