Advertisement

Pressure Renewed for Capital Gains Cut

Share
Times Staff Writer

The House Ways and Means Committee starts working on a tax bill today, with the Bush Administration and a number of lawmakers seeking to revive the on-again, off-again plan for a capital gains tax cut in hopes of preserving a number of popular tax provisions scheduled to expire this year.

The bill is supposed to raise only $5.3 billion in new revenues to meet deficit reduction goals, but it promises to set off fireworks over the next couple of weeks as the panel members take aim at mostly obscure tax provisions that are highly valued by big banks, military contractors, high-tech firms and other powerful interest groups.

Rep. Dan Rostenkowski (D-Ill.), the panel’s chairman, is expected to present a bare-bones proposal of his own today that would, among other provisions, modify the tax rules on company health care programs, exclude 50% of the interest deduction on loans for employee stock ownership plans, extend the airport tax, eliminate the remaining vestiges of a beneficial accounting method for defense companies and allow withdrawal of excess pension funds to pay for retiree health benefits.

Advertisement

But Rostenkowski’s plan probably will not generate enough money to ensure renewal of popular tax breaks for corporate research and development, job development and mortgage revenue bonds, aides said.

Despite strong opposition from a majority of House Democrats that forced Rostenkowski to back off from his plan to recommend a one-year cut in the capital gains tax, a number of lawmakers are planning to push for such a reduction in an effort to raise enough funds to retain the tax breaks.

Cutting capital gains taxes is supposed to raise substantial revenues by encouraging investors to sell their assets to take advantage of the lower rate.

”. . . There’s still tremendous pressure on us to go to capital gains as a relatively painless revenue raiser,” said Rep. Robert T. Matsui (D-Sacramento). “I think there are much better ways to go, and that’s why I oppose it. But you can’t count it out yet.”

Rostenkowski, who first opened the door to the possibility of a capital gains tax cut last month and then moved to close it in the face of complaints by Democrats, may be wavering again. Although he backed away from proposing a capital gains cut in his own revenue package, he has not necessarily ruled out going along with the idea, congressional sources said.

President Bush proposed that the capital gains tax--under which profits from the sale of stocks, bonds and other assets currently are treated like ordinary income and taxed at a rate as high as 33%--be reduced to no more than 15%. Treasury officials are continuing to fight for the plan, which they contend would benefit the economy by spurring additional investment, but most Democrats oppose it as a giveaway to the wealthy.

Advertisement

On another controversial issue, Rostenkowski is faced with a revolt among lawmakers over higher taxes to pay for the new Medicare program that covers catastrophic illness.

Under the law, which was approved by Congress and signed by former President Ronald Reagan last year, retirees who pay income taxes will begin paying an annual surtax this year of up to $800 to expand Medicare coverage. The surtax, which requires those with higher incomes to pay more, will first show up on tax bills due next April 15.

Bush and Rostenkowski so far have resisted pressure from angry elderly voters, but Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) has emerged as a leader in the struggle to reduce the tax on more affluent retirees.

Tax panel members are starting to look at alternatives to imposing the full new surtax on the elderly, aides said. These range from making the new coverage voluntary to raising additional revenues from state and local government employees by requiring them to pay the hospital insurance part of Medicare taxes.

Such possible compromises are aimed at heading off demands by some lawmakers to delay the surtax, which would cost $2.6 billion in lost federal revenues next year and much more if it is killed for future years.

Advertisement