Losing Big on Capital Gains

A shortsighted plan to slash the tax rate may be unstoppable

In an election campaign largely unencumbered by substance, Democrats and Republicans last year were sharply divided by one pocketbook issue: whether to cut the tax on capital gains. George Bush favored the move as a way to encourage investment and create jobs. Democrats attacked it as welfare for the wealthy, since nearly 70% of individual capital gains are reported by taxpayers earning $100,000-plus a year.

Since the election, though, many Democrats have begun to see a certain expediency in welfare for the wealthy. The reason: a cut in the capital-gains tax would produce a burst of revenue for the Treasury, helping...

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