Business & Finance: Capital-Gains Sense

While Congressional taxmen were agreeing on the new corporation tax laws last week (see p. 88), they also revamped personal income taxes. Most significant change for the health of the capital markets was made in the onerous capital-gains taxes, which up to now have forced many U.S. investors to buy and sell with one eye on what the tax laws favored instead of both eyes on down-to-earth economic laws.

The changes were: 1) The period in which capital gains are treated as 100% income and taxable at full income-tax rates will be shortened from 18 to six months (after which they will remain 50% taxable). 2) Capital losses in one year can be used to offset capital gains over a five-year period. 3) Capital losses may be deducted to the full amount of gains, plus $1,000. These simple changes should help thaw out the artificially frozen capital markets.

Actually there was no longer any reason why these reforms should be postponed. For the taxes had not only frozen capital markets, they had also killed the goose that laid the golden egg: Federal revenues from capital-gains taxes dropped from $576,000,000 in 1928 to $13,000,000 in 1940 and to zero—or perhaps an actual deficit—last year.