clarinews@clarinet.com (BUD NEWMAN) (02/08/90)
WASHINGTON (UPI) -- Chairman Dan Rostenkowski, D-Ill., said Wednesday the House Ways and Means Committee would study some tax changes but he warned against undercutting the 1986 Tax Reform Act by reducing capital gains taxes, as President Bush wants. ``Let me set forth my opinion clearly and emphatically: tax reform is working and it is working very well,'' Rostenkowski said in opening three days of hearings on the effects of the 1986 law, the most substantial revision of the tax code in a half-century. Lawmakers ``should leave the substantive policy of the law in place so that taxpayers can make business, investment and personal decisions with confidence that the rules of the game will not be changed,'' the chairman of the tax-writing committee said. House Speaker Thomas Foley, D-Wash., later agreed with Rostenkowski, saying, ``The basic form of the 1986 Tax Reform Act should not be unraveled.'' Rostenkowski invited interested parties to submit written proposals for tax code simplifications, but warned the panel's study is not an invitation to revive special tax breaks. A major thrust of the 1986 law was to eliminate loopholes and special deals in exchange for lower basic tax rates. ``My invitation for simplification proposals is not an invitation for the restoration of special benefits that were repealed after two grueling years of tax reform,'' said Rostenkowski, who played a major role in getting the 1986 law passed. ``Such an effort would be counterproductive and would ruin the goals of fair and predictable tax laws.'' While not specifically mentioning capital gains in his prepared statement, Rostenkowski disputed Bush's argument that a lower tax rate on profits from selling stocks, bonds and real estate would stimulate the economy and create jobs. ``We all know that the real cause of economic problems in this nation is the (budget) deficit,'' said Rostenkowski, who was the leadoff witness at the hearing. ``Until the deficit can be significantly reduced, no tax system crafted by Congress will cure the economic ills of this country while the passage of special tax breaks will only create more economic distortions.'' In response to a question, Rostenkowski said, ``I really don't see any big groundswell for (cutting) capital gains.'' The House approved a cut in capital gains taxes late last year, but Senate Democrats killed the move. Rostenkowski said while the law made the tax code fairer, it can be further simplified without undoing the principles of tax reform. Opponents of Bush's capital gains cut argue that one of those principles is the link between the capital gains rate and regular income tax rates. Before 1986, capital gains were taxed at a lower rate than ordinary income. Tax reform made capital gains rates the same as regular income and lower the basic rate to just three brackets -- 15 percent, 28 percent or 33 percent. Opponents insist that lowering capital gains rates without also raising regular income rates for the wealthy, who would benefit most from cutting capital gains, would violate basic fairness. Also appearing at Wednesday's hearing were Kenneth Gideon, assistant secretary for tax policy at the Treasury Department, and IRS Commissioner Fred Goldberg, who both said tax reform is working fairly well. But Gideon said ``problems remain'' and argued that ``incentives for savings and investment must be improved'' -- a push for both Bush's capital gains cut and the administration's so-called family savings plan under which long-term savings accounts would earn tax-free interest. Goldberg, whose agency is beginning to check millions of 1989 tax returns, praised tax reform for its ``triumph over mass-marketed, abusive tax shelters.''