The Economy and Tax Proposals

I see (Oct. 21) that the politicians are gearing up for cutting taxes and increasing the horrendous deficit. The Republicans predictably promote cuts, including capital gains allowances, that favor top-bracket taxpayers. While it is true that a capital gains tax credit is primarily for the super-rich, it is also true that the absence of one is injurious to small investors and to all owners of real property.

To illustrate, let us assume that I purchase a certain stock for $100 a share and that two years from now, when the market value has increased to $110 a share, I decide to sell. Assume further that this increase is due entirely to a 5% annual inflationary spiral.

I must now pay tax on a seeming gain of $10 a share, even though I have had no actual gain because of inflation. The proceeds from the sale will buy no more than the lesser amount I invested two years earlier. This inequity could be corrected by indexing. Through indexing, fairness would be achieved, and a slight concession would have been made to advocates of capital gain tax credits as a panacea to all our economic ills. The economy could also benefit by a possible increase in equity selling.

JOHN C. DAVIS

Irvine