Capital Gains, The Class Struggle By Rudy Fichtenbaum +quot; The recent vote by the House

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Capital Gains, The Class Struggle --------------------------------- By Rudy Fichtenbaum * The recent vote by the House of Representatives in favor of reducing the capital gains tax has led many politicians, pundits and member of the news media to declare that the class struggle is dead. Mark Twain once remarked, "the rumors of my death have been greatly exaggerated." So it is with the class struggle. The recent vote provides incontrovertible evidence that the class struggle is alive and well and that the super-rich, who head our country's largest corporations, are still on the offensive. In fact, the passage of this legislation aims at completing the agenda begun by Ronald Reagan to eliminate the progressive income tax by lowering the taxes of the rich and increasing the taxes of working people. Reagan began by reducing the top tax rate from 70 percent to 50 percent in 1981. Then in 1986, under the guise of simplification, the rate was further reduced to 28 percent. At the same time the minimum tax rate for families was increased from 11 to 15 percent. Under the old tax law, when maximum rates were at 50 percent for the rich, capital gains were taxed at a lower rate of 20 percent. A property owner reaps a capital gain when an asset is purchased at one price and then sold at a higher price. Thus many corporate executives and bankers, who earned millions, chose to receive most of their compensation in the form of stock options. This allowed them to purchase a certain number of shares of stock below the market price. When they resold their stock at a higher price, they earned millions taxable at the lower 20 percent rate. Still not satisfied with this form of wealthfare, the super-rich and their representatives in Congress pushed to further lower the highest tax rate to 28 percent. To achieve this lower rate, they claimed to be willing to give up the lower tax rate on capital gains and allow capital gains to be taxed as ordinary income. This was just a strategy to lower taxes for the rich, who fully intended to come back to Congress and demand preferential treatment for capital gains to be restored. According to the Congressional Budget Office (CBO), about 70 percent of all capital gains go to the top 10 percent of taxpayers and 54 percent to the top 2 percent. The proposal just passed in the House would lower taxes on capital gains to 19.5 percent for two years and then increase the tax rate. This is a rich taxpayers' cost-of-living- allowance. It means that capital gains that are less than the rate of inflation will not be taxable. Proponents of the capital gains tax reduction argue that it will lower the deficit by $5.3 billion because of the selling frenzy created by the two years of lower rate. After two years, the cut in capital gains will cause a decline in tax revenues, making the deficit even larger. Then this group of super-rich will call on Congress to cut more social programs or to raise taxes on working people. The alternative to the capital gains cut put forward by the leadership of the Democratic Party was to raise the top tax rate on income over $150,000 to 33 percent and restore IRAs for all taxpayers. This proposal was immediately labeled as another Democratic tax increase. Of course the media did not bother to point out that in the last seven years of the Reagan administration taxes were increased six times to the tune of $120 billion. Despite the rhetoric and propaganda, a Wall Street Journal/NBC poll showed that 49 percent of registered voters supported raising taxes on the rich, while only 39 percent supported cutting the capital gains tax. Even these figures are deceptive, because a larger percentage of the affluent tend to vote. When this difference is accounted for, the vast majority of the people favored increasing taxes on the rich. Ignoring this majority view, a coalition of conservative Democrats and Republicans voted in favor of cutting capital gains. To these legislators democracy means democracy for the rich. The supreme irony is that politicians, pundits and their media supporters all have high praise for democratization in the socialist countries while shamelessly subverting the will of the majority of the American people. ------------------------------------------------------------- * Rudy Fichtenbaum is a professor of economics.


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