ONE SMALL CAPITAL GAIN AND ONE WHOPPER OF A TAX BILL

In November, I ran across one of the finest illustrative articles about the effects of punitive tax rates that I have ever seen. Consider the following real-life example from the experience of one hardworking, ambitious, forward-looking American family.

One Small Capital Gain One Big Tax

I had heard arguments in favor of a reduction in the capital-gains tax. But why should people like me, who work in education; or people like my neighbor the plumber; or the electrician I know; or the guy who runs the local carpet store; or that nice young kid who works as a clerk at the home improvement center why should any of us be in favor of a "trickle down" tax reform to benefit "the rich"?

I, for one, couldn't make up my mind. Then my wife and I bought a house, a weathered and abandoned old domicile in a nice neighborhood. We didn't want to live there; we just saw an opportunity to refurbish a run-down home and sell it for a modest profit. Theoretically, we took one of the greatest risks of all. We secured a home-equity loan on our family residence and used the money to purchase a "handyman's special."

I was convinced that it would be a great lesson for our four children. Even the 10-year-old worked right alongside us: washing, cleaning, scraping wallpaper, priming, sawing wood, knocking out walls, climbimg ladders, installing siding, tacking down carpets. And more.

We didn't do our own plumbing or electrical work. We hired the neighbor who's a plumber, and that fine man who had done some electrical work around our own home a couple of years ago. We were on a first-name basis with all the folks at the lumber store and the home improvement center. We were there two or three times a week for month after month, spending money to turn this neglected old structure into a gracious, inviting home.

We frequented the fabric store (my wife sewed all the curtains) and the building store (vinyl siding). We spent more money at the pizza shop (no time to cook), and they even began to recognize us at the drug store (bandages and liniment).

"But," I said confidently to my wife, "it will all be worth it after the house is sold, when we take the kids into one of those private rooms at the bank and I count out our profit for them to see in real cash, before we deposit it. `This,' I will tell them, `is what America is all about. If you're willing to take a reasonable risk and work hard, you may reap a financial reward that makes the whole adventure worthwhile!'"

A funny thing happened on the way to the bank. I stopped in to see our accountant. "Congratulations on your profit," he said. "But remember that today's capital gains tax is the same as your 28 percent personal income tax. And as a resident of New York state, you'll need to add on 7 percent in state taxes. So whatever your gross profit, be sure to set aside 35 percent for taxes."

We'd found a buyer willing to pay $60,000. We'd thought that would let us reach our goal of making about $6,000 on this venture. But deducting 35 percent of that would leave us with a net profit of $3,900. Our very conservative estimate is that the combined labor of all the family members who worked on this project totaled 1,200 hours. That means that after the capital-gains tax is paid, we netted about $3.25 per hour. We would have earned more standing at a cash register repeating the words "Paper or plastic?"

Will we try a venture like this again? I doubt it. And if the capital-gains tax bite discourages us from trying it again, that means we won't be hiring the plumber and the electrician; we won't be visiting the fabric and carpet stores; we won't be making home equity loan payments to our hungry local bank; we won't be writing checks that help pay the salary of that nice young clerk at the home improvement center.

I'm not rich. But what if I were? Then, instead of fixing up one old relic, maybe I'd be building an entire housing development. Maybe I'd be buying tens of thousands of yards of carpet. Maybe I'd be hiring scores of skilled laborers. Maybe I'd be pumping more money into more corners of my community and the economy than I can even imagine.

A tax break for the rich? So what? Scrooge McDuck, my children tell me, puts his money in a bin and swims in it. But there's evidence that most rich people don't do that. They spend their money. They invest it, risk it, try to get it to work for them so that it will grow. But that's hard for them to do without hiring people, buying materials and supplies, and spending in a multitude of other ways and places.

There's talk that a cut in the capital-gains tax just might make it through Congress before long. That'll be too late for us. We're tired and a little discouraged right now. But maybe something good will come out of it. Maybe a few people who aren't "rich" will read this article and then tell their legislators that we want that capital-gains tax cut.

It isn't that we care about the "rich." We promise that we'll continue to envy them and resent them. Still, let that tax cut go through. We could use the jobs ... and the prosperity.

By George W. Walker III

Mr. Walker is dean of students at Genesee Community College, Batavia, New York.