IF RELIABILITY is a virtue, the Senate Finance Committee is a paragon. It can absolutely be relied upon to commit a series of fiscal outrages in the final weeks of every Congress. It has now finished work on a version of the tax-reduction bill that is, as usual, a museum of special breaks, dodges and intensely lobbied privileges. The mystic view holds that it is the fate of the Finance Committee to disgrace itself from time to time, to fulfill the higher purposes of reminding the country that there is a real difference between good legislation and bad. The members of the committee, on the other hand, offer the more prosaic explanation that they are merely doing the will of the people. By that accounting, the will of the people as expressed in this bill requires tax bonanzas of varying dimensions for two big chicken farms, for people inheriting appreciated property, for Texas International Airlines, for the owners of tax-exempt bonds, for casinos and for the owners of "unitary hog-raising facilities," i.e., pig pens. As they say in the pig pens, oink-oink.
But the main issue is the enormous reduction in capital-gains taxes. It alone will cost the Treasury some $3 billion, mostly to the benefit of people with unusually high incomes. It's remarkable. A Congress heavily dominated by Democrats is now enacting into law a cherished piece of Republican orthodoxy - that it is best for the country to cut taxes from the top.
What's going on here? The explanation, we suspect, lies in the present high rates of inflation and in the prospect of low economic growth in the future. Inflation has greatly eroded the conventional sayings of the middle class. But the prices of houses in most parts of the country are rising phenomenally. That leaves a great many families with much less than they had expected in cash savings and pension rights - but much more in the value of their houses. To those families, the house is no longer merely a place to live. It represents most of their accumulated wealth, to be cashed in upon retirement. They regard the capital-gains tax as a major threat to the only form of savings that withstands inflation. But it's not only on houses that Congress is cutting the tax.
To increase economic growth and to improve standards of living, greater investment in business is crucial. Congress is now going to try to encourage it by cutting the capital-gains tax. Unfortunately, that's a grossly inefficient way to try to do it. Lower capital-gain rates will not only benefit the person who starts a new business, puts money into new equipment and creates new jobs. They will also reward the people who made money speculating in utterly nonproductive assets - gold, undeveloped land, antiques. A tax policy competently focused on economic growth would provide greater credits specifially for investment with, perhaps, advantages for new enterprises. Instead, oddly, this Congress is embracing the classic trickle-down theory.
Since large cuts in capital-gains taxes have now been written into both the Senate and House versions of the bill, it's pretty clear that the country is about to get another demonstration of trickle-down - and its well-known limitations. Congress is, evidently, reacting to the frustrations of economic policy in a time of poor performance. A good many people in Congress seem to have concluded that sophisticated modern economics has failed them, and they are reverting to older and cruder ideas.