This article has been excerpted. With the Senate in recess the last two weeks, the staffs of Senator Trent Lott of Mississippi and other Republican leaders have been working on a plan for a big cut in the capital-gains tax this year to stimulate the economy, leadership aides said today. One possibility, a staff assistant said, is to begin immediately to tax capital gains on assets held less than a year at the same rate as gains on property held longer. Short-term capital gains now face a tax as high as 39.6 percent. The maximum capital-gains rate on assets held a year or longer is 20 percent.
Capital gains are the profits from the sale of investments like stocks and bonds.
The staff members are working on the theory that cutting the rate on short-term gains would induce many investors to sell stock immediately. The expectation is that proceeds from the sales would be spent, giving the economy a jolt. Democrats generally oppose reducing the capital-gains rate. Republicans want to put lower tax rates into effect and to have this reflected in the amount withheld from taxpayers' paychecks. This would have the effect of giving a bigger tax cut to those who pay more taxes.