[Congressional Record Volume 144, Number 89 (Wednesday, July 8, 1998)]
[Senate]
[Pages S7698-S7699]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         CAPITAL GAINS TAX CUT

 Mr. ABRAHAM. Mr. President, I rise to support the Majority 
Leader's legislation, S. 2214, reducing the top capital gains tax rate 
from 20 to 15 percent, and reducing from 18 to 12 months the holding 
period required on capital gains.
  Mr. President, this legislation is good news for the economy, and it 
is good news for America's working families.
  Ours is a global economy, Mr. President. And in my view it is 
crucial, if we want to continue enjoying our current prosperity, that 
we do more to maintain our competitive edge. Even with last year's 
capital gains tax cut, at 20 percent America's long term capital gains 
tax rate remains among the industrialized world's highest. Further, 
countries like Australia and the United Kingdom, which have higher 
rates, also allow taxpayers to index the cost of the asset on which 
they make gains.
  We pay a high price for our high capital gains tax, Mr. President. As 
Stanford Dean John B. Shoven points out, higher capital gains rates 
increase the cost of investing in capital and equipment. As a 
percentage of Gross National Product, the United States invested less 
in nonresidential projects from 1973 to 1992 than any of our major 
competitors. And investment in plant and equipment has fallen to only 
half the level of the 1960's and 1970's.
  Without updated plant and equipment, productivity lags and we cannot 
compete with other nations. Lowered capital gains taxes would directly 
address this problem. National Council of Policy Assessment Senior 
Fellows Gary and Aldona Robbins predicted, before last year's reduction 
in the top capital gains tax rate, that a cut of 50 percent in that 
rate, to 14 percent, would lower the cost of capital by 5 percent. This 
would induce investors to increase the capital stock by $2.2 trillion 
in 5 years. And that larger stock of capital would create 721,000 new 
jobs and increase GDP cumulatively by almost $1 trillion.

[[Page S7699]]

  That's a lot of jobs and a lot of growth, Mr. President. Particularly 
when we can achieve them simply by allowing the American people to keep 
more of what they earn. And we are well on our way to spurring this 
growth and job creation. For example, Mr. President, Congress' Joint 
Committee on Taxation estimates that the recent cut in the top capital 
gains tax rate from 28 to 20 percent will increase capital gains 
realizations by $1 trillion over the next 10 years. That's a trillion 
dollars, Mr. President, that will be freed from stagnant investments 
for more productive purposes.
  We should also keep in mind, Mr. President, that this tax cut will 
benefit the vast majority of the American people. In addition to 
creating jobs and keeping our businesses competitive in the global 
marketplace, this capital gains tax cut will directly aid America's 
working families.
  It is time to recognize, Mr. President, that America's middle class 
is fully integrated into our free market economy. The vast majority of 
working Americans are not just wage-earners, they are investors as 
well.
  Americans who own stocks, bonds and other investments on which they 
may take capital gains are investors. Small business owners, 
nonprofessional salaried employees and blue collar workers with a 
company retirement plan are investors.
  As economist Lawrence Kudlow points out, ``Today's investor class 
could total as many as 125 million people. That's equivalent to 
virtually the entire working population of the U.S..''
  How does Mr. Kudlow come up with this number? According to a recent 
Nasdaq survey, 43 percent of all Americans own stocks--more than double 
the 21 percent reported in 1980. An NBC/Wall Street Journal poll found 
that 51 percent of Americans own at least $5,000 in stocks, mutual 
funds or other retirement saving vehicles. And the American Savings 
Education Council reports that nearly half of all American workers 
contribute an average of 5 percent of their gross income to 401(k) 
individual retirement plans.
  Forty-nine percent of America's investors are women, 38 percent are 
non-professional salaried workers--and both groups have annual incomes 
of $75,000 or less. Nearly two thirds of investor families have incomes 
under $50,000.
  Mr. President, these responsible, hard-working, middle class 
Americans are concerned about their futures; they are attempting to 
build and nurture a nest-egg for themselves, their retirement and their 
children.
  These Americans know that wealth is created through innovation and 
hard work in free markets. They know that saving is crucial to their 
future and to the future of this nation. They saw the dangers big-
government social engineering posed to our economy and brought about 
the most significant political revolution in this country in 50 years, 
putting the free-market Republican party in control of both Houses of 
Congress.
  Mr. President, middle class investors in America support our nation 
through disproportionate savings and investment. In return these middle 
class Americans seek fair treatment. They seek policies that do not 
penalize them for their hard work and financial responsibility. And in 
my view it is time we gave it to them. And that means lowering the 
capital gains tax to 15 percent.
  It is also important to note, Mr. President, that it is the moderate 
income person who is penalized most by high capital gains tax rates. 
The increase in moderate income workers reporting capital gains is 
largely due to the increasing use of mutual funds. These funds allow 
more and more Americans to invest in the stock market by pooling 
resources in the hands of a fund manager who buys and sells stocks.
  The only down side to this profitable arrangement, Mr. President, is 
created by the tax code. Individuals investing in mutual funds cannot 
balance their capital gains by selling off other stocks showing capital 
losses as wealthy people can. This means that a significant proportion 
of mutual fund investors show capital gains on a regular basis--and see 
their returns reduced because of capital gains taxes--even though they 
are not controlling individual investment decisions.
  If we want Americans to save more, Mr. President, in my view it makes 
sense to make savings pay more by taxing it less. This cut in capital 
gains taxes will make savings and investment more attractive to 
Americans by increasing the net return on investments.
  Finally, Mr. President, I believe it is important at this point to 
address the fear expressed by a number of people that this tax cut 
would bust the budget. Fortunately for us, that simply is not true.
  As I have already mentioned, the Joint Committee on Taxation has 
estimated that the most recent cut in the capital gains tax rate will 
produce $1 trillion over the next 10 years in increased capital gains 
realizations. That translates, Mr. President, into an increase of $47 
billion in federal revenues. This further cut in the top marginal 
capital gains tax rate will only magnify that increase in revenue.
  Indeed, Congress' own Joint Economic Committee last year published a 
study, written by economists James Gwartney and Randall Holcombe of 
Florida State University, finding that revenue from the capital gains 
tax would be maximized at 15 percent. Thus, the tax cut we are 
considering today would achieve the maximum federal revenue possible 
from this tax, while in addition spurring economic growth and job 
creation.
  This is a truly win-win situation, Mr. President. We now have an 
opportunity to encourage savings and investment, spur continued 
economic growth and maximize federal revenues. I urge my colleagues to 
grant the American people the benefits of this important 
legislation.

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