The small rich in the House of Representatives and the big rich in the Senate are gathering up their courage and enthusiasm to cut the capital gains tax. That's the tax paid on the profits from the sale of stocks, apartment houses and inventory such as cattle or lumber which has shot up in price.
Until nine years ago the federal tax on capital gains income was lower than the tax on earned income paid by millions of working people. Then the rate was hiked to a maximum of about 50 percent a year although people with significant capital gains have tax lawyers who make it their business to see that their clients seldom pay the maximum. But even this nominal rate so rankles the rich 1 percent that the agitation has never ceased to drop it back down to the point that the millionaire class will be able to escape taxation altogether.
The arguments in favor of this measure, which the administration opposes, run from amusing to the jesuitical.
In the category of entertainment is the assertion it is "unfair" for the rich people to pay a higher proportion of their incomes, earned or unearned, than secretaries, production line workers or airline ticket clerks. Yet more comedic in its themes and elaborations is the line advanced by The Wall Street Journal. That usually sensible newspaper recently editorialized that it is the high capital gains tax which have prevented blacks from establishing industrial empires large enough to get their businesses on the Fortune 500 list. Black capitalism is in fact so anemic that the combined sales of the 100 biggest black-owned firms would altogether only put them 24th on that select list. If this regrettable state of affairs, is owing to the higher post-1969 tax rates, how does The Journal explain the absolute absence of black business for the 170 years before 1969 when there either was no capital gains tax or a very low one?
The only capital gain most of us will ever see is when we sell our house. Profits from the sale of the house you live in already get special tax protection. Thus the reasoning that this kind of tax cut will be of direct help to individuals falls apart on the first inspection, but there is a more ponderous and impressive sounding reason which is also argued . . . the general social benefit of the capital formation.
That's fancy economist talk for saying that the untaxed money will be spent on new machines and equipment which will create new jobs and greater prosperity for all. The theory is that at current tax rates businessmen won't risk investing in new plants, but of course they do and have done so over the past nine years. Whether enough money has been invested to keep us competitive with the world is another matter, but the $2 billion which would accrue to the 30,000 or 40,000 families that will get most of the benefits won't make much difference. When you talk about the capital formation needs of the nation, you're talking about hundreds of billions over the next 10 to 15 years.
The way to get that is to induce millions of middle-income people to spend less and lend or invest the money they save. That can be done in many ways. Abolishing price controls on the amount of interest depositors may be paid on savings accounts is one way. Another would be abolish income tax on interest from the savings accounts. Yet one more would be to expand the present tax advantages of the various savings-retirement plans.
Contrary to all their wailing, under the present tax structure, the American rich have not gotten poorer over the last 80 years. They're still just as loaded as they ever were.