TESTIMONY BEFORE
THE U.S. SENATE COMMITTEE ON AGRICULTURE

By JACK KEMP

THE ECONOMIC IMPACT OF CAPITAL GAINS TAXES

FEBRUARY 26 1997

Thank you, Mr. Chairman for inviting me to testify today on the economic effects of the capital gains tax and the estate and gift tax (perhaps more appropriately described as a death tax on inheritances). But more importantly, thank you for holding these hearings on this vital subject. Your understanding of the critical relationship between tax policy and economic performance combined with your intimate knowledge of agriculture place you in a unique position to appreciate how both of these taxes impose unnecessary and unacceptable burdens on the economy and on individual taxpayers. I know you also appreciate the fact that both of these taxes are merely illustrative of the more general problem that besets our current tax system.

THE PROBLEM WITH THE CURRENT TAX SYSTEM

The federal tax code is a significant drag on economic performance. The National Commission on Economic Growth and Tax Reform, which I was privileged to chair, found that our current income tax system is economically destructive, impossibly complex and overly intrusive. High marginal tax rates weaken the link between effort and reward, depress productivity and kill jobs. Multiple layers of taxation on work, saving and investment dry up new capital, retard entrepreneurial activity and stifle creation of new businesses. Recent empirical analyses of the dead-weight burden of the current tax code reveal that fundamental overhaul of the tax system could raise long-term growth by one full percentage point or more.

The single biggest step we could take toward a revival of economic growth in America would be to completely overhaul the tax code to make it fairer, flatter, simpler and eliminate the double and triple taxation of saving and investment income. There are numerous plans under discussion that would accomplish these goals by completely overhauling the tax system-from a flat tax to a national sales or consumption tax. Any of these plans would have the great virtue of dramatically increasing the incentives to work, save and invest.

I know you, Chairman Lugar, are a proponent of a national sales tax, and I want to commend you for your leadership in raising the pressing need to overhaul the tax system to the top of the nation's agenda. As you know, I have long supported a Hong-Kong-like tax.

Let me give the Committee a sense of the degree to which any of these plans would improve economic performance. History informs us that reductions in marginal tax rates on income from wages and capital translate directly into lower costs of doing business. In the early 1960s, President Kennedy's tax cuts reduced the marginal cost of expanding output by 4.5 percent. Twenty years later, the Reagan tax cuts lowered it by 3.2 percent. In both cases, the economy responded with a substantial increase in output capacity.

After the Kennedy tax cuts, real GDP growth was more than double the 2.5 percent average of the 1950s for the next decade. Likewise, average annual growth in the 7 years after President Reagan's tax cuts took effect was more than double that of the preceding 9 years. Each of the major tax overhaul plans now on the table has the potential to lower marginal business costs by 10 percent to 15 percent - two to three times the effects of the Kennedy and Reagan cuts.

The stakes are enormous, and therefore I look forward during the next couple of years to exploring with you and other advocates of overhauling the tax system exactly how we should proceed to write a new tax code for the 21st Century. I would like to begin right now. I wish President Clinton would jump in and help us in this endeavor, and I know that the Republican Congressional Leadership has written him a letter urging him to do just that.

I hope the President rises to their challenge to send the Congress his best shot at overhauling the tax system. Frankly though, I doubt that the President is prepared to make the kind of comprehensive overhaul to the tax system that you, Mr. Chairman, and I know is necessary.

Although 1997 may not be the year we remake the federal tax system, there is no reason we cannot make progress this year. Leading the list of "doable" tax cuts this year should be at least major reform of both the capital gains tax and the estate and gift tax if not outright repeal of both. I will elaborate on this but first please allow me to digress momentarily to talk about the politics of tax cuts this year.

THE POLITICS OF TAX CUTS CIRCA 1997

There appears to be a growing consensus that some kind of capital gains tax cut and change in the death tax on inheritances is doable this year. The challenge is to make sure that what is doable is worth doing. In my opinion, any capital gains tax cut worth doing must be broad based. It must not take back through technical or other provisions (such as the President's proposal to require the use of average-cost basis or burdensome depreciation recapture provisions) what it gives in rate reductions. Nor should it attempt to recoup via the Alternative Minimum Tax what it gives in rate reductions. It should not exclude or discriminate among asset classes such as real estate or assets held by corporations. It should not increase holding periods, which would seriously attenuate any beneficial economic impact of cutting the tax.

Finally, any capital gains tax cut this year also must provide for indexing-prospective indexing of all future gains at a minimum but also I believe gains temporarily should be indexed retrospectively to the date of the asset's acquisition. There not only is a sound economic rationale for allowing retrospective indexing temporarily, which I discuss below, but also there is a powerful, practical, political reason for doing so. It will increase revenues.

We have become the captive of a totally myopic revenue-estimating process in which Congress does not allow itself to consider any secondary economic consequences of the tax legislation it passes. For example, the Joint Committee on Taxation (JCT), which performs congressional revenue estimates, does not factor into its revenue estimates the fact that certain changes in tax law, such as repealing the capital gains tax, would increase the after-tax rate of return to capital, which in turn would raise investment and result in more economic output, which would increase the tax base and produce more revenue for the government. Thus, even though we know that repealing the capital gains tax would produce enormous economic consequences, Congress refuses to consider them when estimating the revenue consequences of repeal. It is not surprising that JCT always estimates that a cut in the capital gains tax rate will "lose revenue."

Congress does allow itself, however, to consider first-order, behavioral effects of tax legislation. In other words, JCT does attempt to account for the immediate changes in taxpayer behavior brought about by changes in the tax law. So for example, if for several years Congress were to exempt from capital-gains taxation any increase in an asset's value due solely to inflation, many owners of assets would have a great incentive to sell their assets (referred to as "unlocking accrued capital gains") and pay the capital gains tax on the real, inflation-adjusted gain. Temporarily indexing capital gains for inflation back to the date of the asset's acquisition would produce such powerful incentives to realize gains and pay tax on the real gain that the revenue-increasing "unlocking effect," which JCT acknowledges, should swamp the revenue loss effect of, say, cutting the rate in half.

A final thought on the politics of tax legislation circa 1997, if I may Mr. Chairman. The scuttlebutt around town is that advocates of estate tax reform are prepared to abandon a capital gains tax cut if necessary to achieve significant reform of the death tax. I hope these rumors are false. It is unnecessary, indeed counterproductive, to abandon a worthwhile cut in the capital gains tax under the misguided impression that watering down capital gains tax reform somehow leaves money on the table to "pay for" reform of the death tax. Not only are capital gains tax cuts and repeal of the estate tax not mutually exclusive or antagonistic, repeal or significant reform of the estate tax may well depend on cutting and indexing capital gains taxes.

THE CASE FOR REPEALING THE CAPITAL GAINS TAX

Federal Reserve Chairman Alan Greenspan-a man not known for sounding "irrationally exuberant"-makes the case for repealing the capital gains tax cut. In testimony before the Senate Budget Committee in January, he said: "The appropriate capital gains tax rate is zero." He went on to say-before a group of hard-nosed budgeteers mind you-"The net effect of reducing the capital gains tax, as it impacts total revenue-corporate income taxes, individual income taxes, and such-could very well be a positive. I view the capital gains tax as a poor means of raising revenue ... and I certainly do not think it effectively functions for any other purpose."

The Fed Chairman then hastened to make the even more critical point that he does not believe "the issue of capital gains taxation is a revenue question.... it is an issue of the extent to which it affects entrepreneurial activity." If we are interested in improving economic growth, Chairman Greenspan said, the real question is one of how to increase "productivity-increasing investments" which we should be seeking to "foster as best we can.

The smartest thing President Clinton did during his first term was to heed Chairman Greenspan's advice on inflation and the dollar. I hope the President continues this practice during his second term and takes Alan Greenspan's advice on taxes.

Will it be possible for a Democratic president and a Republican Congress to work in harmony to build on the favorable environment of low inflation and a strong dollar? I am hopeful that the working relationship developed during the past four years between the nation's most powerful Democrat, Bill Clinton, and its most powerful Republican, Alan Greenspan, can be extended now to include the Republican congressional leadership and pro-growth Democrats in the Congress. I think that working relationship can be expanded if the Republican majority in Congress puts its full legislative weight behind Greenspan's advice.

Therefore, I urge the Congress to be bold. Show true leadership by repealing both the capital gains tax and the death tax on inheritances. If you do, I believe the President will hear the voice of the people and follow it. Don't forget, there are serious voices within the President's party, such as Felix Rohatyn, who are anxious for him to work with the Republican majority toward achieving "a tax system that promotes growth as its main objective."

If the President resists outright repeal of the capital gains tax, Congress should insist on a bipartisan solution and do the next-best thing by sending the President a bill to allow investors to unlock their current investments and roll them over into new investments without facing capital gains taxes. The President already has embraced a near-universal rollover provision for personal residences. In my humble opinion, he would be well advised to extend his universal rollover concept to apply to all assets not just homes. If Congress and the President insist on maintaining a capital gains tax, investors should only have to pay it once-when they finally cash out their investment and consume it-not every time they simply move their investment funds from one asset to another.

THE CASE FOR CUTTING THE CAPITAL GAINS TAX IN HALF AND INDEXING IT FOR INFLATION

If the votes are not there for complete repeal of the capital gains tax or universal rollover, Congress at a minimum should cut the capital gains tax rate in half-to 14 percent for those in the highest tax brackets and to 7.5 percent for those in the 15 percent tax bracket-and to zero for urban enterprise zones such as the District of Columbia; index all future capital gains for inflation; and for two years, index back to the asset's date of acquisition capital gains that already have been accrued.

Anyone who does not avail themselves of the opportunity during the grace period to pay the accrued taxes should have to pay taxes when they finally sell the asset on all inflationary gains accrued between the date of enactment and date the asset was acquired. (In order to avoid upsetting portfolios, owners should not actually have to sell their assets to take advantage of the retroactive indexing provision. All they should have to do is declare the new, inflation-indexed basis-"mark to market"-and pay the taxes due on the accrued gains sometime during the two-year window.)

These reforms would liquefy capital markets with a flood of investment, unlocking an estimated $5 trillion in capital gains (about three-fourths of which are purely inflationary gains). Owners of these assets currently are sitting on them because they refuse to sell the assets and face the exorbitant and confiscatory inflation tax which amounts to about one trillion dollars-an average tax rate of about 80 percent on the real, inflation-adjusted gains. The situation is even worse for corporate stock. In the mid 1980s, the Treasury Department acknowledged that total inflation swollen, nominal capital gains on corporate stock exceeded real, inflation-adjusted gains. In other words, the average real capital gains tax on unrealized capital gains from corporate stock was greater than 100 percent.

Most Democrats and Republicans agree that taxing inflated gains is unfair but neither party seems to appreciate the extent to which it is also self-defeating. Both parties are trapped by their delusion that the trillion-dollar, inflation-swollen bonanza of accrued capital gains taxes eventually will materialize as revenue. It won't. It is a trillion dollar will-o'-the-wisp. People simply refuse to pay the high toll-sometimes a toll of more than 100 percent-to go through the tax gate so they sit on assets that they really would rather liquidate and reinvest in other types of assets.

While every special interest in Washington, and all the budget balancers, keep their eyes fixed on the trillion dollars of accrued capital gains taxes, they not only miss the great economic potential that could be unleashed by removing the inflation tax, they also deny governments at all levels an immediate increase in revenue-both capital gains tax revenues and, as Mr. Greenspan pointed out, revenues from all other sources as well. Unlocking of the magnitude one might expect from cutting the rate in half and temporarily indexing gains for inflation back to the date of the asset's acquisition would increase federal revenues by an estimated $150 billion.

The Federal Treasury is not the only public treasury that would benefit; so would the states and just at a critical time. Last year, Congress and the President took the first tangible step toward a devolution of power and responsibilities to the states by enacting the historic welfare reform legislation. Real capital gains tax reform would help make welfare reform work by generating economic expansion that will bolster states' capacity to take on these added responsibilities and guarantee the creation of more jobs, which ultimately is the real solution.

RETROSPECTIVE INDEXING OF CAPITAL GAINS PROVIDES OPPORTUNITY To REPEAL THE DEATH TAX ON INHERITANCES

If Congress were to cut the capital gains tax in half and temporarily index gains for inflation retrospectively, it would be possible within current revenue estimates to repeal the death tax on inheritances outright because the additional revenue generated by reforming the capital gains tax would more than replace the death-tax revenues.

The death tax on inheritances raises very little revenue for the federal government and in fact probably costs the government and the taxpayers more in administrative costs and compliance fees than it raises in revenue. In reality, Congress should just repeal the tax and not worry about the consequences of so-called "lost revenue."

I recognize, however, that if the Joint Committee on Taxation cannot bring itself to acknowledge the obvious economic consequences of a capital gains tax cut, it is too much to hope that it would do so for repealing the death tax on inheritances-even though the Heritage Foundation determined using two leading econometric models that "the deficit actually would decline, since revenues generated by extra growth would more than compensate for the meager revenues currently raised by the inefficient estate tax."

For this year at least, Congress remains stuck with a dysfunctional revenue-estimating system that prevents you from looking at secondary economic consequences of changes in tax policy. Therefore as a practical political consideration, it is important that repeal of the death tax on inheritances be considered in tandem with reform of the capital gains tax not as antagonistic to it. That is why I said earlier that reform of the capital gains tax may provide the best opportunity to repeal the death tax on inheritances. Let me explain why.

For many asset owners under current law, the decision of when to realize capital gains becomes intimately intertwined in the estate-planning process. Today, if asset owners hold onto their assets until they die, they avoid paying capital gains taxes. Their heirs, however, must pay the death tax based on the current market value of the assets, which forces some heirs to sell off all or part of their inheritance just to pay the death tax. When the heirs sell the assets, they calculate their capital gains based on the market price of the asset at the time it was inherited, not the original acquisition price. This arrangement leads many asset owners to hold onto assets longer than they desire just to avoid the inflation tax, possibly even preventing some of them from selling or marking their assets to market during a retrospective indexing grace period. At the same time, this arrangement forces many heirs to sell their inherited assets sooner than they desire.

The simple solution to these problems is to eliminate the death tax on inheritances altogether along with its attendant step-up-in-basis provision. The $17 billion annual revenue loss would more than be made up for in additional revenues that would result from freeing up locked-in gains and revenues from other taxes generated by future economic growth.

THE CAPITAL GAINS TAX AND THE DEATH TAX ON INHERITANCES FALL PARTICULARLY HARD ON FARMERS

Farmers are particularity hard hit by the capital gains tax and the death tax on inheritances. I don't have to tell this Committee that farming is a highly capital intensive enterprise. Profits can be slim, and most profits are plowed right back into the farm operation. Farmers don't get lucrative stock options. Most of them aren't able to build up large retirement accounts. Their farm is their life, their future and often their children's future.

Farmers rely on the accumulation of their farm assets to provide for that future. When it is time to retire, if they do retire, they either want to pass the farm along to their children or sell the assets-the real estate, livestock and machinery-to generate the cash to see them through retirement. Our tax law raises serious obstacles to either option.

The death tax falls particularly hard on agricultural estates. Unlike the case of wealth that has been accumulated in financial assets, estate planning devices for avoiding the death tax are not very effective for highly visible and immobile assets such as land, livestock and machinery. Thus, the nature of agricultural assets precludes most estate-planning techniques and makes it difficult for farmers to pass along their life's work to their children.

At the same time, the capital gains tax makes it difficult for farmers to cash out their accumulated assets to provide for their own retirement. When farmers sell their assets, they can have to pay so much in capital gains taxes that they have little left for their retirement. The reason is that, especially in the case of farm real estate, much if not all of the increased value on which farmers end up paying capital gains taxes is illusionary, pure inflation. Mr. Chairman, that is why I urge the Committee to look very closely at the retrospective indexing provision I am suggesting. Farmers stand to be one of the largest beneficiaries of this proposal.

UNFOUNDED CRITICISMS OF CAPITAL GAINS TAX CUTS

Unnecessary. I was amazed a couple of weeks ago to see the President's budget chief quoted in The Wall Street Journal saying that with the stock market already at record levels "it's hard to see what the problem is to which the solution is to cut the capital-gains tax." I wonder if the OMB Director has looked recently up the street a few blocks from the White House where a major commercial district of the Nation's Capital is crumbling from lack of entrepreneurial effort. I wonder if he has looked beyond the President's feel-good campaign rhetoric to the empirical record of the 1990s which tells the story: Since the end of the 1990-91 recession, the American economy has experienced the slowest economic expansion in more than a century, growing a mere 2.3 percent a year as compared to a 4.4 percent average annual growth rate during the preceding five economic expansions.

The problem is simply stated: If we have any hope of reversing the slowdown in productivity growth that afflicts our economy and revitalizing our urban areas, it can only come about by expanding capital stock we put at the disposal of our workers and by increasing the flow of capital available to those at the bottom of the economic pyramid. I can't believe that this President would concur with the implications of his budget director's comments that somehow we have enough or even too much capital at work in our economy.

Ineffective and Counterproductive. Another frequent criticism heard against cutting the capital gains tax is that it won't do anything to increase investment or even that it will cause the stock market to decline. Just a week ago on national television, Secretary Rubin fell into this fallacy again when he claimed a capital gains tax cut "would probably have very little effect on the savings rate" and therefore "will contribute very little to economic growth."

To the contrary, any cut in the capital gains tax rate will immediately raise the real after tax rate of return to capital, thereby raising the value of existing assets and thus the stock market. While the official, incorrectly measured "saving rate" may not rise, people's wealth will, and it is rising wealth and greater incentives to put that wealth at risk that matters if there is to be more investment. If we assume a stable price/earnings ratio in after-tax terms to the shareholder, a three percent inflation rate and a continuation of investors' historical requirement that they receive a 3 percent real yield after all taxes, it is possible to estimate what the effect of cutting and indexing the capital gains tax would be on asset values and the stock market.

Under these reasonable assumptions, if the capital gains tax rate on all assets were cut from 28 percent to 14 percent and all future gains were indexed for inflation, one could expect assets to appreciate on the order of 19 percent to 20 percent which should reflect itself in more than 1300 points on the Dow Jones Industrial Average. The DJIA, now at 7000, is already discounting a capital gains tax cut but passage of this proposal made retroactive to the first of the year still should mean a Dow approaching 8000.

The mistake made by those who predict a decline in the stock market and no effect on economic growth is that they forget that for every seller with new incentives, there is also a buyer with new incentives. It is true that people who own assets at the time of the tax rate reduction will suddenly see the after-tax value of those assets increase and thus could be willing to sell the asset for less than the pre-tax-cut price. But for every seller now willing to take less, who may offer the market down, there are potential buyers willing to pay more than the current market price and bid the market up because the after-tax value of the asset is now also worth more to them than before the capital gains tax cut occurred.

More important than the appreciation of existing assets that are held at the peak of the economic pyramid is the increased capital flow that suddenly will occur at the bottom of the pyramid. An entire universe of new and expanded enterprises, which formally were not economically viable because they failed to yield a sufficient after-tax return to entice investors to put their money at risk, suddenly will be able to generate adequate after-tax return to attract investors. Like more wild catters lured into the drilling fields by higher oil prices, the higher after-tax rate of return on capital will draw more investment capital into the market, more enterprises will be undertaken, more jobs created and faster overall economic growth will be the result.

Revenue Loser. This brings me to the biggest fallacy regarding capital gains which is that repealing the tax or cutting the rate and indexing it will "lose revenue." I accept the political reality that Congress is stuck with its dysfunctional revenue-estimating system this year but the American people deserve to hear the truth, if for no other reason than to reassure them that it is the congressional revenue-estimating system, not their common sense, that is sending false signals.

Let me relate an anecdote to the Committee that sums up the situation with respect to revenue estimating. During the last Congress, after the JCT pronounced that the Contract-WithAmerica capital gains tax cut proposal would lose substantial amounts of revenue, a number of House Members, including Majority Leader Dick Armey, Congressman Jim Saxton and Senator Connie Mack, were so perplexed by the estimate that they wanted to hold public hearings and ask the JCT how on earth they kept coming up with such large revenue loss estimates. Instead of public hearings, the JCT convinced members to be satisfied with a private briefing in which the JCT technocrats did their dog-and-pony show demonstrating conclusively why their revenue estimates were correct. After the briefing, Dick Armey commented, "I felt like I was watching a good science fiction movie: you know you've just been snowed but you don't have a clue how."

There is probably not a one of us here this morning who understands the inner workings of the JCT's little black revenue-estimating box sufficiently to criticize it. Thus, it is easy for us to be "snowed" by technocrats intent on defending the precision of their estimates if we do not get outside the confines of the box. However, we retain our common sense. I do, members of this committee do, and the American people do. Simply put, JCT revenue estimates on capital gains taxes do not pass the common sense test. Let me explain why.

The capital gains tax currently brings in about $30 billion a year, roughly. In fiscal year 1996, federal receipts from all revenue sources excluding capital gains taxes amounted to $1.42 trillion, approximately 19 percent of gross domestic product (GDP) which equaled $7.49 trillion. Therefore, if Congress were to repeal the capital gains tax completely, GDP would have to increase by only about $158 billion (19% of $158 billion equals $30 billion), or 2 percent, to leave the federal government with the same amount of revenue without the tax that it raised with the tax on the books.

The Joint Committee on Taxation assumes that absolutely no increase in economic output will result from eliminating the capital gains tax. Everything we know about economics tells us that this is an outlandish assumption. If the capital gains tax were repealed, the value of assets would increase by almost one-quarter. Investment would rise. Output would increase.

How much of an increase in output is likely? Is a 2 percent increase plausible? It certainly is. Numerous highly respected private economists have estimated that merely reducing the capital gains tax rate from 28 to about 19 percent would raise total GDP anywhere from 1.5 percent to 2.3 percent.

Ultimately, the best test of what will happen if capital gains taxes are cut is the historical record itself. Consider what happened when the capital gains tax rate was cut in 1978 by almost 45 percent, from 35 percent to 20 percent. Total individual capital gains tax receipts nearly tripled from $9.1 billion in 1978 to $26.5 billion in 1985. Conversely, when the capital gains tax was raised to its current level in 1986, Congress was assured that capital gains realizations and revenues would increase substantially. Instead, realizations were stagnant and receipts fell.

Administrative Complexity. Finally, one hears a great deal of concern from the Treasury Department that indexing capital gains for inflation would be "convoluted." Deputy Treasury Secretary Lawrence Summers says Mr. Clinton's Treasury Department has "been implacably opposed to indexing on the grounds of administrative feasibility and complexity." Whenever this Administration-the same Administration that dreamed up the world's most convoluted and complex national health care scheme-gets misty eyed over "administrative complexity," you know for a certainty that they are shedding crocodile tears.

The reality is, asset owners already must maintain all of the records they need to do the indexing calculations. Don't forget, under the unindexed capital gains tax and depreciation rules, people must keep track of the date they acquired and the price they paid for every single share of stock, every building, every piece of machinery, every head of cattle and every parcel of real estate. The only additional piece of information they need to index their gains is the inflation factor which the IRS easily could provide taxpayers in a table going back as far as necessary.

Besides, indexing one's capital gains for inflation is totally voluntary. If any taxpayer, Assistant Treasury Secretary Summers for instance, finds it too onerous a task to adjust his capital gains for inflation, he may simply report his unindexed gains and pay the higher tax. What is the problem? There is none.

The best proof that America can index capital gains is the fact that Great Britain does so without difficulty. In fact Mr. Chairman if I may, I would like to submit for the hearing record a simple taxpayers'-information guide put out by the Inland Revenue Service of the United Kingdom and a sample of the inflation-factor table provided to English taxpayers.

CONCLUSION

For too long, too many investors on Wall Street and too many politicians at both ends of Pennsylvania Avenue have labored under the myth that the economy cannot grow faster than about 2.5 percent a year without producing inflation. They thought they heard the Chairman of the Federal Reserve Board confirm this myth every time he repeated the Fed's refusal to use loose monetary policy to artificially stimulate the economy above its current 2.5 percent pace. Listen again!

Mr. Greenspan has never said the economy cannot grow faster than 2.5 percent a year without creating inflation, nor does he threaten to snuff out growth above 2.5 percent if it is sustainable growth resulting from policy changes, such as capital gains tax cuts, that improve the economy's long-run growth capacity. Today's 2.5 percent ceiling on growth is artificial, created by oppressive tax, spending and regulatory policies. What the Fed Chairman has been attempting to get across to Congress and the President is that it is up to them, not him, to raise long-run growth. The Fed cannot use monetary policy to stimulate faster growth without igniting inflation. But that does not mean Congress and the President cannot. They can. They must.

Chairman Greenspan made it clear last month before the Senate Budget Committee that he would be perfectly happy to see Congress adopt policies such as capital gains tax reform, that will increase "productivity-increasing investments," that in turn spur entrepreneurial activity and faster growth. In his parting remarks to the Committee, he said, "The last thing we [the Fed] want to do is to inhibit economic growth." The only thing inhibiting growth now are policies such as excessively high capital gains taxes that are perfectly within the ability of Congress and the President to correct. Congress should begin to remedy this situation by repealing both the capital gains tax and the death tax on inheritances.

Thank you, Mr. Chairman.