A TAX CUT FOR JOE AVERAGE

By JOHN ROTHCHILD

MICHAEL LEWIS, THE FINANCIAL COLUMNIST FOR THE NEW YORK Times Magazine, has figured out that by tweaking the rich, eventually you can become one of them. He tweaked the bond traders in his bestseller, Liar's Poker, and profited like a bond trader from the book sales. In his latest column he tweaks Steve Forbes, the presidential candidate who owns Forbes magazine, for "leading the charge to eliminate capital-gains taxes."

Any time you sell a stock at a profit, you have to pay a 28% tax on the gain, so cutting the tax would be a break for Forbes, an admitted rich person and a confessed shareholder. What Lewis fails to mention is that this break for Forbes would also be a break for anybody else who owns stocks or mutual funds, which at last count was 25 million households, including Lewis'. One of the favorite ploys of any tweaker of the rich is to oppose any reform, no matter how it may benefit society in general, so that the rich cannot benefit.

That's the problem with the rich being turned into issues in debates over economic policy. Any reform that will lead to greater national prosperity will also help the rich get richer. Short of a communist takeover, the rich seem to find ways to get richer no matter what. Therefore, to oppose a worthy reform just to tweak Forbes and deny him the goodies is foolish. But that is what Lewis seems to be doing as self-appointed tweaker.

Instead of lowering the capital-gains tax, Lewis proposes raising it to 39%, the same level as the top rate paid by the rich on the income they get from their various income-producing investments, such as government bonds. That, says Lewis, would eliminate the favoritism shown to stocks over bonds in the tax code, and create a "free market" in the process. This is no doubt the first time in financial journalism that a writer has suggested a free market can result from an increase in taxes.

No doubt he's being coy with this modest proposal. But coy or not, he's missing the basic point that the stock market is a far more important national resource than the bond market, particularly the government bond market. After all, what is the government bond market except a creation of Uncle Sam's inability to pay his bills? When you "invest" in government bonds, you are merely the enabler that allows the deadbeat Uncle to continue to live in arrears, the same as if you lent the money to a neighborhood credit-card abuser.

With $5 trillion worth of government bonds outstanding, the bond market has siphoned away a huge amount of money that could have gone into the stock market, which has more important things to do than make Steve Forbes richer. It is the stock market that raises the capital to help new companies get started and old companies expand, both of which grease the economic skids and create jobs and incomes the government can tax. In fact, the only easy way out of the deficit mess, aside from printing extra dollars on the presses in the Treasury Department, is to speed up economic growth, and that requires more capital investment via the stock market. If a capital-gains tax cut could accelerate this process, then bring it on. The economies in East Asia are growing faster than ours, and most of those countries don't have a capital-gains tax. They realize it is foolish to penalize the investors who are greasing their skids.

Perhaps Lewis has given us the real reason the Clinton Administration is passively resisting a capital-gains tax cut. A lower tax on stock profits might attract more investors to the stock market, leaving fewer bond buyers to finance the national debt. Has a journalist ever been named Secretary of the Treasury?