Copyright ©, 1996 by Clifford W. Lazar

The Republicans want a capital gains tax cut. They say that it will create jobs. The Democrats oppose it because we say it is a tax cut for the rich that will lower tax revenues and there is no guarantee that it will create jobs. We need a compromise that the Democrats and the GOP could both happily support. We need a compromise that is guaranteed to create net new jobs, benefit small businessmen and investors and not lower the tax collections.

The compromise is to allow the capital gains from the sales of anything: stocks, an active business, residential or commercial property, even raw land, to be reinvested in an active business that has a net increase in jobs. As a Democrat, I believe the proper role of government should be to promote job creation.

Current tax policy keeps capital out of job creating industries by directing real estate capital gains to future real estate investments. The current 1031 tax rule requires that the exchange be like business for like business (the same SIC) or like real estate for like real estate.

Lower Capital Gains Tax Rate for Moving to Capital to More Jobs

The only tests for a reduced capital gains tax rate should be: Is the capital moving in the direction of more jobs? Moving capital from real estate and stocks to active business should be rewarded with a lower capital gains tax rate than keeping the capital gains in real estate or stocks.

Capital Gains Tax Forgiveness for Creating Net New Jobs

The Federal Government should forgive, dollar for dollar, any capital gain tax liability which is offset by a net increase in payroll taxes collected over the two years from the date of the investment. Any payroll taxes collected after the first two years from the investment date could not be used to offset the captial gains tax liability. The ater-two-years payroll taxes would result in net increases in revenue to the US Treasury.

Only Positive Federal and State Revenue Impacts

The capital gains liability forgiveness wouldn’t cost the US Treasury a penny. It would be offset by the equal dollar payroll taxes that are a net increase over the company’s previous year’s payments for net new employees, not raises to senior executives or intra company job shifts. It would also be offset by reductions in unemployment compensation and welfare. The Social Security and Medicare trust funds would get more money. The ratio of working people to pensioners and welfare recipients would increase.

At the state level, welfare would go down, income and sales taxes would go up.

Putting Wall Street In Support of Job Creation

Corporations that create net new jobs would make more after-tax profits and their stock prices would increase, rewarding their investors. What other policies, in this country reward companies that create jobs? Investment tax credits are usually for labor saving investments. Job creation credits will offset the downsizing rewards that are destroying jobs and families.

This is the social contract that the Democrats and Republicans should offer the nation.

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