ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, May 7, 1996 TAG: 9605070094
SECTION: EDITORIAL PAGE: A-4 B EDITION: METRO
WHETHER IT'S Steve Forbes with his so-called flat tax or congressional backers of less sweeping proposals, advocates of a capital-gains tax cut have a point: To the extent that taxing capital gains is a disincentive to investment, it acts as a brake on economic growth.
Trouble is, the same point about growth-dampening could be made regarding:
(a) The long-term federal deficits that would ensue, absent offsetting measures, from a capital-gains tax cut.
(b) Further deterioration, which such deficits might compel, of public investment in future-oriented items like infrastructure, basic research and education.
(c) Raising other kinds of taxes as a way of averting (a) and (b) in the event of a capital-gains cut.
Why, for instance, should capital gains get special tax preference that other kinds of return on capital - dividend income, interest income - wouldn't? Would this not be introduction of the kind of government-induced skew that free-market conservatives presumably would oppose?
For that matter, why should the earnings of productively invested capital be treated more kindly than the earnings of productive labor? Both are necessary for economic growth.
In a recent essay in The Christian Science Monitor, David Roodman of the Worldwatch Institute calls for higher taxes on polluting activities, like high-chemical farming, and on carbon fuels, including gasoline. That way, he says, reliance on taxation of productive enterprise could be lessened. Moreover, he argues, linking pollution's costs more closely to pollution-producing activities would provide a more efficient, market-oriented way of dealing with the problem than direct government regulation.
Embracing Roodman's concept wholeheartedly would be premature. Tax proposals have a way of being more complicated in their execution than in their conception. So do their consequences: At least at first, for example, raising taxes on farm chemicals and carbon-based fuel almost certainly would mean higher prices for food and heat, necessities for the poor as well as the affluent.
Even so, he and likeminded observers may be on to something. Rather than try to use the tax code to show preferences among the various ways of contributing to the economy and society, policy-makers might distinguish more between productive activities of whatever ilk and activities that subtract from society and the economy.
LENGTH: Short : 50 linesby CNB