Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, March 12, 1992 TAG: 9203120458
SECTION: EDITORIAL PAGE: A-10 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Yet the very reason he cites for supporting the idea - reinvigorating the real-estate market - lies at the core of one of the best arguments against it.
Cutting the capital-gains tax rate right now is a bad idea on any number of grounds, among them: The vast bulk of the money would go to taxpayers earning more than $200,000 - the same people who already made out like bandits during the past decade.
Worried about capital investment? Any tax cut at this point would add to the long-term federal deficit, requiring the government to borrow more, and reducing the supply of savings available for private investment.
Musselwhite has the sense to oppose a so-called middle-class tax break, a vote-buying scheme proffered by a lot of politicians these day.
But then he goes and urges a cut in the tax rate on capital gains. Doing this, he suggests, is needed to get the real-estate market moving again. And, he says, "if you have a $30,000 house, you're going to benefit the same as a person with a $100,000 house."
In fact:
The capital-gains issue is not about owner-occupied residential property. Few home-sellers would benefit from a cut in the capital-gains rate, because the capital gain from the sale of one's home is seldom taxed anyway.
Under existing law, the tax on the sale of one's home is deferred indefinitely so long as the proceeds are put back into another home of equal or greater value. Under the one-time exclusion rule, a homeowner at age 55 or older can then sell his or her residence and exclude the accumulated gains from income-tax liability.
Even in the unusual instance in which homeowners are liable for income taxes on the sales of their houses, the person with the $100,000 home would benefit far more from a capital-gains cut than the person with the $30,000 home.
All else equal, including rate of appreciation in the value of the home and length of time it was owned, a capital-gains tax cut would save the owner of the more expensive house $10 for every $3 saved the owner of the cheaper house.
Moreover, the owner of the $30,000 house is likelier to be in a lower tax bracket anyway.
> The current depressed state of the commercial real-estate market is a textbook example of why not to single out certain types of investments or certain sectors of the economy for preferential tax treatment.
High vacancy rates in office and retail space in much of America are a direct result of overbuilding during the '80s. That in turn was a response to tax laws that gave preferential treatment - including unrealistically fast depreciation schedules as well as a lower capital-gains rate - to real estate.
Tax considerations, not market demand, governed investment decisions. While Japan was developing ever-better manufacturing technologies and equipment, America was building ever-bigger, ever-emptier office buildings and shopping malls.
Government may well have a role to play in shaping where and how investment dollars are placed; one example is low-income housing. But that role ought to be played with precision, and not for the purpose of shoring up a sector in trouble mainly because its product is in too much supply.
Keywords:
POLITICS
by CNB