Panel To Convene on Seeking Big Reduction in Corporate Tax Rate

Amid fears that a recession is looming, a panel of experts today will argue that a reduction in the corporate capital gains tax could provide the necessary relief to soften the effects of an economic slowdown in New York City and the nation.

With unemployment on the rise in New York City and with Britain set to lower its corporate tax rate, many in the local business community believe it is time for a reduction in America's rate.

"As of March, the United Kingdom will reduce the corporate tax rate from 30% to 28%, and clearly that is a competitive move that creates another disadvantage for corporations located in New York versus London," the president and CEO of the Partnership for New York City, Kathryn Wylde, said. America's corporate capital gains tax rate — the levy charged on capital gains or the profit realized on the sale of a noninventory asset purchased at a lower price — is 35%, the second highest in the world. A number of businessmen, politicians, and economists have joined forces to push for legislation that would reduce the tax by 20 percentage points, to 15%.

"It is even more important now because what we are experiencing is a liquidity problem," Rep. Scott Garrett of New Jersey said.

"Capital gains becomes even more important now because to deal with the problem we need to get the investors off the proverbial sidelines and into the game, and a great way to do that is to allow them to keep more if they sell their assets," Mr. Garrett said.

The argument for the reduction is that it would raise American corporate revenues by improving business competitiveness, creating jobs, and unleashing growth throughout the economy.

Last week, the Labor Department reported that employers cut 17,000 jobs in January — the first such reduction in more than four years. Despite its longtime resiliency, New York's local economy is starting to show troubling signs as well.

Last week, a report by the Bureau of Labor Statistics showed that the unemployment rate rose in New York City to 5.2% in December, an increase of 1.2 % from the same period a year earlier.

"I think that there is a moderate level of concern in New York," Ms. Wylde said, noting that the impact of the subprime mortgage crisis is felt disproportionately by the financial services industry, which is centered in New York. "It appears we have not seen the bottom of that trough. So depending on where that ends up I think that it could be very serious," she said.

The National Association of Manufacturers is throwing its support behind the tax cut initiative, but some economists see the idea as quixotic, if not admirable. "The question in this context is" whether this is the right approach, a former chief economist in the city comptroller's office, John Tepper Marlin, said. Pointing out that the national debt now stands at about $8.5 trillion, that there seems no end in sight for the war in Iraq, and that Medicaid costs are expected to increase, Mr. Marlin questions how anything will get paid for if taxes are reduced again.

"Wall Street is writing down so much and the housing market looks like for several years it is going to be going down. Cutting capital gains has worked in the past, but is it the right thing now?" he said.

A senior fellow and director of economic policy studies at the American Enterprise Institute, Kevin Hassett, said a reduction could have an impact in New York City if the result mirrors that seen in other countries. "When Germany lowered its rate, there was an equity market celebration, and so to the extent that you think things are a little better, you could expect an impact on the local economy," he said.

A former governor of Michigan, John Engler, a member of today's panel, said the issue of cutting the capital gains tax became a victim of the ideological battles waged in the 1980s.

"It is an anachronism going back to the class warfare campaigns of yesteryear, where if you were for cutting it you were seen as giving the rich a break, and if you were opposed you just wanted to tax the rich. Capital gains is about job creation and it helps workers and owners," he said.