Budget Watch

A newsletter covering budget reform and the latest news and views on the federal budget, published by The National Center for Public Policy Research, 501 Capitol Court, N.E., Washington, D.C. 20002 (202) 543-4110, Fax (202) 543-5975, and the Small Business Survival Foundation, 1320 18th St. NW, Washington, D.C. 20036 (202) 785-0238, Fax (202) 822-8118.

Issue # 11 - September 21, 1995 David A. Ridenour and Karen Kerrigan, Editors

Hill Watch: Update on Budgetary Issues on Capitol Hill

Capital Gains Tax Cut and Indexation Needed for "Tax Fairness" The Clinton Administration and its allies in Congress are all for "tax fairness" -- that is, as long as it doesn't apply to entrepreneurs.

At issue is not just the high capital gains tax rate -- which by itself is enough to stifle the entrepreneurial risk taking necessary to spur the economy -- but the fact that the tax is not currently indexed to inflation, making it a blatantly unfair tax. Under the current non-indexed 28% rate, investors can be forced to pay taxes in excess of their real returns (see chart). For example, a 5% return on a one-year investment would result in a tax liability of 140% of the return, assuming an inflation rate of 4%.

Congress is virtually assured of approving some sort of a capital gains tax cut. Both the House of Representatives and Senate have agreed to a cut to 19.8%. But so far, only the House has approved indexation (retroactive to January 1, 1995) -- a key to establishing "tax fairness." For its part, the White House has made clear that it considers "tax fairness" -- at least in this case -- a huge tax break for the "wealthy." Fifty-six percent of these so-called "wealthy" had incomes of less than $50,000 (in 1992). In these final days of budget negotiations, it's still an open question: Will Congress reassert its pro-growth, pro-entrepreneurial agenda based on a capital gains tax cut and indexation? For more information, contact Ray Keating of the Small Business Survival Committee at (202)785-0238.

Will Effort to Repeal Davis-Bacon Continue to Sizzle?

The Davis-Bacon Act is showing more staying power than even the Commerce Department. Organized labor is strongly in favor of keeping Davis-Bacon, and a procedural barrier called the Byrd rule is being employed in the Senate to block repeal of what critics charge is a wasteful, job-killing law. In the House, repeal leaders such as Representative Cass Ballenger (R-NC) are committed to repealing Davis-Bacon this year. Repealing Davis-Bacon and the Service Contract Act (SCA) would save $8.77 billion over seven years. Davis-Bacon "repealers" are asking grassroots activists to contact the House and Senate leadership to urge them to find a vehicle for Davis-Bacon repeal this year. FACT: A testing laboratory in South Carolina indicated that SCA wage rates for lab technicians have increased 62.8% over the last three years. For more information, contact the Associated Builders and Contractors at (703)812-2034.

Spectrum Sale on Hold (for Now) -- Political "Hot Potato" Tossed to FCC

While Senator Larry Pressler (R-SD) took on the broadcasters in hearings last week regarding their multi-billion dollar spectrum gift, it appears that the issue of auctioning off the spectrum may be put on hold until a more opportune time. Rather than auctioning off the spectrum to raise an estimated $30 billion to $70 billion in revenue to pay off the federal debt, the Senate may pass language requiring the FCC to find 120 megahertz of spectrum to auction. While similar House language exempts the broadcast spectrum from consideration, sources tell us at this point the Senate's may not. As budget negotiators continue to scratch for additional sources of revenue and savings over the next two months, spectrum's "pot-of-gold" may look a little more politically appealing. For more information contact the Small Business Survival Committee at (202)785-0238.

Small Business Survival Foundation
1320 18th Street, N.W.
Washington, D.C. 20036
(202)785-0238
Fax: (202)822-8118

The National Center for Public Policy Research
501 Capitol Ct NE
Washington, D.C. 20002
(202) 543-4110
Fax: (202)543-5975
E-mail [email protected]

Nothing written here should be construed as an attempt to help or hinder legislation before the U.S. Congress.

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