Gingrich Calls for Capital Gains Tax Cut

House Speaker Newt Gingrich (R-Ga.) on Wednesday added another major item to the GOP’s election-year menu of tax cuts, opening a concerted drive for a big reduction in the capital gains tax on investment profits.

But with Republicans still divided over which taxes to slash, how deep to cut them and how to pay for the revenue loss--and with President Clinton opposing many of their initiatives--it appears increasingly likely that Congress will give taxpayers little but campaign rhetoric this year.

Although the Republicans have been pushing tax cuts on a variety of fronts, the obstacles are legion:

* Congress cleared a bill Wednesday providing tax breaks for parents who save for education--including tuition at private and parochial schools. But Clinton has signaled that he will veto the measure, objecting that it would alter government policy that has kept federal aid targeted on public schools.

* There is broad support for reducing taxes on married couples, but Republicans have not figured out how to make up the revenue that the treasury would lose if the proposal were to become law. A plan to cut the so-called “marriage penalty” by paying for it with revenue from an anti-smoking bill died in the Senate last week when the sweeping tobacco measure was shelved. House GOP leaders have proposed offsetting tax relief for couples with new domestic spending cuts, but they have met stiff resistance in the Senate.

* Prospects for Gingrich’s plan to cut from 20% to 15% the top tax rate on capital gains hinge heavily on whether he can persuade skeptical budget scorekeepers that the proposal would pay for itself because it would unleash economic growth. What’s more, the Clinton administration is opposed to the plan.

To be sure, a small measure of tax relief for investors soon will be signed into law because the GOP slipped such a provision into a popular bill to restructure the Internal Revenue Service.

The bill, which Clinton is certain to sign, would reduce from 18 months to 12 months the minimum time investors must hold an asset to qualify for a lower capital gains tax rate. Clinton opposed the addition--which would shrink federal revenue by about $2 billion over 10 years--but intends to sign the bill.

Still, Republicans are under tremendous election-year pressure to produce a much more substantial tax cut. Senate Majority Leader Trent Lott (R-Miss.) has said he hopes for one in the neighborhood of $60 billion over five years.

But Stanley E. Collender, a budget expert with the public relations firm of Fleishman-Hillard, said the plethora of political, procedural and budgetary hurdles dims the chances of such a tax cut being enacted into law to “less than 10%, and I’m giving it the benefit of the doubt.”

Even if their rhetoric never becomes reality, Republicans are hoping their emphasis on the issue will at least unify the party behind an anti-tax message for this fall’s election. However, the legislative maneuvering is opening divisions within the party on many fronts.

Although ending the marriage penalty has been a top demand of the religious conservatives who are a key part of the GOP base, the business community that is also an important Republican constituency is more keen on cutting capital gains taxes.

Gingrich’s initiative comes at a time when many business lobbyists have been complaining that the GOP has given short shrift to their interests. For example, many corporate interests favor funding for the International Monetary Fund, which Republican leaders have held up, and many business groups opposed a bill backed by religious conservatives to impose economic sanctions on countries charged with religious persecution.

Against that backdrop, one GOP leadership aide termed Gingrich’s capital gains proposal “an olive branch to our friends in business.”

Gingrich denied that his proposal would eclipse the marriage penalty as a GOP priority. “It doesn’t compete with it,” Gingrich said, because he believes that cutting the capital gains tax rate would bring in more revenue by spurring more economic activity.

Congress’ Joint Committee on Taxation has not officially analyzed the revenue effects of Gingrich’s plan. But analysts estimated that it probably would increase revenue in the short term but result in a net loss of tens of billions of dollars over the next decade. Gingrich has complained that congressional budget analysts have consistently underestimated the amount of revenue brought in by tax cuts, and he has been trying to persuade them to change their economic forecasting models.

Regardless, Gingrich sees the capital gains tax cut as a powerful political issue for Republicans.

“Our big message is real simple,” Gingrich said Wednesday. “You want more economic growth? You want senior citizens who have saved all their life to have more after-tax income? You want young people to have a better chance to go get a job? You cut the capital gains tax.”

Democrats scoffed and said the proposal amounts to another tax cut for the wealthy just a year after Congress cut the top rate on capital gains for most investors from 28% to 20%.

“We feel like we just did that last year,” said Jake Seiwert of the White House National Economic Council. “The focus should be on saving the surplus until we fix Social Security, not on providing more tax cuts for the well-off.”

Times staff writer Elizabeth Shogren contributed to this story.