THE WILD POPULARITY of the Steiger amendment among the Democrats in Congress is a remarkable Phenomenon. The Steiger amendment, you will recall, cuts capital-gains taxes for a small number of citizens, most of whom roost comfortably on the top rung of the income ladder. When Mr. Carter denounced the whole idea at his press conference last week, someone asked how he explained the enthusiasm for it among his own party. Mr. Carter suggested that some of the congressmen are confused, Doubltless that's true. But there are also more substantial forces at work.
Five years of rapid inflation have had a subtle and profound effect on the way people think about money. Inflation shrinks savings, but it swells the value of many kinds of assets - of which the most common example is a house. Particularly as people approach retirement, they see that their savings amount to less than they had expected while their houses are worth a great deal more. Suddenly they realize that they are exposed to the capital gains tax - being treated, you might say, as though they were rich. There's also sometimes a tendency to exaggerate the bite that the capital-gains tax will take, as well, perhaps, as the relief that the Steiger amendment would bring.
Out of the 85 million income-tax returns filed every year, about 5 million report taxable capital gains. Of those 5 million, about 400,000 tax returns would be affected by the amendment that Rep. William A. Steiger (R-Wis.) now has pending before the Ways and Means Committee. A Democratic version, sponsored by Rep. James R. Jones of Oklahoma, would reach even fewer.
To measure the kind of difference that the Steiger amendment would make, let's consider a hypothetical couple in the middle-income range, retiring on $19,000 a year. Years ago they paid $35,000 for their house, and yesterday they sold it for $135,000 - a capital gain of $100,000. Under present law, they would pay a capital-gains tax of $17,490, and under the Steiger amendment, $13,509, a saving to them of $3,981.
Is a tax rate of 17.5 percent on a capital gain of $100,000 unfair? If you think so, the next question is whether it's more unfair that other taxes and deserves a higher priority for reduction. Mr. Carter, for one, would cut the tax rates on earned income instead.
Ironically, one of Mr. Carter's tax-reform proposals of last January would provide exactly the same relief to our hypothetical couple, when they sell their house, as Mr. Steiger's amendment does. It involves a device known as the minimum tax, put into the law in 1969. Its purpose is to extract at least a modest amount of money from people who live mainly on capital gains and who, by exploiting tax shelters, would otherwise pay little or no income tax. The crucial difference here is that Mr. Carter would exempt only the sellers of private homes from that minimum-tax rule, while Mr. Steiger and Mr. Jones would exempt everybody from the minimum tax requirement on any investment.
The minimum tax was originally imposed because level-headed people found it immoral and unhealthy that a few prosperous traders, speculators and investors managed to pay insignificant taxes, or none at all. If Congress wants to exempt people from the minimum tax when they sell their family homes, it has only to go back to Mr. Carter's January proposal. But if Congress tries to follow Mr. Steiger and abolish the minimum tax altogether, Mr. Carter says that he will veto the bill. He would be absolutely right.