Monday, October 15, 2007
Democrats need to bone up on Adam Smith and Art Laffer
Practically every Democratic presidential candidate wants to raise capital gains taxes. By doing so, they think they're going to have new piles of money for statist social programs. Today's Wall Street Journal takes their asses to school (you'll need a subscription to read the entire editoral):
"For the past 40 years, capital gains tax increases have been associated with a decline in tax revenues. Rate cuts have generated more tax collections. One reason is that higher rates give investors an incentive to hold their assets to avoid paying the tax. The capital gains rate was last raised in 1986. Revenues from the tax tripled in the year before the increase, as investors cashed out of assets before the window of the lower tax rate slammed shut. But in each of the five years after the rate jumped to 28% from 20% capital gains revenues remained below the pre-1986 level, according to a study by the National Chamber of Commerce Foundation.
"Conversely, the 1997 capital gains tax cut had a stock market unlocking effect. Congress's consistently mistaken Joint Committee on Taxation predicted that the government would collect $195 billion from 1997 to 1999 from capital gains payments. The actual amount was $279 billion. In other words, the lower tax rate raised $84 billion more than expected -- which is one reason the late 1990s produced budget surpluses. Most recently ... the 2003 tax produced a doubling of tax receipts to $97 billion in 2005 from $47 billion in 2002. That's twice what Congress predicted.
"Every generation or so, it seems that the American political class has to re-learn these tax policy lessons the hard way. What's striking about this year's Democratic economic proposals is how little any of them mention economic growth. Their message is "fairness," inequality and income redistribution. They seem to think taxes can be raised with ease, and no one's behavior or investment choices will change." (Anyone with a rudimentary knowledge of economics knows better.)
"For the past 40 years, capital gains tax increases have been associated with a decline in tax revenues. Rate cuts have generated more tax collections. One reason is that higher rates give investors an incentive to hold their assets to avoid paying the tax. The capital gains rate was last raised in 1986. Revenues from the tax tripled in the year before the increase, as investors cashed out of assets before the window of the lower tax rate slammed shut. But in each of the five years after the rate jumped to 28% from 20% capital gains revenues remained below the pre-1986 level, according to a study by the National Chamber of Commerce Foundation.
"Conversely, the 1997 capital gains tax cut had a stock market unlocking effect. Congress's consistently mistaken Joint Committee on Taxation predicted that the government would collect $195 billion from 1997 to 1999 from capital gains payments. The actual amount was $279 billion. In other words, the lower tax rate raised $84 billion more than expected -- which is one reason the late 1990s produced budget surpluses. Most recently ... the 2003 tax produced a doubling of tax receipts to $97 billion in 2005 from $47 billion in 2002. That's twice what Congress predicted.
"Every generation or so, it seems that the American political class has to re-learn these tax policy lessons the hard way. What's striking about this year's Democratic economic proposals is how little any of them mention economic growth. Their message is "fairness," inequality and income redistribution. They seem to think taxes can be raised with ease, and no one's behavior or investment choices will change." (Anyone with a rudimentary knowledge of economics knows better.)
# posted by Joltin' Django @ Monday, October 15, 2007 
