Bill to cap cap gains rate may hit Senate turbulence

Bill to cap cap gains rate may hit Senate turbulence
Sponsors of legislation that would limit on the federal levy on investment income at 15% are confident of strong support in the House. The Senate is another matter, however.
OCT 11, 2011
Sponsors of legislation that would limit the federal levy on investment income are confident of strong support in the House. As is usually the case on Capitol Hill, the prospects in the Senate are murky. On Tuesday, Sen. Michael Crapo, R-Idaho, and Rep. Peter Roskam, R-Ill., introduced a measure that would cap permanently the capital gains and dividends tax rates at 15%. The capital gains rate is scheduled to rise to 20% if Congress does not extend the Bush administration tax cuts that are set to expire Dec. 31, 2012. Dividends would be taxed at personal-income rates. At that time, the actual tax bite on capital gains would be nearly 24% because investment income would be subject to an additional 3.8% Medicare tax that was approved in health care reform legislation. The health care tax also would boost the dividend rates. The lawmakers are trying to lock in the capital gains rate in order to spur investment and economic growth, which is undermined by a looming tax hike, according to an aide to Mr. Crapo. “This question of uncertainty out there for those who create jobs needs to be addressed, and this bill does that,” said Lindsay Nothern, communications director for Mr. Crapo. Getting the legislation through Congress, however, could be difficult. First, many legislators are reluctant to do so-called rifle shot tax bills, because they want to address all facets of tax policy in a major reform bill. If one piece moves before the others, opponents lose a bargaining chip in negotiating for their favored changes. Nearly all observers in Washington doubt that Congress will be able to accomplish major tax reform before the 2012 elections, although the joint deficit reduction committee has the latitude to make tax recommendations. Another factor that could hold up the Crapo-Roskam bill is Senate politics. The chamber's Democratic majority may be reluctant to move the measure at a time when the Obama administration and many Democrats are pushing for the wealthy to pay more in taxes to balance cuts in federal spending. Mr. Nothern predicts that the bill will get strong backing in the House, which may influence the Senate outcome. “If we can get a vote scheduled [in the Senate], we would see good support among some Democrats,” Mr. Nothern said. “We expect the momentum in the House may well affect momentum in the Senate.” On Wednesday, the Securities Industry and Financial Markets Association endorsed the bill. “Businesses large and small require certainty for the future to invest in their own expansion, which creates jobs and grows the economy,” Kenneth E. Bentsen Jr., SIFMA's executive vice president for public policy and advocacy, said in a statement. “Making permanent the current rates on capital gains and dividends is a needed step for providing that greater certainty and aiding our economic recovery.”

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