This article is a summary of parts of Lee's forthcoming article "Critique of Current Congressional Capital Gains Contentions," 15 Va. Tax. L. Rev. 1 (1995). Professor Lee believes that the reasons given by the House Ways and Means Committee Report and capital gains cuts proponents in the recent hearings and the House floor debate in support of the CWATRA 50-percent individual generic capital gains cut are untrue in whole or in part. These stated reasons, reports Lee, are that a capital gains cut will (1) increase the personal savings rate, (2) encourage risk taking by entrepreneurs seeking new technologies and primarily benefit small-business people, (3) unblock many sales (true) permitting more money to flow to new, more highly valued uses such as new technologies and small business, (4) increase tax revenues short term (true) and long term, (5) primarily benefit middle-income taxpayers many of whom are temporarily pushed into higher income status by once-in-a-lifetime sales of a business, farm, or residence; (6) perhaps benefit lower income taxpayers as they become higher-income taxpayers due to substantial income mobility; and (7) lead to increased investment and thus greater productivity and higher wages for all Americans. The facts, writes Lee, are that (1) after the last capital gains tax cut personal savings fell; (2) less than 10 percent of capital gains realizations go to small business (around 1 percent to venture capital startups) and most investment in small business is by the entrepreneur, family, and friends who probably would invest anyway; (3) while realizations will go up, most of the proceeds that are not consumer will go back on the public market into non-new-issue stocks; (4) increased realizations alone after an initial surge will lose revenue and any macroeconomic effects will take effect after the five-year budget window or be small (increased entrepreneurial activity); (5) taxpayers who infrequently realize capital gains account for less than 10 percent of realized gain while the top 10 percent by income of families who realize capital gains year after year account for 70 percent of the realizations; (6) income mobility studies most reflect the life cycle of young lower-income taxpayers growing older with higher wages and two-earner households and higher-income older taxpayers growing still older and retiring; and (7) notwithstanding the last capital gains tax cuts, average wages adjusted for inflation at the middle and bottom stagnated or fell. The trickle down, quips Lee, was from the top 1 percent to the top 5 percent.

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67 Tax Notes 809-820 (1995)