[Congressional Record Volume 141, Number 140 (Monday, September 11, 1995)]
[Senate]
[Pages S13182-S13183]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE CAPITAL GAINS DEBATE
Mr. HATCH. Mr. President, it is not quite on this subject, but since
my friend from Massachusetts raised the issue I thought I would just
spend a few minutes on it because it is something that is near and dear
to my heart and I think near and dear to, really, those of a pretty
good majority of this body.
One of the worst perceptions about the capital gains debate is that
only the rich are going to benefit from a capital gains rate reduction.
My friend from Massachusetts implied that and implied that those of us
who are for a capital gains rate reduction are basically taking care of
our good old rich friends. I do not have many rich friends. I have to
say that I was born in poverty, came up the hard way. I am one of the
few in this body who learned a trade, went through a formal
apprenticeship program, became a journeyman and worked in the building
construction trade unions for 10 years, putting myself through high
school. I had to work to get through high school, college and law
school. So I do not think it is a matter of rich friends at all.
The fact of the matter is, nothing could be further from the truth
with regard to capital gains. In fact, Americans at all economic levels
will benefit from increased growth. President John F. Kennedy once
said, basically while he was enacting a capital gains rate reduction
which proved to be very efficacious for our country, ``a rising tide of
investment lifts all boats.'' President Kennedy supported a capital
gains cut because thousands of middle-class Americans would benefit
from it.
In 1992, 56 percent of Federal income tax returns claiming capital
gains--56 percent of those returns claiming capital gains--were from
taxpayers with incomes of $50,000 or less, and 83 percent came from
taxpayers with incomes of less than $100,000. Almost all of them came
from people who earned less than $100,000. But, again, keep in mind, 56
percent came from those who earned less than $50,000. Only the rich?
The preferential capital gains tax benefits every American who
believes in the American dream, who is willing to take a risk for a
long-term reward. Millions of American families that own farms or small
businesses will benefit from the capital gains tax. Yes, in 1 year of
their productive lives, a husband and wife may have a high income, in
the year they sell their family farm or small business. But that is one
reason these statistics can be so misleading. The capital gains
differential is just as much about Main Street as it is Wall Street.
This amendment rewards risk taking and sacrifice, and that is the right
thing to do.
The opponents of the capital gains tax rate cut argue that it
benefits mostly the wealthiest income groups. This assertion is based
on deceptive statistics. The income figures used in these statistics
include the taxpayer's entire income, which includes the capital gain.
This makes the capital gains tax cut appear to be a tax cut for the
rich.
A far more accurate picture results when only recurring or ordinary
income is considered. Let me give an example. An elderly couple living
in Cache County, UT, has been farming on land they owned for 40 years.
The land was purchased for $50,000 in 1950. They decided to retire to
St. George, UT, and thus, they sell their farm for $250,000 after
farming it for 40 years, having paid $50,000 for it.
This couple has never reported more than $35,000 of gross income on
their tax returns in their life, never more than $35,000 in any given
year. But in the year of the sale of their farm, they report more than
$200,000 of gross income. Are these people among the very wealthiest
income earners of our Nation? Of course not.
The Department of the Treasury statistics show that this example is
not just the exception, it is the rule. If capital gains are excluded
from income, only about 5 percent of tax returns containing long-term
capital gains have incomes of over $200,000. Only 5 percent.
A Treasury study covering 1985 shows that taxpayers with wage and
salary income of less than $50,000 realized nearly one-half of all
capital gains in 1985. In addition, three-quarters of all returns with
capital gains were reported by taxpayers with wage and salary income of
less than $50,000 in that year. So let us not kid anybody. Of course,
those who are wealthy will benefit, but they generally put their moneys
back into investments or into businesses, into creation of jobs and
economic opportunity for others. So we should not begrudge the fact
that they benefit as well.
But a huge, huge number of middle-class people benefit from capital
gains rate reductions not just because they themselves have capital
gains to pay taxes on, but because they benefit from the stimulation of
the economy that occurs when money is rolled over and utilized in
creating new jobs and new job opportunities.
A Joint Tax Committee analysis of the years 1979 to 1983 found that
44 percent of taxpayers reporting gains realized a gain in only 1 out
of 5 years. This is the occasional investor, the home or business
owner, who is realizing these gains. When we move beyond the class
warfare rhetoric, we find that capital gains tax cuts help working
Americans.
High capital gains taxes especially hurt elderly taxpayers. Capital
gains for seniors average four to five times the size for capital gains
for younger taxpayers. In fact, in any year more than 40 percent of
taxpayers over the age of 60 pay capital gains taxes.
So, the fact of the matter is, it is deceptive to argue that capital
gains benefit only the wealthy. They benefit everybody.
I believe if we cut capital gains, we will unleash some of the $8
trillion in
[[Page S 13183]]
this economy that is locked up in capital assets that people will not
sell because they do not want to pay 28 to 39 percent in a capital
gains tax. Once we unleash that--if we could just unleash 10 percent of
that money, can you imagine what a stimulation and stimulus that would
be to our economy?
Taxpayers are very sensitive to capital gains reductions. This is
especially true for the most affluent Americans. As a result, Americans
will realize many gains as soon as the rate changes. This will raise
tax revenue, probably by an amount far above joint tax estimates.
Joint tax estimates are among the most conservative estimates you can
have. I will not go into the details on this, but we can say in the
last 30 years, every time capital gains rates have gone up, revenues to
the Federal Government have gone down from selling capital assets.
Every time capital gains rates have been dropped, or lowered, revenues
to the Government have gone up. It just makes sense, especially when
you realize there is $8 trillion locked up in capital assets that they
will not sell, they will not trade, they will not move because of the
high rate of taxation that we have today.
Let us lower that capital gains rate and benefit all Americans, but
especially--especially--the middle class and those earning under
$50,000 a year who will benefit greatly from it, and get some sense
into this system so we push the better aspects of our system. Let us
get rid of some of this demeaning rhetoric that literally cuts into
the--really cuts against what are the real facts with regard to capital
gains and capital gains rate reductions.
I am very strongly for a capital gains rate reduction because I think
it will benefit virtually everybody in our society, the poor as well,
because there will be more jobs and more economic opportunity than
before the rates are cut.
Mr. President, I yield the floor.
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