I wouldn't know a capital gain if I found one in my
What little extra money I have is kept at my local bank where I can get
it if I need it. I don't play the stock market for the same reason I
If I knew ten years ago what I know now, of course I'd buy stock in EMC
as soon as it became available. But I'd have to know what I know now,
because I am what investment experts call "risk-aversive" -- not so
much afraid to lose, as preferring to just keep what I already earned.
And that's O.K. It takes all kinds to make an economy: savers, spenders,
But if I were the sort to take a risk with my money, I would expect to
be rewarded, not penalized, for this risk-taking that creates jobs. This
is why taxing capital gains can be a disincentive to investment and why
capital gains tax cuts have historically led to booming economies. Also,
I recognize that regular people like me sometimes have a capital gain
once or twice in our lifetime, when we sell a small business as we
retire, or cash in an account we set up for our kids' education or our
parents' nursing home care.
So over the years I supported the business community's call for a
capital gains tax cut. We were all surprised, though, when in December
1994, the Legislature actually passed a six-year phase-out of the six
percent capital gains tax rate.
Most of our state's politicians like to demagogue the issue, acting as
if capital gains taxes are paid only by the rich, who owe society
something extra for creating its jobs. Why would Charlie Flaherty, then
the ultraliberal Speaker of the Massachusetts House, support a phase-out
of a tax that he usually argued to increase?
Well, at the time of this maneuver, Governor Weld had
a 55 percent legislative pay raise bill on his desk which he was being
urged by many of us not to sign.
Governor Weld had always wanted a capital gains tax cut. Suddenly, he
had one! and quickly signed the 55 percent pay raise. The business
community cheered. Investments held for at least six years would not be
taxed at all. Almost made me want to take a little risk and invest in
But of course it was only a matter of time until the Legislature moved
to increase the capital gains tax again. In 1998, the voters supported a
constitutional amendment that gives legislators an automatic pay hike
every two years as long as state median household income increases.
The connection would be clear to any economically-literate legislator:
investors invest, make money, increase the median household income, he
gets a pay raise. However, economic literacy has never been a widely
held commodity on Beacon Hill. With their base pay including the 1994
raise now permanently part of the state constitution, legislators moved
to break the deal they'd made on the capital gains tax. Both the House
and Senate have voted to stop the agreed-upon phase-out. The Governor
will veto this, and then they'll move to override.
Since they can easily break even more of the deal in the future, I guess
I won't invest after all. I could hold an investment for several years
thinking my tax rate will drop, and suddenly the Legislature could hike
the rate to six percent again!
Investors who have held their capital until the rate was fully
phased-out feel betrayed. They've just learned what we wage earners
already knew: you can't trust the Legislature to keep its part of a
bargain. That's why Governor Cellucci and we just filed an initiative
petition to let the voters rollback the 1989 "temporary" income tax hike
Opponents of our petition call it "risky," even though it's carefully
phased in after years of giant state surpluses. They are piggybacking on
the carefully-crafted Washington Democrat line that calls any real tax
cut is a "risky tax cut scheme." But all of us should realize that the
real risk is in trusting the government to ever keep its word.
Barbara Anderson is executive director of Citizens
for Limited Taxation. Her syndicated columns appear in the Salem Evening
News, the Lowell Sun, the Tinytown Gazette and MediaNews Group
newspapers around the state.