Capital Gains Exemption Plays Well With Almost Everybody
In a tax cut bill festooned with shiny baubles, the least contentious curio often reveals the most about both parties.
During congressional debate, Republicans were serene. They had the votes, so they followed the protocols of the Marquess of Queensberry. Democrats came on like Mike Tyson. The party’s left flank thundered with indignation, shouting about “giveaways.”
One provision elicited little outcry. Last year President Clinton proposed to exempt most homeowners from the first $500,000 of the capital gains tax.
A half-million simoleons? A windfall of that size once stirred populist anger. Such a giveaway could have jump-started tumbrils along the lobbyist corridor of K Street in the capital, hauling real estate lobbyists to a guillotine custom-built for exploiters.
Instead, this uncontroversial amendment illustrates the strength of growing prosperity and rising home ownership. The election-year gambit survives, unexamined and exempt even from the outrage of the party’s Wellstone wing, named for Pitchfork Paul, the senator from Minnesota.
Clinton knows the truth that the former House speaker, Tip O’Neill, often uttered: “Democrats fought poverty so successfully that we brought millions into the middle class, allowing them to vote Republican.”
When Franklin D. Roosevelt became president, 47.8 percent of Americans owned their own homes. During the 1930s, that number declined, but by 1953, when Tip O’Neill entered Congress, the number had grown to 55 percent.
Today, 65 percent of Americans live in owner-occupied households. Clinton plans to increase the number to 67 percent. In more than two-thirds of American households, “capital gain” is not a cuss word but something to look forward to. Ideologically, this is a veto-proof majority.
In the early 1990s, when George Mitchell of Maine was Senate majority leader, he and his fellow Democrats consistently stymied the efforts of President George Bush to lower taxes on the sale of stocks or real estate.
Today, Democrats in Congress say they want to cut taxes, despite doubts festering deep in the party’s marrow. If only the cuts were properly “targeted,” they say, they could choke down the ideological heresy of cutting the capital gains tax.
Clinton decided that the way to “target” a tax cut was to expand it. Current law allows a $125,000 exemption for homeowners over 55. The tax bill passed by Congress spreads the wealth among generations and classes. Class warfare will be hard to ignite when many potential recruits belong to a big middle class that keeps getting bigger.
Bill Clinton is a Democrat, but he chose a capitalistic metaphor to boost his tax cut Monday at a Boston fundraiser: “What we are talking about is a bill that is basically the dividend the American people have earned for bringing this economy back.”
In Washingtonese, this statement is “paradigmatic,” unveiling a New Democratic manifesto, still disputed on the party’s left, that capitalism is OK. Joe Sixpack may still be a wage slave, but he now has a potential $500,000 stake in capital-gains legislation.
Real estate sales account for only 4 percent of long-term gains recorded by the Treasury Department. Mutual funds, another middle class category, add up to just 2 percent, with 78 percent of capital gains made from corporate stock. But every homeowner has, by definition, purchased part of the American dream.
The statistical warfare on who benefits from the tax cut bill is unpersuasive. Dreams cannot be quantified. Ronald Reagan prospered by calling Democrats “the party of envy,” but prosperity has defanged the green-eyed monster, save for grumbling on the left.
For Republicans, in ideological turmoil just weeks ago, slashing taxes is a soothing ceremony of healing. While some Democrats seethe, the GOP is now as content as a freshly burped baby.
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