jabhatta2, here is how I ended up choosing (A). The last two contestants for me are (A) and (E).
(B) The correct idiom is "proposal to do something" instead of "proposal of doing something".
(C) "whatever its merits as a proposal" does not make sense: it means we can treat / regard some merits as a proposal, but merits and a proposal are not compatible.
(D) "to tax ...., if enacted": I feel that we can enact a proposal (or, to a lesser degree, taxing), but not "to tax". Also, check the discussion for (E).
(E) "to enact taxing" might work. After comparing (A) and (E) more carefully, I notice that
> In (A), "its" has clear antecedent. Nothing wrong with (A).
> In (E), however, definite article "the" in "the proposal" should be used to indicate that we are talking about a specific proposal. Typically, the first time a proposal is mentioned, we use indefinite article "a proposal"; thereafter "the proposal" can be used to refer to the previously-mentioned proposal. The problem with (E) (as well as with (D)) is that "the proposal" is used right away without introducing "a proposal" elsewhere first. While readers can figure out that "the proposal" likely means "taxing away all capital gains on short-term investments", it is not specifically put forward as "a proposal", thus making the use of "the proposal" suspicious.