- The Washington Times - Monday, June 4, 2001

If you think soon-to-be Senate Majority Leader Tom Daschle, South Dakota Democrat will be able to unite 50 Democrats behind his liberal legislative agenda, consider what happened to him during a little-noticed vote to cut capital-gains taxes.
The vote occurred during the Senates debate on an amendment to the tax-cut bill. The amendment, which was introduced by Sen. Judd Gregg, New Hampshire Republican, called for cutting the maximum capital-gains rate from 20 percent to 15 percent, an idea Mr. Daschle and his liberal cohorts ridicule as a giveaway to the rich.
But a funny thing happened during the roll call on a move to waive a budget rule to take up the amendment. Mr. Greggs motion, which was rejected 51-47, drew the support of a lot of Democrats. Even some liberal Democrats voted for it.
While most of the support came from the Republican side of the aisle, a significant number of Democrats voted to take up the capital-gains rate cut, including Sens. Evan Bayh of Indiana, Max Cleland and Zell Miller of Georgia, Joe Lieberman of Connecticut (Al Gores running mate), Charles Schumer of New York, Bob Torricelli of New Jersey, and Ron Wyden of Oregon.
Messrs. Schumer, Wyden and Torricelli are liberal Democrats who have come around to the argument that the sluggish U.S. economy is starved for liquidity and in desperate need of an infusion of investment capital.
Cutting capital-gains taxes will unleash the animal spirits of entrepreneurial risk-takers, who would realize higher after-tax gains from their investments and immediately pour that money into new economy businesses and start-up ventures.
In a tax-cut bill with a six-year phase-in period that provides few incentives for risk-taking, a capital-gains tax cut would have Wall Street and Main Street cheering. It would spark an immediate boost in the markets, especially the technology-heavy Nasdaq market, which was the driving force in the booming economy of the 1990s.
Mr. Greggs motion required 60 votes. It is likely that it would have drawn that number had it not been for Senate Finance Committee Chairman Chuck Grassley, who kept his allies in line against any amendments that he felt would endanger final Senate passage of President Bushs tax-cut package.
Absent Mr. Grassleys action, the usual Republican supporters would have cast their aye votes. But what is more important, several Democrats would have voted for it as well, among them Dianne Feinstein of California, Max Baucus of Montana and Ben Nelson of Nebraska.
There is a sea-change in economic thinking in Mr. Daschles party, and the vote sent a strong signal to the new majority leader that a growing number of Democrats reject his divisive, class-warfare, anti-tax-cut ranting.
Zell Miller is one of the Democrats who have sharply criticized Mr. Daschle and other party leaders for their opposition to tax cuts, especially on capital gains. Mr. Miller knows a lower tax rate on investment gains will not only increase economic growth, it will also produce more tax revenue for the government in two ways:
First, it boosts capital-gains taxes as more people take advantage of the lower rates to sell assets, generating a wave of new tax revenue. Second, when this locked-up capital is freed, it becomes venture capital money that expands businesses and creates jobs.
"The stock market is no longer the playground of the rich," Mr. Miller said in a speech to Jack Kemps Empower America organization, which recently gathered here to discuss "Antidotes for an Ailing Economy." More than half of all Americans own stock, including many Americans in lower tax brackets who have 401(k)s and IRAs.
Mr. Miller, of course, was the first Senate Democrat to break ranks and support Mr. Bushs tax cuts. He was later joined by Sens. Breaux, Baucus, Nelson, Cleland and others. But the vote to cut capital-gains taxes suggests that tax-cutting sentiment among some Democrats is deeper than anyone suspected.
Mr. Miller also wants to eliminate the distinction between long- and short-term capital gains, which interferes with the swift and efficient flow of investment capital necessary to a strong and competitive economy. Current law forces investors to hold assets for more than a year before they can sell at the lower tax rate.
"A holding period of any length produces distortion. Eliminate the holding period and there would be an improvement in the liquidity and efficiency of the capital markets. The result: higher productivity. More output," Mr. Miller said. Hes right.
The push to cut capital gains is going to be re-examined in the Senate in the months to come. It will likely come up as an amendment to the Democrats bill to raise the minimum wage.
Asked by economist Jude Wanniski recently if he plans to bring a capital-gains tax cut to a vote later this year, Senate Republican Leader Trent Lott said, "Absolutely, and you can tell anyone you like that I plan to do so."
Mr. Daschle will fight such a move, but he will be surprised when a number of his fellow liberal Democrats such as Mr. Schumer, Mr. Wyden and Mrs. Feinstein vote against him on an issue that used to be the liberal litmus test of his party. Not anymore, thanks to the growing political influence of the ever-expanding American investor class.


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