The case against capital confiscation.

• Author: Schnepper, Jeff A.

If Thomas Jefferson thought taxation without representation was oppressive, he should see how bad it is with representation. According to the Tax Foundation, if the average middle-income wage earner's 1997 salary, starting from Jan. 1, went to pay taxes, it would have taken until May 7 to meet all the Federal, state, and local payments due. By comparison, "Tax Freedom Day" in 1940 was March 8; in 1930, Feb. 13. It will take more than one-third of the year or two hours and 47 minutes of each eight hours' earnings by the average middle-income taxpayer to produce one person's share of the 1997 tax bill. In 1930, it was 57 seconds!

As this column was being written, Congress again was debating whether or not to cut the tax rate on capital gains. The capital gains tax dates from 1921, when, during a deep postwar depression caused by a shortage of capital, Congress decided to distinguish investment income from work income and tax the former at a lower rate.

Over the years, the tax rate on capital gains has gone up and down, but, until 1986, it always was lower than the rate on ordinary income. In 1986, Senators Bill Bradley and George Mitchell brokered a compromise with the Reagan White House, accepting a reduction of the rate on ordinary income from 50 to 28% in exchange for increasing the capital gains rate from 20 to 28%. Subsequent administrations have raised the rate on ordinary income to as much as 39.6%, but on capital gains it has held at 28%.

Conflicting views

Two issues before Congress today are should the tax on capital gains be reduced and, if so, how" The first question is the focus of most of the heat. The liberal perspective is that capital gains reduction is nothing more than a boon for the wealthy. It is viewed as a scheme to help the rich get richer. One-half of all capital gains -- profits reaped on the sale of stock, bonds, real estate, art, etc. -- accrue to the nation's richest one percent.

That, however, tells just one part of the story. The percentage of Americans owning stock has doubled in the last seven years. While the major portion of capital gains go to the wealthy, by definition, the majority of all income goes to the wealthy. That's why they are called "the wealthy."

The liberal argument is fallacious. It's like trying to make a case for an excise tax on steak because the rich eat more steak than the poor. What that argument really does is penalize those poor who eat steak. With capital gains, the analogy is even...