June 25 (Bloomberg) -- Louis Gerstner, the former International Business Machines Corp. chief executive officer, said that short-term investment gains should be taxed at 80 percent as a way to counter the culture of greed on Wall Street.

“If you buy something -- a stock or a bond -- in the morning, and you sell in the afternoon, the tax probably ought to be 80 percent,” said Gerstner, also a former chairman of Carlyle Group, the world’s second-largest private equity firm.

“If you hold it for six months, maybe it ought to be 60 percent,” Gerstner told Bloomberg Television.

Selling an investment after five years should carry a zero rate “to try to get the incentives for investment to go back to being a true investor and not a trader,” he said.

Gerstner acknowledged that such a change would be “controversial” yet argued it is necessary to encourage investors to think about the longer term. The top tax rate on gains from investments sold within one year is now 35 percent.

“We do have a greed or an inefficiency that comes out of excessive focus on the short term,” said Gerstner, who bemoaned an investment climate driven by quarterly earnings and a 24-hour news cycle. He was an executive at American Express Co. and RJR Nabisco Inc. before joining IBM.

Gerstner, 67, also criticized compensation practices, saying “there’s been astoundingly unnecessary, excessive executive compensation in certain instances.”

Government Rules

He said the solution isn’t government rules or caps on pay.

“I despair of a government solution,” Gerstner said. “We’ve had governments attempt to control executive compensation for 40 or 50 years.”

Instead, Gerstner called for more disclosure and oversight of boards of directors by shareholders, “because ultimately the boards need to make these decisions.”

“The system can fix itself without rigid rules,” he said.

Gerstner, who approves of generous compensation for executives who add shareholder value, called for an end to golden parachutes for failed managers. “We have to see an elimination of pay for people who get fired and then wind up with these huge payments,” he said.

Gerstner acknowledged that Wall Street executives he knows wouldn’t like his plan for higher taxes on investment gains.

“They wouldn’t like it at all,” Gerstner said. “Wall Street is driven by transactions. That’s what they live by. They don’t live by long-term investment decisions.”

To contact the reporters on this story: Matthew Benjamin in Washington at Mbenjamin2@bloomberg.net;

Last Updated: June 25, 2009 07:38 EDT