(FORTUNE Magazine) – I've never liked the capital gains tax. Over the years, well-schooled economists have convinced me that it punishes capital formation (mine, certainly) and hobbles the economy. Hong Kong has no such tax, and its economy is growing faster than ours. Ditto Singapore.

But this year, as various proposals to trim the U.S. capital gains rate make their way through Capitol Hill, I've begun wondering whether we're looking at a disaster in the making. If I'm right about this, instead of rewarding investors, cutting the tax could be the worst thing to happen to the stock market since Saddam Hussein invaded Kuwait.

Sounds crazy? Certainly the media have avoided the subject. Even in speculations about wild cards that might topple the market--from Japan's declaring bankruptcy to a Chinese attack on Taiwan--there's been barely a mention of a tax-cut-related selloff.

Well, here's the argument. Let's assume I'm not the only person holding on to stocks that Warren Buffett says are overvalued, but I'm deterred from selling by the prospect of Uncle Sam's 28% correction. Let's also assume I'm not the only person who would be inclined to take some of those gains if the cost of selling were a bit more palatable. And since capital gains rates have been known to rise as opposed to fall (most recently in 1986, under Reagan's watch), let's also acknowledge that I might well hurry to take advantage of a new tax break as quickly as possible. If a few million other investors do the same, we'll face a national selloff in stocks.

There is some historical evidence to back this hypothesis. Wall Street analyst L. Keith Mullins of Smith Barney recently wrote a report that explored the repercussions of previous capital gains tax cuts, in October 1978 and August 1981. On both occasions, Mullins points out, potholes appeared in the stock charts almost immediately, with the S&P 500 dropping 8% in a month. Back in 1976, stock prices didn't recover their lost ground for nearly a year. In 1981 the recovery took longer, with the S&P 500 still down 19% a year after the cut. Stocks were also spooked by high interest rates in that period, but Mullins contends that it's more than coincidence that twin corrections happened in the same months as the tax reforms.

Mullins doesn't end up bashing a capital gains tax cut. Like most of Wall Street, which seems to endorse a lower tax almost to a pinstripe, Mullins notes the long-term benefits: more money for capital formation, a stronger economy going forward, more prosperity overall. Mullins even points out how the marketwide selloffs of 1978 and 1981 led to sharp rallies for the emerging-growth sector: up 40% two years after the tax cuts, double the advance of the S&P 500.

But I can't help thinking about how different market conditions are now than they were in 1981, when the tax rate was last trimmed. The previous decade was basically a lousy time for stocks, when many investors never saw a gain. Yet the tax cut still sparked a selloff. Imagine how much selling we could get at the end of the most profitable bull market in history, with stocks up more than sevenfold since 1982 and price multiples on the most widely held stocks nearing historic highs.

What do the folks in Washington have to say about this theory? "I have never heard such an argument come up in debate," says Ari Fleischer, spokesman for the House Ways and Means Committee. "Lawmakers are reluctant to talk about the effects on the stock market...They are more concerned with the long-term effect [of a cut] on investment and savings rates."

For that to change, people more influential than the Wise Guy would have to start talking about the risks to the market--meaning people on Wall Street, of course. We could preserve the ideal of a tax cut and also preserve the market by allowing a lower capital gains rate to apply only to purchases made after, say, mid-1997.

On the other hand, maybe we're already in a situation where talk of impending tax reform is causing investors to delay selling stocks now. If that's the case, Washington could help keep the bull market alive by continuing to flirt with the tax cut but never actually passing it.