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1 J. D. Foster, Capital Gains Taxation and Small Business: House Small Business Committee Testimony 1 (1995)

handle is hein.taxfoundation/taxfaatc0001 and id is 1 raw text is: TAX S
FOUNDATION

March 1995

Capital Gains Taxation and Small Business
House Small Business Committee Testimony

The following testimony was presented
by Dr. Foster before the House Small Busi-
ness Committee on February 22, 1995.
Mr. Chairman and Members of the Com-
mittee, my name is J.D. Foster and I am the Ex-
ecutive Director and Chief Economist of the
Tax Foundation. It is an honor for me to ap-
pear before your Committee today on behalf
of the Tax Foundation to discuss the federal
capital gains tax and its consequences for
America's small businesses.
The Tax Foundation is a non-profit, non-
partisan research and public education organi-
zation that has been monitoring fiscal policy at
all levels of government since 1937. We have
approximately 600 contributors, consisting of
large and small corporate and non-corporate

Combined with the estate tax, which also
taxes wealth, the capital gains tax is the
most important tax a small business must
contend with at the start of the business
and at the end of the entrepreneur's asso-
ciation with the business.

businesses, charitable foundations, and indi-
viduals. Our contributors cover practically ev-
ery region of the country and every industry
category.

I would like to emphasize to the Commit-
tee that the Tax Foundation is not a
grassroots organization, a trade association,
or a lobbying organization. We do not take po-
sitions on specific legislation or legislative pro-
posals. Our goal is to explain as precisely and
clearly as we can the current state of fiscal
policy and the consequences of particular leg-
islation in the light of the tax principles delin-
eated below, so that you, the policymakers,
may make informed decisions.
When it was established in the late 1930s,
the Tax Foundation's founding fathers set out
certain principles of taxation which the Tax
Foundation would promote and which would
guide our analysis of tax proposals. According
to these principles, a good tax system should:
* Be as simple as possible - complexity
makes accurate tax compliance needlessly ex-
pensive and diminishes the public's willing-
ness to comply with the law;
* Not be retroactive - taxpayers must
have confidence in the law as it exists entering
into a transaction;
* Raise revenue, not micromanage the
economy with subsidies and penalties;
*Not be continually rewritten - frequent
change lessens citizen understanding of the
tax code and complicates long-term economic
planning; and,
* Be implemented recognizing the com-
petitive nature of the world economy.
I commend the Committee for holding
this hearing on capital gains taxation and small
businesses. A great deal has been written and
said about the effects of the capital gains tax
and your efforts to work through this body of
work is certainly no small task.

ByjD Foster
Executive Director and
Cbief Economist
Tax Foundation

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1B U EF

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