Bush Putting Plan to Trim Capital Gains Tax to 15% on Back Burner, Adviser Says

President-elect George Bush, despite his frequent promise on the campaign trail to reduce taxes on capital gains, is likely to postpone a formal proposal out of fear that it would encourage Congress to begin wholesale tampering with the tax code, a senior Bush adviser said Monday.

Cutting the capital gains rate on investment profits to 15% from its current maximum of 33% “became an issue in the Vice President’s campaign, and it will be something he continues to want to look at,” the longtime Bush adviser said. “But the flip side is, it starts to open up the tax law again.”

Other Bush aides privately echoed the senior adviser’s caution over introducing a capital gains tax proposal early in the new Administration.

The senior adviser, interviewed on condition that his name not be disclosed, stressed that any firm decisions on budget and tax strategy will not be made until the incoming Administration’s full economic team is chosen and top officials have had a chance to discuss the options with Bush.

The President-elect has already asked Treasury Secretary Nicholas F. Brady to remain in that office. On Monday, Bush announced that Richard G. Darman, a former Reagan Administration official, will become his budget director. The third crucial economic policy-making position is chairman of the Council of Economic Advisers, a post that is expected to go to Stanford economist Michael J. Boskin.

Called a Giveaway

Although Bush may delay a capital gains proposal, he is still expected to offer his own plan at a later date. He is said to remain convinced that a cut in capital gains taxes, far from widening the budget deficit, would actually generate additional revenue and benefit the economy.

During the presidential election campaign, Democratic candidate Michael S. Dukakis charged that Bush’s capital gains tax proposal would amount to little more than a giveaway to the richest taxpayers. He pointed out that roughly half of the entire benefit from a lower capital gains tax would go to those earning more than $200,000.

Bush’s highest domestic priority when he takes office, his adviser said, will be to work out with Congress an acceptable budget agreement that will cut the deficit for the fiscal year beginning next October to the $100-billion target called for under the Gramm-Rudman budget balancing law.

No Decision Yet

He expressed confidence that the Administration and Congress will ultimately meet the $100-billion deficit target.

He acknowledged that Bush’s “flexible freeze”--aimed at reducing the deficit without boosting taxes or cutting Social Security benefits--would require significant spending cuts elsewhere in the budget. “Nobody has focused on where they are going to be,” he conceded.

He confirmed that President Reagan will prepare a final budget, for the fiscal year that begins next Oct. 1, without Bush’s direct involvement. Reagan Administration officials have said that Reagan plans to leave office with a tough budget containing many spending cuts that Congress has rejected previously.

“This is going to be his last budgetary will and testament,” one budget official said.

That approach would give Bush the flexibility to offer a more moderate--”kinder and gentler”--spending blueprint or simply to enter congressional negotiations without a specific proposal of his own.

Those negotiations, the Bush adviser warned, will take considerable time. Investors in financial markets, he said, should not “rush to judgment” about the possibility of a stalemate between Bush and Congress.

Although Bush will not take office until Jan. 20, the world’s financial markets sank almost immediately after his election. Traders attributed the decline in the stock market, the rise in interest rates and the decline in the dollar to uncertainty over how Bush plans to resolve the deficit problem.

The Bush adviser, seeking to play down market worries about higher interest rates, said he does not see any reason for the Federal Reserve to engage in “fine-tuning” of the economy by boosting rates to slow growth.

The new Administration is counting on robust economic growth of roughly 3.5% next year to help generate additional revenue to reduce the deficit. But Fed officials have stated that any real growth greater than 2.5% runs the risk of pushing the inflation rate to unacceptable levels.