Understanding the Critical Role of Capital Is Essential

The truly frustrating part about attacks on capital gains tax cuts--including that from liberal economists like Robert Eisner (“Budget Nearly Balanced--but Tax Plans Aren’t,” Times Board of Advisors, July 20), who should know better--is the absence of any information about the concept of capital itself, how it is created, and its critical role in the economy so many Americans simply take for granted.

Capital results from savings, individual and corporate. Savings are what’s left after income has been taxed and/or spent on goods and services. Net savings--i.e., capital--is what’s available to risk-takers to invest for productive gain (or loss).

Low-risk-tolerance investors put their capital to work in quasi-guaranteed, low-reward vehicles like Treasury bonds or bank CDs. High-risk-tolerance investors put their capital to work in potentially high-reward vehicles like start-up businesses that create jobs.

Without capital risk there is no capitalism, no economic growth, no job creation, no overall wealth improvement and certainly no tax revenues to redistribute as our federal and state governments do to the tune of trillions every year.

The U.S. taxes capital at a higher rate than any country in the developed world, remembering that capital gains taxes are taxes on income--predominantly salaries--that have already been taxed once just as dividends are twice-taxed income.

In an age defined by “isms,” capitalism is one of the prime determinants of our most basic freedoms. A populace that can’t understand that deserves its ultimate fate.

KENNETH J. ARTINGSTALL

Glendale