Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, January 9, 1995 TAG: 9501090019
SECTION: BUSINESS PAGE: 6 EDITION: METRO
SOURCE: JOHN CUNNIFF ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
But these and other inconsistencies are real, the consequences of attempts at social engineering, politics, faulty legislation and inertia. It is safe to say, for instance, that few Americans are for a marriage tax, but it exists.
Just as certainly, it is a rare person who would support incentives for unwed mothers to have more children, for consumers to clog courts with phony product-liability cases or for regulators to harass small businesses.
But all these things exist, and they are but a trivial percentage of the whole. More startlingly, such incentives have ardent supporters, including some who think the country will go on the skids if the incentives are removed.
And so, little is done to correct negative incentives; instead, they become institutionalized, accumulating year by year and developing their bureaucracy of enforcement, and bringing to mind James Madison's warning:
``I believe there are more instances of the abridgement of the freedom of the people by gradual and silent encroachments of those in power than by violent and sudden usurpation.''
If the laws that enforce such inconsistencies are examined seriously, as promised by the new leaders of Congress, it will be more than has been done for several years, and it could restore some lost faith in government.
While all these areas may be equally worthy of consideration by Congress, the chances of legislation differ. All have been skewed by years of political and special-interest thinking that confuses legitimate considerations.
Capital gains taxes - which include levies on income never received - have forever been associated with the wealthy. That's despite Internal Revenue Service data showing 55 percent of taxpayers who report them earn $50,000 a year or less.
Increases in these taxes have been defended as necessary to the Federal treasury, but in reality the revenue so gained has fallen each year (through 1993) since the last big increase in 1986.
They have also been defended as fair, although they can be a tax upon a tax. Perhaps worse, they also can be a tax on inflation; it is actually possible under the law to lose money and pay a tax as if it were profit.
It has happened. According to the Treasury Department, inflation accounted for three-quarters of gains from nonbusiness real estate, and more than 100 percent of the capital gains from corporate stock, reported in 1977.
Lost in the political debate has been the matter of national interest. Billions of dollars in capital gains are locked up in old investments, because to sell would be to be taxed on fictional gains.
While so locked up, the federal Treasury is denied the revenue that would come from sales, and new and innovative small businesses - the potential leaders of the future - are denied investments that almost certainly would go to them.
Think-tank economists, such as Gary and Aldona Robbins, attribute a variety of economic problems to such restrictions - slowed economic growth, for example - and put the tab in the billions of dollars.
The capital gains tax is just one example of negative incentives and subsequent damage to the economy. Assessing the social damage - to families, to children, to the elderly - is far trickier and may involve greater billions.
Simply to examine negative incentives, impartially rather than politically, in itself could restore some faith in government. And to go further and make a start at correcting them, why that could even restore faith in politicians.
by CNB