Arch an eyebrow at armchair psycho-diagnosis, but acknowledge the importance of a leader’s temperament. (Take McCain: a great American, yet – given a lifelong recklessness, including four plane crashes – not perhaps the best pilot for the the nation. Yet look how close he came to being handed the controls.) This analysis concludes that “messianism has been the one constant refrain in Newt’s shifting intellectual and ideological repertoire.” Worth the read.


From his temperament to his economic savvy, or lack thereof . . . currently, Newt advocates a 0% tax on capital gains – here. He feels this is a good idea because . . . what? If the wealthiest Americans aren’t given even lower tax rates on capital gains, they will . . . what? Not try to get richer?

The long-term capital gains rate was 36% in the Forties and Fifties, 28% for much of the Sixties, Seventies, and Eighties – and yet rich people invested mightily. What else were they going to do if they hoped to get richer?

Does anyone today not start a company because he’ll make only $7.5 billion after tax, if it becomes the next Facebook, instead of the full $10 billion? Were the high rates why Jobs and Wozniak didn’t start Apple? Why Fred Smith didn’t start FedEx? Why no one would venture the capital to get them started? Oh wait . . . they did.

This is just so silly, yet here we are: the Republican frontrunner proposing a zero capital gains tax rate for the already ultra-wealthy.


For the record, I’ve long advocated a zero capital gains rate on investments in newly issued securities – for example, in this 1990 Time Magazine column. That’s as opposed to the capital gains that come from trading in the secondary market – which is most of the gains.

I’m not sure how much incremental investment my proposal would spur, either – some, I imagine, as it tilted the incentive from buying already-issued stock to buying the new shares that fund new enterprise – but it would, in any event, exact a small fraction of the price in lost tax revenue.

In the Plus Ça Change Department, I offer that earlier column (feel free to jump straight to the paragraphs I’ve bolded):

Money Angles: A Tax Cut That May Truly Cost Nothing
By Andrew Tobias
Monday, Feb. 12, 1990

Suddenly there are a lot of tax proposals back on the table. This is too bad, because changing the tax law every five minutes enriches accountants and attorneys but just confuses everyone else. So there’s a lot to be said for leaving things alone. That’s certainly the case if the alternative is the President’s broad capital-gains cut. A focused capital-gains cut would cost far less and accomplish as much or more, and without the paperwork. But first a little background:

— A Texas millionaire in 1981, at the dawn of the Reagan/Bush era, was in the 70% marginal tax bracket. Of the next $1,000 he earned, $700 went to the Federal Government. Today he’s in the 28% tax bracket.

— By contrast, the rich Texan’s plumber, self-employed and earning $30,000, was in about the 40% marginal tax bracket. Of the next $1,000 he earned, $400 went to the government — $100 or so to Social Security, $300 to income tax. Today he’s in the 43% bracket.

Into this breach rides Mr. Bush [The First] with a plan to cut the capital-gains tax as much as 30%. Oh, sure, the wealthy would reap 90% of the cash benefit. But those who’ve pegged the plan a giveaway to the rich Mr. Bush calls “demagogues.”

All of which would be fine — really — if the plan met its stated goal: to encourage investment and thus help America grow. But it doesn’t. The rich already invest most of their money. What else are they going to do with it? Mr. Bush’s broad capital-gains cut would not persuade the rich — or anyone else — to forgo a second VCR and invest that $300 instead. Yet that’s exactly the kind of persuasion America needs these days: less consumption, more investment.

Under Mr. Bush’s plan, the great middle class would supposedly be lured to invest because after that $300 had grown by $200, say, the tax on the gain would be $15 or $20 lower. “Honey! Forget the VCR! The President says that if things work out with our investment, we could save $20 on our 1996 taxes!” (Bush’s other proposal — the family-savings plan — would mainly encourage people to move money from their current savings accounts into these new ones.)

Liberalizing the limits on Individual Retirement Account contributions, by contrast, would give the typical middle-class taxpayer an immediate $85-to- $115 tax break for choosing the IRA over the VCR, depending on local tax savings, if any.

Either plan — a broad capital-gains cut or liberalized IRA deduction — would cost a fortune. (A bargain capital-gains tax rate would shake loose revenues at first as investors sold to take advantage of it but in the long run come back to bite us.) So it may be that given the deficit, we can afford neither.

Yet if the goal is truly to spur investment, there’s an efficient, inexpensive way to do it: cut the capital-gains tax drastically, but apply the cut only to founder’s stock (anyone who starts or invests in a new company) and to securities purchased in a public offering (for example, when a new company goes public or when GM issues $1 billion in new securities to modernize its factories). And don’t make the cut retroactive, as the President inexplicably would. How does that help spur future investment? Just apply it to investments made from now on.

A focused capital-gains tax break would cost little, or nothing if it fostered growth, because it would not apply to most transactions — barely 1% of all stock-trading volume represents purchase of new shares — or to profits on real estate, art, gold or the like. Yet precisely because it would be focused, it would skew investment toward the things we need even more than new malls: new businesses and the expansion and modernization of existing ones.

Focused or not, two things any capital-gains tax cut should not include are provisions for indexing and a holding period. Indexing gains to inflation introduces a whole new level of complication and paperwork at a time when taxes are, to put it mildly, complicated enough. And it protects the wealthy who have assets to protect from inflation, but not the average family, with little in the way of assets besides its house (already largely sheltered from capital-gains taxation) and its retirement funds (sheltered as well).

A long-term holding period would lead investors back to the old days of basing decisions on tax strategy instead of economics. And it would put a chill on trading, which means less liquid markets, especially in small stocks. Liquid markets are a prime U.S. asset. A long-term holding period would do little or nothing to cure management’s short-term perspective, since the big market action comes from pension funds and others not subject to tax at all. And there are already big incentives to holding investments for the long term. You minimize commissions and pay zero tax until you sell. Your money can compound tax free for decades.

Finally, one must mention the onerous Social Security tax. As all but the rich know, it is onerous. But now, with the nation running a large deficit, is not the time to cut it. (Let alone privatize it, which makes no sense at all. You’d just have to pass a new “emergency net” for the millions who, despite good intentions, would not manage to save for their old age — which was all that Social Security was intended to be in the first place.) Cutting the Social Security tax would just mean a larger deficit and, on the margin, the purchase of more VCRs. Now is not the time for increased consumer spending.

But Senator Moynihan is quite right: in light of the Social Security tax burden, it would be outrageous to give rich folks yet another broad tax break. It’s mind boggling that this actually passed the House last term, to be kept from enactment only by the Senate. One hopes the Senate, led on this issue by the likes of Senators Bradley, Bentsen and Moynihan, will show the same good sense again.

☞  Nearly 22 years later those three senators are gone but the issues remain.  And if the tax-breaks-for-the-rich being proposed by Bush 41 seemed outrageous, it’s nothing short of other-worldly what Bush 43 did and what the Republicans now do in voting down even a small tax hike on income above $1 million a year.  Newt hopes to lower their capital gains rate to zero.


Guru:  “So by a vote of 9-8, ALXA technically got a vote of approval.  BUT it’s a hollow victory as the risk management program and limited use call into question what kind of commercial launch this will have.    And the FDA is perfectly free to issue a rejection letter anyway. I suspect they will approve it under these extremely restrictive conditions.  If someone still owns ALXA, probably best to sell on the news.”


Guru:  “Data look quite good.  Across all doses, 54% become transfusion independent, median duration not reached (longest patient out 506 days).  At highest dose, 300 mg QD, anemia response is 65%.  Efficacy on spleen, constitutional symptoms (what the FDA used to approve INCY) appears to be identical to INCY.  INCY’s drug ‘causes’ anemia, so this data do look better than the INCY data.  Will start a Phase III next year and will have to raise money, but this looks like a solid second entrant into the market with a significant differentiating factor, namely the ability to take people off of transfusions. Such an endpoint has been used by the FDA to approve EPO, so could be the basis for a Phase III trial.”


Comments are closed.