Bush Urges Cut in Capital Gains Tax by Almost Half

Midway through his presidential campaign announcement swing, George Bush on Wednesday suddenly called for a big tax cut for wealthy investors--saying it would fuel greater economic growth in the country.

The vice president, speaking before Atlanta businessmen, proposed a reduction in the capital gains tax from a maximum of 28% today to 15%. Bush insisted this tax reduction would not add to the estimated $175-billion 1988 federal deficit.

“Such an incentive would not cost the government money. It would gain additional revenue by stimulating growth,” he said.

This supply-side theory, in which less tax means more growth and more tax revenue, was denounced in general terms by Bush in his first presidential campaign seven years ago as “voodoo economics.” While Bush later embraced the concept when he became Ronald Reagan’s running mate, economists remain mixed about the effects of cutting the tax on investment earnings, or capital gains.

It was lowered in 1978, then increased again by the landmark 1986 tax revision law from a previous maximum of 20%, to 28% this year and 33% next year. A majority of economic theorists, however, believe a major reduction would add to the deficit.

Bush has said his weeklong, seven-state announcement tour was designed to bring his own ideas out from underneath the shadow of the Reagan presidency he has served for two terms. The tax cut proposal adds a plank with strong conservative appeal to a centrist-flavored theme that Bush struck at the start. This included a call for compassion, for “prosperity with a purpose: Helping your brothers and sisters, whoever they are, wherever they are, whatever their needs.”

Wednesday’s tax reduction proposal also puts more distance between Bush and his chief Republican rival, Sen. Bob Dole of Kansas. Dole has emphasized budget deficit reduction as among his highest priorities.

Bush, while he said the deficit was an important problem needing attention, did not elaborate on Wednesday. Instead, he seemed to indicate that the gritty unpleasantries of the deficit were not what voters wanted to hear in this campaign. The deficit rated three sentences in his 20-minute speech.

From Atlanta, Bush traveled to Michigan, where his political headaches have grown recently. First, he lost a Michigan party organizing battle to rival candidate Pat Robertson, the former television evangelist. This was a prelude to the January, 1988, selection of Michigan delegates.

Second, Bush’s off-the-cuff remark suggesting that Soviet tank mechanics had superior skills and should be sent to Detroit was widely repeated and criticized in Michigan. Bush’s verbal gaffe occurred at the end of his recent European tour.

Both problems were raised when Bush met with 500 Republican precinct delegates in Dearborn.

The vice president reiterated that his quip about the Soviet mechanics had been meant to emphasize a concern for quality in American products. “I thought it was funny,” Bush said. “It wasn’t; it died. Nobody laughed. I said, ‘Listen, I’m sorry about that.’ But quality, we’ve got to have more of it. We’ve got to emphasize it. And if that hurts, I say, too bad.”

Referring to his complicated intra-party struggle with Robertson and others about the selection of Michigan delegates, Bush said his opponents were engaged in “kamikaze warfare” that will leave the state’s GOP “in shambles later on.”

Bush called it an issue of “fairness” that longtime party regulars, who tend to support Bush, not be excluded from the process, as has happened in some parts of the state at the hands of party insurgents, most of whom are supporters of Robertson or other candidates.

Contributing to this story was Times researcher Leslie Eringaard in Detroit.