GOP Set to Push Through Cut in Capital Gains Tax

'Contract' proposal targets investment taxes and regulation, but critics see only a return to deficit-boosting, supply-side Reagonomics

CAPITAL gains.

For Republicans, it is the El Dorado of tax cuts, enabling business, entrepreneurs, and property holders to reinvest more of their profits and thereby spur the economy.

For Democrats, it is a ''trickle-down'' nod to the rich that will inflate the deficit.

After a decade of debate, its time may have come.

House Republicans have included a capital-gains tax cut in their ''Contract With America,'' a 10-point agenda they vow to bring to a vote in the first 100 days of the new Congress.

With the Republican transition on Capitol Hill, two ardent supporters of the cut now preside over the committees that have jurisdiction: Rep. Bill Archer (R) of Texas in House Ways and Means, and Sen. Bob Packwood (R) of Oregon in Senate Finance.

And President Clinton intends to reintroduce his plan for a ''targeted'' capital-gains tax cut, the more selective approach that he pushed last year.

The Republican proposal, called the Job Creation and Wage Enhancement Act, targets investment taxes and regulation.

The act would reduce the capital-gains tax -- the tax on profits from stocks, bonds, art, and other investments -- by 50 percent, and index capital gains to inflation. If the measure passes, individuals would pay a maximum 19.8 percent tax on capital gains, down from the current 28 percent. Companies would pay 17 percent, down from 35 percent.

Republicans say the plan would cost $56 billion in lost revenue over five years, but are vague on how to pay for it.

Does the act signal a return to the ''cut taxes, cut spending'' days of supply-side Reaganomics? Agreement among economists splinters over the tax cut's long-term effect on the economy.

''The supply-siders'' -- economists ascendant during the Reagan era -- ''say the effect will be immediate and large,'' says Barry Bosworth, an economist at the Washington-based Brookings Institution. He disagrees. ''Capital is very important to output, but the effect on output takes many years to build up.''

The Republican plan also would allow big business essentially to avoid taxes on investments in plant and equipment through a ''neutral cost recovery'' provision; increase the deductions for new small businesses from $17,500 to $25,000; ease the transfer of family businesses from one generation to another by raising the estate-tax exemption from $600,000 to $750,000; and decrease regulation and end ''unfunded mandates'' -- all to create jobs and increase wages.

Roy Hunt, chairman of Hunt Tractors in Louisville, Ky., is most appreciative of the clause concerning regulations. They are ''like having an uncontrolled guillotine hanging over your head,'' he says.

Mr. Hunt cites the two 1,000-gallon tanks his company uses to fuel its fleet of trucks. Though they are only seven years old, he says, the Environmental Protection Agency (EPA) wants him to replace them to avoid leakage.

''I could do it with a backhoe myself,'' Hunt says, ''but we have to have an EPA-certified contractor come in here and do it for $10,000.''

The Republican act would require every federal agency, from the EPA to the Occupational Safety and Health Administration, to perform a ''risk assessment'' and ''cost benefit analysis'' on every regulation to determine whether the lessened risk was worth the cost of the regulation.

Each federal agency would be required to generate a ''regulatory budget'' to document the cost to the private sector of compliance with all of the its regulations. The budget would be capped the first year and lowered the second. This would force agencies, proponents reason, to prioritize their regulations and pursue only those most critical to the public's well-being.

The Republican plan also would require the government to compensate landowners for promulgating a regulation that decreased their property value by more than 10 percent.

Property-rights advocates see the provision as an extension of the ''just compensation'' clause guaranteed in the Fifth Amendment to the Constitution. Individuals are compensated at fair market value for land the government takes from them, the US Constitution ensures.

But consumer advocates and environmental groups argue that government's role is to protect one property owner from the actions of neighbors.

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