Support for Capital Gains Cut Short of Margin Needed to End Talkathon
WASHINGTON (AP) _ A majority of the Senate supported a capital-gains tax cut on a procedural vote Tuesday but the number fell short of the 60 needed to halt a Democratic filibuster against the reduction.
The vote on limiting debate on the cut, which President Bush proposed, was 51-47. Republicans will get another try to limit debate Wednesday. If that fails, the issue will be put to rest for the year.
Leaders of both parties have said no reduction is likely this year. Tuesday’s debate was set up to give backers of a capital-gains cut the chance to show their strength.
″This is a situation where everyone gains,″ said Sen. Bob Packwood, R- Ore., contending that a tax cut would benefit investors while producing increased revenue for the government to spend on social programs. ″You don’t get many deals better than that.″
Majority Leader George J. Mitchell, D-Maine, who has led opposition to a capital-gains cut, said that in the long term, the proposal would worsen the budget deficit by tens of billions of dollars. ″This amendment symbolizes the excesses of the last decade, especially the unprecedented irresponsibiity in federal fiscal policy.
″This is budget fraud that is astonishing in its audacity and irresponsiblit y,″ Mitchell said. ″This amendment is designed to do one thing ... only: Give President Bush a political victory no matter what the long-term cost to the American people.″
Bush campaigned last year on a pledge to cut taxes on capital gains, which are profits from the sale of investments. He said a cut would spur investment and job creation.
Democrats generally are opposed, arguing that 80 percent of the benefit of a reduction would go to those with incomes of more than $100,000 a year.
The proposed reduction has been the dominant point of contention between Congress and the president this year. The House, with significant Democratic support, approved a capital-gains cut in September.
Before 1986, only 40 percent of capital gains from property owned more than one year was taxable. Since that time, capital gains have been fully taxable at the same rates applied to other income.
Packwood’s amendment also included a provision, written by Sen. Bill Roth, R-Del., to create a new type of Individual Retirement Account that, at least for a few years, would help pay for the capital-gains cut.
Under the Republican amendment, the longer an asset was held, the less of the profit from its sale would be taxed.
Thus, only 95 percent of the profit from the sale of an asset owned more than one year would be taxed. That percentage would increase by five points for each additional year up to seven; only 65 percent of the gain would be taxed when property owned more than seven years is sold.
The GOP plan for expanding IRAs would use a different approach than was used by more than 15 million when deductible IRAs were open to all workers. The old-style IRA, which now is restricted to lower-income workers and those not covered by a company pension, permits a tax deduction for the maximum $2,000-a-year contribution.
The Packwood-Roth amendment would permit workers to set aside up to $2,000 a year but receive no tax deduction. Instead, interest on the account would never be taxed. In addition, penalty-free withdrawals could be made from the IRA to pay medical or education expenses or for retirement.
Workers would be permitted to to convert their current tax-deductible IRAs into the new accounts by paying tax on contributions that had been deducted in the past. Packwood and Roth cited estimates that these ″rollovers″ would produce enough revenue for the government to pay for the cut in capital-gains taxes.
The capital-gains cut passed by the House contained no changes in IRAs. Until 1992, it would exclude 30 percent of gains from taxation. After that, only the portion of gains attributable to inflation would be excluded.