Brady Backs Sliding Scale for Taxing Capital Gains

As part of the bidding war to break the Senate stalemate over reducing the capital gains tax, the Administration lent its support Wednesday night to a new plan that would allow a sliding scale of lower tax rates with the larger breaks going to people who hold assets longer.

Secretary of the Treasury Nicholas F. Brady said at a meeting of business and government leaders that the Senate should put in place “permanently a capital gains tax which reduces the rate according to the length of the holding period.”

Brady suggested the capital gains rate eventually might be reduced to about 20%, but he declined to endorse a specific legislative package.

As the showdown votes near in the Senate on capital gains and other budget issues, Brady also said he expected that some restoration of tax benefits for individual retirement accounts probably would be approved.

But he declined to endorse any particular approach, although he strongly reiterated Administration opposition to a Senate Finance Committee bill that partially restores IRA deductions for all taxpayers. Brady said the plan would lower federal revenues by $11 billion over four years.

In an address to the American Council on Capital Formation at the start of a conference on raising the nation’s low savings rate, Brady said Treasury intended to have a package ready for President Bush this fall to encourage savings and investment.

He indicated that the Administration would propose partially reducing the so-called double taxation of dividends under which corporations pay taxes on profits and individuals then pay taxes on the after-tax income of corporations when the funds are distributed as dividends.

On the capital gains issue, Brady appeared to be backing the approach of Sen. David L. Boren (D-Okla.) for a graduated reduction in the rate.

This proposal may overcome an obstacle in the Senate--one that resulted from parliamentary procedures--by attracting enough Democrats to carry the legislation. Proponents of a rate cut need 60 votes, rather than a simple 51-vote majority to attach a capital gains cut to a deficit-reduction package. If the proposal were considered separately it would require only a simple majority.

Debate on the deficit-reduction package begins today on the Senate floor.