The Bush tax cut

NO wonder George Bush is proposing to cut capital-gains taxes almost in half. Such a cut could help stimulate the economy, particularly the stock market. After the upheavals on Wall Street, there's ample reason to think such stimulus might be needed if the five-year-old economic expansion is to continue through the 1988 election campaign - when the vice-president is hoping to be the Republican presidential nominee.

Last year's tax reform is to make capital gains taxable as ordinary income, at either 15 or 28 percent, starting next year. (Since most who have capital gains are in the top bracket anyway, in practice most capital-gains taxes paid will be at 28 percent.) Bush would set the capital-gains rate at 15 percent.

The proposal represents a reaching out to the moderate wing of the Republican Party, whose support will be important to Mr. Bush in his efforts to gain his party's nomination - even those moderates don't really account for that many votes come that critical Tuesday in November.

Capital-gains tax reform is not an issue that will grab the attention of the great mass of voters. Last year's tax reform did little to dispel the idea of the Republicans as the party of the rich; Bush's proposal only makes matters worse.

Some in his own party have had trouble resisting the urge to take a dig at the proposed cut, and on the Democratic side, the phrase ``voodoo economics'' - which Bush used in 1980 to describe Ronald Reagan's cut-taxes-and-balance-the-budget promises - is back in vogue.

Of course, none of this has much bearing on whether cutting the capital-gains tax is a good idea. The turbulence in the financial community will have to settle down before it can be considered dispassionately. Existing objective evidence is not quite clear cut, either. The big question is whether a low tax stimulates ``investment turnover'' - encouraging investors to liquidate gains, take their lumps at tax time, and then reinvest somewhere else. Investment turnover thus makes capital available for new businesses.

The basis of Bush's proposal was a 1978 study of the capital-gains tax by Martin Feldstein, former chairman of the Council of Economic Advisers. Dr. Feldstein insists a low rate would make investors more willing to realize capital gains, ``and it could very easily be a moneymaker for the government.'' Cutting the tax would have a lasting effect on investment turnover - beyond the temporary changes that some economists believe would accompany any changes in the tax.

The strongest argument against the cut is probably that it may be a good idea to leave the new tax law alone for a while, except for technical corrections.

But it is encouraging at this point in the campaign to have an issue to discuss other than the personal peccadilloes, real or rumored, of the candidates.

Thanks, George.

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