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Ex-IBM chief suggests 80% tax on short-term capital gains

June 25, 2009 | 12:22 pm

Former IBM Corp. Chief Executive Louis V. Gerstner Jr. thinks he knows how to fix what's wrong with Wall Street: Tax the living daylights out of short-term trading profits.

In an interview with Bloomberg Television today, Gerstner, 67, proposes mammoth new tax rates on short-term gains to push investors back to focusing on longer-term returns.

From Bloomberg:

"If you buy something -- a stock or a bond -- in the morning, and you sell in the afternoon, the tax probably ought to be 80%," said Gerstner, also a former chairman of Carlyle Group, the world’s second-largest private equity firm.

Louisgerstner "If you hold it for six months, maybe it ought to be 60%," he said.

Selling an investment after five years should carry a zero rate "to try to get the incentives for investment to go back to being a true investor and not a trader," he said.

"We do have a greed or an inefficiency that comes out of excessive focus on the short term," said Gerstner, who bemoaned an investment climate driven by quarterly earnings and a 24-hour news cycle. He was an executive at American Express Co. and RJR Nabisco Inc. before joining IBM. [He led IBM from 1993 to 2002.]

Short-term gains now are taxed as ordinary income, which faces a top federal tax rate of 35%. Gains on assets held more than one year are taxed at a 15% rate.

Gerstner’s proposal will never fly, but it makes you wonder what markets would be like if the U.S. tax regime didn’t just reward long-term gains, but also severely penalized short-term gains.

-- Tom Petruno

Photo: Louis Gerstner. Credit: Bloomberg News