clarinews@clarinet.com (BUD NEWMAN) (02/02/90)
WASHINGTON (UPI) -- Treasury Secretary Nicholas Brady told a Senate panel Thursday that the benefits of President Bush's proposed capital gains tax cut would be ``widely distributed'' and not go just to the rich, as Democrats claim. Testifying before the Senate Budget Committee, Brady said that based on 1987 tax data, 41 percent of the capital gains reported by taxpayers came from those with adjusted gross incomes of less than $50,000. ``The benefits of a capital gains tax rate cut would be widely distributed throughout the population,'' Brady said. ``In a typical year, 14 million tax returns, representing approximately 26 million taxpayers, report income from the sale of capital assets.'' Democrats, who defeated Bush's proposed capital gains tax cut in a bitter partisan fight last year and who are expected to oppose it again this year, have claimed that the great majority of the tax benefit would go to the rich. ``A cut in the capitl gains tax rate does nothing to alleviate the squeeze on working Americans,'' committee Chairman James Sasser, D-Tenn., told Brady in opening the hearing on Bush's budget proposal for the 1991 fiscal year starting Oct. 1. ``Eighty percent of the benefits from such a cut will flow to the wealthiest 1 percent of our citizens,'' Sasser said. ``Rather than tapping the enormous savings potential of the broad base of Americans, capital gains legislation merely rewards the highest income group for doing what they were going to do anyway.'' In his new budget proposal, Bush urged that taxes on the profits by individuals from the sale of assets, such as stocks, bonds, timber and real estate, be reduced from the current rate -- 28 percent to 33 percent, depending on income -- to as low as 19.6 percent if assets are held at least three years. Capital gains are currently taxed at the same rate as regular income but Bush wants to give capital gains preferential treatment with lower rates. The administration says doing so would stimulate investment, create jobs, enhance savings and spur the economy. Detractors -- mostly Democrats -- call it a giveaway to the rich. Some Democrats have proposed cutting the Social Security payroll tax or restoring tax deductible individual retirement accounts -- moves they say would benefit more middle income Americans. For taxpayers in the 28 percent income tax bracket, the Bush capital gains proposal works like this: If an asset is held one year and then sold, 10 percent of the profits would be excluded from taxes, resulting in an effective tax rate of 25.2 percent instead of 28 percent. Assets held two years and then sold would have 20 percent of their profits excluded from taxes, for an effective tax rate of 22.4 percent. Profits from the sale of assets held three years would enjoy a 30 percent exclusion from taxes, for an effective tax rate of 19.6 percent. Testifying along with Brady Thursday was Michael Boskin, chairman of Bush's Council of Economic Advisers, who defended the economic assumptions of lower interest rates and high growth that underlie Bush's budget. He said the administration projection of a 5.4 percent interest rate on 90-day Treasury bills in fiscal 1991 -- a projection well below the interest rates projected by leading private economic forecasters -- was solely dependant on the adoption of all of Bush's major budget proposals and the rejection of proposals that would drive up the deficit. ``Were it to appear that those would not occur, my view is the financial markets would not move as favorably,'' Boskin said.