I don't think repelying the tax cuts is the best way to "Pay" for this but at least he's thinking in the right direction
Issues & Insights
Friday, May 30, 2003
Joe And The Jetsons
INVESTOR'S BUSINESS DAILY
Tax Policy: As President Bush and GOP leaders congratulated themselves (justifiably) on their hard-won tax cut, Sen. Joe Lieberman issued a reminder that there's no rest for the weary.
It came in a proposal to spur greater "economic innovation" through targeted tax cuts and more federal spending on research, and math and science programs. Most important, the presidential hopeful called for eliminating capital gains taxes for new investments in small companies.
Sound familiar? It's close to an idea we've been pushing for more than a year now. In fact, it seems to go us one better — by creating the biggest difference between the top rates on income and cap gains since the dawn of the explosive 1980s.
Mindful of the fact that small businesses account for the lion's share of job growth, we've urged a halving of the cap gains tax for those who start new business and hire at least three employees.
As it is, the new cap gains rate (thanks to House Ways and Means Chairman Bill Thomas) stands at 15%, down from the 20% in effect the last six years.
With the new top income-tax rate set at 35% (thanks to Bush), the cap gains differential has widened to 20 percentage points (35% vs. 15%). That's the biggest since 1986. It also represents the first meaningful widening since the mid-1990s and the late 1970s/early 1980s.
Both periods saw explosions of new, innovative companies, many of which turned out to be the biggest job generators of our time.
We've thought a 27.5 percentage-point differential (35% on income vs. the 7.5% we've proposed for cap gains) would be incentive enough for ambitious men and women to take the risk of striking out on their own. But a zeroing-out of cap gains taxes for investments in new companies should be downright irresistible.
It's worth noting that Lieberman unveiled his plan on a trip to California, home to so much innovation and entrepreneurship. The Bush administration, he charged, has done little to turn around high-tech economies because it has "pursued a Flintstones agenda in a Jetsons world."
That's not only a good line. It's also an effective shot across the bow of an administration a little too attentive to the needs of bigger, older and less-innovative companies that have always seemed more interested in the tax treatment of dividends than capital gains.
Lieberman's proposal shrewdly distances him from other Democratic presidential hopefuls, some of whom are urging repeal not only of the just-passed tax cuts, but also those approved two years ago. (In the interest of full disclosure, Lieberman would "pay for" his plan by repealing the upper-income portions of the latest cuts.)
If Lieberman continues on his more-enlightened tack, his Democratic rivals may find his current lead in the polls tough to beat — and Bush may find he's lost the advantage on taxes, a key issue.
Bush, of course, could head off this threat now by inviting Lieberman to the White House to help craft a small-business incentive plan that would go into effect long before November 2004.
By then, payrolls should be growing at such a rate that no one will care who came up with the idea in the first place.
