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Is Current Tax Debate Following the Path of 1978?

Posted by Brian Garst on September 15, 2010

In 1978 Democrats controlled both the White House and Congress. They wanted to raise taxes. By the end of the year, the seemingly impossible occurred: Carter’s original proposal to tax capital gains at ordinary income levels was turned into a large capital gains cut instead. With the party in power desperate to turn around the floundering economy at the time, pro-growth policies were finally given their due.

Could 2010 see a repeat? Mark Bloomfield, President of the American Council for Capital Formation and member of the Double Taxation Working Group, sees similarities:

“THERE ARE SIMILARITIES between now and 1978,” he says. Thus, there’s a chance that Democrats in Congress could pull a surprise move next year and propose a reduction in taxes on savings and investments for all, which would appeal to Republicans. This concession would occur regardless of the outcome of the November mid-term election and regardless of President Barack Obama’s thoughts on the matter, because Congress, in the face of stubbornly high unemployment, will be desperate to spur the economy. It happened before under almost identical economic circumstances when Jimmy Carter was president.

Why will the Democrats wait until next year? Bloomfield says they are restricted by a tight legislative calendar and will elect, in the name of expediency, to extend the Bush tax cuts for one more year—to Dec. 31, 2011. Democrats have been hinting at such a move for weeks.

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