There`s an election fast approaching in Italy. Voters will choose between Prime Minister Silvio Berlusconi and Romano Prodi, an academic and former European Union official.

Interestingly, a report in the March 14 Wall Street Journal pointed out that both candidates have plans to reduce taxes. Unfortunately, though, there seems to some confusion about what those tax relief measures would accomplish.

Prime Minister Berlusconi is calling for a reduction in the income tax, reducing the tax rate from 43 percent to 33 percent. Any revenue losses, according to the Journal`s report, would be offset by selling state assets. A substantially lower income tax rate coupled with asset privatization would be a positive one-two for Italy`s economy.

Meanwhile, Prodi`s tax plan starts off well enough by emphasizing reductions in business-payroll taxes and social-security contributions. The idea is to reduce the tax wedge, that is, the difference between a worker`s take home pay and how much it costs a business to employ that person.

Unfortunately, though, Prodi would try to make up lost revenue by jacking up Italy`s capital gains tax, from 12.5 percent to 20 percent.

The Italian debate seems confused over what kind of tax cuts these the two plans are. The Berlusconi plan is called a demand-side measure, and the Prodi proposal is viewed as a supply-side proposal. In reality, it`s kind of the other way around.

The Berlusconi plan to reduce the income tax rate would have its biggest impact on the supply-side of the economy by boosting incentives for working, saving, and risk taking.

Meanwhile, the Prodi plan would provide some supply-side benefits by narrowing the tax gap. But increasing the capital gains tax rate would do real damage on the supply-side of the economy. After all, a higher capital gains tax is perhaps the quintessential anti-supply-side tax increase. It means reduced returns on investing and entrepreneurship - the supply-side engines of economic growth.

Italy has a clear choice. The Berlusconi plan offers clear positives for that nation`s economy, while the Prodi proposal includes a capital gains tax increase that will restrain investment, entrepreneurship and ultimately, economic growth.

The U.S., of course, has similar, though even starker choices to make. The 2003 reductions in personal income, capital gains and dividend tax rates, for example, have been supply-side successes, but also are temporary measures. Our elected officials have a choice: to make the current lower tax rates permanent, or to impose a series of destructive anti-supply-side tax increases over the next few years that would inflict serious damage on the economy.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.