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Democrat Will Push Cuts In Capital Gains Tax

In an unexpected move, Senate Democratic leader Tom Daschle intends to propose modest capital gains tax cuts as part of a party agenda for the new Congress, officials said Tuesday.

In addition to those cuts - for investors in small businesses and for small farmers approaching retirement age - Daschle is expected to announce support for steps to make Individual Retirement Accounts available to more taxpayers.

The tax measure is one of 10 pieces of legislation that Daschle will introduce later this month in a package designed to showcase Senate Democratic priorities.

The bills were outlined in a document marked “working draft” and distributed to Democratic senators at a private caucus last week as “works in progress.”

Daschle was traveling in his home state of South Dakota during the day and not available for comment.

The tax proposals are politically significant. When it comes to capital gains cuts, it is customarily Republicans in favor and Democrats resisting them as unwarranted breaks for the wealthy.

Daschle’s predecessor as Democratic leader, former Sen. George Mitchell of Maine, successfully led a filibuster several years ago against a far costlier and less targeted capital gains tax cut from the Bush administration than Daschle is expected to recommend.

And Daschle, in the material distributed to other senators, emphasized his legislation would build on measures introduced by some Democrats in the last Congress. He said the legislation would be crafted “to avoid creating large windfalls for well-off citizens that needlessly drain the Treasury and complicate our effort to balance the budget.”

Concerned about the issue of tax fairness, sources familiar with the situation indicated that Daschle considered, but rejected, proposing estate tax relief. One source, speaking on condition of anonymity, said the decision was made because only a tiny percentage of estates that file tax returns would have benefited.

The South Dakota senator previously had outlined several of his priorities, leading with campaign finance reform and including tax breaks for education. Late last week, he also disclosed plans for a measure that would provide either vouchers or tax credits to make health insurance more widely available to children.

He has not yet publicly disclosed plans for his capital gains tax breaks, and officials, speaking on condition of anonymity, cautioned that details are subject to change. No material was available on the cost of the proposals, or how they would be paid for.

As currently contemplated, Daschle’s proposal would permit investors to defer taxes on the profit made from the sale of stock in small companies so long as they reinvested in another small company within six months. No details were available on what size companies would qualify, but officials said the measure is designed to improve the climate for investment in small firms.

A second proposal would permit investors to increase the amount of small business investment losses they can offset against ordinary income. The current limit is $50,000.

A third proposal likely to be included in Daschle’s package would broaden the current tax break that permits investors to exclude half of their capital gain for stocks held for five years in certain companies. Democratic officials said this break is currently available for investments in companies with assets of $50 million. High-tech firms have sought a hike to $100 million, the officials said.

Similarly, Daschle has yet to settle on details for his proposal for IRAs. But officials said he would propose steps to make them available to more taxpayers. Current law permits qualified individuals to make a $2,000 tax-deductible contribution, but the deduction is phased out at $35,000 of income for individuals and $50,000 for couples.


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