Indexing Capgains: High Probability
Jude Wanniski
August 27, 1992


The White House is now floating reports that it is seriously considering indexing capital gains by executive order. The White House Bulletin, a private news service, this afternoon faxed its clients a report saying Administration officials this morning are pumping up the idea, even that "the announcement of such a policy was considered for inclusion in the President's acceptance speech in Houston last week." All this because of the new study by "well-respected former Assistant Attorney General Charles Cooper," who argues in a 90-page legal memo released yesterday in Washington that the President has the authority to index and could do so in good conscience. The Justice Department and Treasury lawyers, who earlier this year said the President couldn't do it, are reviewing the decision, I'm told, at the instigation of Jim Baker. The Bulletin reports that "Administration officials say the Treasury Department continues to act as the 'wet blanket' to the idea." But I'm sure Baker knows that the only opinion that counts is that at Justice, because the Treasury bureaucrats are horrified at the amount of work they would have to do to index for past inflation. "They naturally figure they would get less money for more work," one official tells me. 

A White House source tells me he now thinks it is going to be done, and the only thing that could stop it is if the Justice Department gives a flat no, which seems unlikely because Cooper is known to be very tough on these issues. As I reported Monday in "Bullish on Baker," Cooper, in Reagan's second term, shot down the idea that the line-item veto could be effected by executive order. 

I attended Cooper's briefing Tuesday at the Citicorp Center offices of William Witter & Co. and was astonished at Cooper's unalloyed, unequivocal support for the idea. Cooper dismissed the argument that the President could do this because nobody would be damaged and would have no standing to sue. Someone could always sue, he said. His basic, bottom line is that on the merits, the President "in good conscience" could use his executive power here. How will Justice decide? One straw in the wind I picked up is that Attorney General Barr is asserting that his department really didn't look closely at the issue last February, when the issue was first raised by Paul Craig Roberts. He deferred to Treasury. Boyden Gray, the President's chief counsel, is saying the same. Cooper tells me he will have an essay in Monday's Wall Street Journal supporting his position.

If the President makes the decision to "go," other questions remain, on how and when to "go." The President could advise congressional leaders that he would like the issue addressed when Congress returns September 9, or he will then issue the order. He could say he will campaign for his economic program, including a rate cut to 15% as well as redefined, indexed capital gains, and issue the executive order if the new Congress does not comply by, say, March 1. He has an extremely powerful card. However he chooses to play it, if he does, will have immediate, beneficial effects on the stock and bond markets.