Tax Breaks: Rich Folk First

HOUSE REPUBLICANS HAVE vowed to cut taxes by $200 billion over the next five years, but most Americans probably won't see the payoff before 1996. Relief will go first to investors with capital gains and to small businesses that write off equipment.

BUSINESS WEEK has learned that House GOP leaders plan to postpone the effective date of middle-class tax cuts, because they couldn't find $15 billion in offsetting spending cuts needed this year. The decision will delay such "pro family" measures as a $500 per child credit.

On the other hand, the leadership will try to index capital gains for inflation and cut the top rate to 14% from 28% for assets sold after Jan. 1, 1995. That date also would apply to more generous first-year write-offs for small business investment and new depreciation rules for capital purchases.

Leaders fear that postponing the changes would prompt companies and investors to delay investments until taxes drop. An immediate capital-gains cut also would pull in revenue in 1995 because people would be quicker to take profits on stock and other investments. The GOP math shows the investment breaks generate a net gain of $4 billion.

The rationale of Republicans might be good economics, but you can probably expect "party of the rich" rhetoric from the Democrats.

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