Posted on 01/27/2006 7:35:57 AM PST by Marxbites
I’m not just saying it — CBO is.
On Thursday the Congressional Budget Office released its annual Budget and Economic Outlook, and buried in one of its nearly impenetrable tables of numbers is a remarkable story that has gone entirely unreported by the mainstream media: The 2003 tax cut on capital gains has entirely paid for itself. More than paid for itself. Way more.
To appreciate this story, we have to go back in time to January 2003, before the tax cut was enacted. Table 3-5 on page 60 in CBO’s Budget and Economic Outlook published in 2003 estimated that capital-gains tax liabilities would be $60 billion in 2004 and $65 billion in 2005, for a two-year total of $125 billion.
Now let’s move forward a year, to January 2004, after the capital-gains tax cut had been enacted. Table 4-4 on page 82 in CBO’s Budget and Economic Outlook of that year shows that the estimates for capital-gains tax liabilities had been lowered to $46 billion in 2004 and $52 billion in 2005, for a two-year total of $98 billion. Compare the original $125 billion total to the new $98 billion total, and we can infer that CBO was forecasting that the tax cut would cost the government $27 billion in revenues.
Those are the estimates. Now let’s see how things really turned out. Take a look at Table 4-4 on page 92 of the Budget and Economic Outlook released this week. You’ll see that actual liabilities from capital-gains taxes were $71 billion in 2004, and $80 billion in 2005, for a two-year total of $151 billion. So let’s do the math one more time: Subtract the originally estimated two-year liability of $125 billion from the actual liability of $151 billion, and you get a $26 billion upside surprise for the government. Yes, instead of costing the government $27 billion in revenues, the tax cuts actually earned the government $26 billion extra.
CBO’s estimate of the “cost” of the tax cut was virtually 180 degrees wrong. The Laffer curve lives!
This straight-A report card on supply-side tax-cutting was noted Thursday by Daniel Clifton of the American Shareholders Association — the man who predicted that exactly this would happen when the tax cuts were first enacted. Clifton wrote on his blog,
a capital gains tax cut spurs the growth of new businesses, increases the wage of workers, enhances consumer purchasing power, and grows the economy at large, resulting in more overall gains to be taxed. When capital is taxed at a lower rate, any revenue losses are offset because there is more overall capital being produced, and thus more total revenue being generated. Using the same kind of analysis, we can see that attempts to raise tax revenues by raising tax rates simply doesn’t work. Consider the massive increase in personal income-tax rates imposed by President Clinton and a Democratic Congress in 1993. Compare actual total tax revenues for the four years from 1993 to 1996 to what had been estimated by CBO in 1992 before the tax hikes took effect. Despite increasing the top tax rate on incomes by 16 percent to 28 percent, actual revenues only beat the 1992 estimate by less than 1 percent.
So what led to the gusher of tax revenues in the late 1990s that helped to put the federal budget into surplus? Simple: It was the capital-gains tax cut engineered by a Republican Congress in 1997. Compare actual total tax revenues for the three years from 1997 to 1999 to what had been previously estimated by CBO in January 1997. Despite cutting the capital-gains tax rate by 28 percent, actual total revenues beat the 1997 estimate by more than 11 percent.
These are the numbers. They don’t lie. It’s the Left that lies — just like former Clinton Treasury Secretary Robert Rubin did this week in an op-ed in the Wall Street Journal when he said
The proponents of supply-side theory who assert that tax cuts will wholly — or even significantly — pay for themselves (through increased growth and federal tax revenues), appear to be no more accurate now than they were in the ’90s.
The numbers show that supply-side theory is accurate now and that it was accurate in the ’90s. With the latest evidence from the CBO in hand, as Daniel Clifton says, “It’s time to make the capital gains and dividend tax cuts permanent. Congress has no excuse at this point.”
— Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your visit to his blog and your comments at don@trendmacro.com.
EXCELLENT POST! Thanks!
The left will never acknowledge their collective folly. Taxing the "evil" "rich" just "feels" so good....they can't give it up.
Sorry to disapoint you my friend but emotion does not enter in to it as I see it. We needlessly waste upwards of 250 billion (very conservative estimate) a year dealing with the income tax which could be put to more productive uses. And that doesn't begin to touch the FREEDOM issues involved!
That's why I favor simplifying the code. Free up those resources to something more productive. I don't see how that advances your argument. We both want to do the same thing. Only emotion over rational thought could make you say that.
I guess Alan Greenspan is/was wrong?
http://www.freerepublic.com/focus/f-news/1566159/posts?page=24#24
Your claim about eliminating the income tax makes no sense at all. Congress can (and does) easily manipulate the tax code presently to "favor" or "punish" whatever category or behavior they wish.
The FairTax removes that ability (to selective reward and punish while hiding such shenanigans in the tax code) since its effect is quite visible to all and favors no groups or special interests while the income tax is replete with such instances.
You must be ignorant. A sales tax gives tax preferences by eliminating entire sectors of the economy from taxation. The Fair Tax does precisely that with education. Would I be going down a slippery slope if I suggested that some people may want medical care and food tax-preferred under the Fair Tax? Or do you think that is absurdly improbable?
Do you understand the difference between taxing capital and taxing capital gains? It appears you are confused by that distinction.
Re-read the post. SLOWLY this time. Greenspan addresses both, the tax on capital, and the elimination of capital gains taxes. Swing and a miss.
"Simplifying the code"??? there's been almost 100 years now to do that and it merely keeps getting worse and worse. It's time to face up to the fact that the income tax system needs to go the way of the buggywhip - and quickly.
Keeping it around in the form of ANY "flat" tax (no matter which flavor you might like) is a pointless notion. It would still be an income tax to be lovingly fiddled and twiddled with by Congress; would still have payroll withholding which are the largest taxes many pay; would fail in removing the tax penalty paid by our exporters when they ship to other countries; and would accomplish nothing at all in obtaing tax revenue from the illegal economy which is the biggest class of income tax evader and wouild not change with the "flat" tax.
So despite your comment to Bigun you really DON't want the same thing - not at all!! The FairTax is much preferable in all those instances cited above.
My point is that all three factors of production should be taxed equally: land, labor and capital. I don't like any preferences built in the tax code at all.
Greenspan is a Monetarist, or as I like to call them, Keynesian-Lights. I don't care for his monetary policy at all. And when he talks about fiscal policy, he is overstepping his authority.
I could find a quote where Greenspan doesn't blur the line between tax on capital and tax on capital gains if you like. But it is clear from the context that he is only talking about tax on capital gains.
Bwahahaha.
The best tax is that which distorts the least. Any system of taxation that is based on income, particularly at the corporate level, shoots hte US in the foot in the world market. We can thank the WTO for that. See an article written by Gary Clyde Hufbauer of the Institute of International Economics, here: http://www.iie.com/publications/opeds/oped.cfm?ResearchID=197
Then Google:
HR 4520, The American Jobs Creation Act of 2004.
For historical perspective, Google: Domestic International Sales Corporation (DISC), Foreign Sales Corporation (FSC), and Extra-territorial Income Exclusion (ETI). You should find a 30 - 35 year trade war history...all borne of the stupidity of our corporate net income tax.
Any system of taxation that is based on income is self-defeating sophistry. You can proclaim the need to tax capital from the mountaintop, the roof top, the counter top.....it doesn't change the fundamental economic fact that ALL taxes are paid by people.......not capital.
We have a LONG history of attempts at "simplifying" the income tax code. We have gone from a few hundred words to millions of words in the process and STILL have what we have. We need to be done with that, put the communist inspired mess we currently have where it properly belongs - onto the ash heap of history -, and replace it with something more in keeping with the intent of our founders!
They don't! In fact they, at least some of them, understand it quite well but they LOVE the current mess because it empowers them.
FREEDOM is the last thing they want for individuals!
If anyone would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25) offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright and replace them with with a national retail sales tax administered by the states.
H.R.25,S.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information:
Amen. That makes the case much less dramatic and gives the left plenty of room to obfuscate. Regretfully, it was our spenders creating the problem.
Rep. Bill Archer, Chairman, House Ways and Means Committee:
"A recent survey was done, in Europe and Japan, of the major corporations and I was astounded at the results. They were asked, 'If the US abolished its income tax and went to a sales tax, would that have any impact on your decisions?' Eighty percent of the corporations said they would build their factories in the United States of America. Twenty percent said they would move their international headquarters to the United States of America."
There exists tax competition among governments. It's not a matter of if consumption-based sales tax will gain dominance the world over, but when, and which country will lead the charge and which countries will play catch up.
The United States must take the lead.
That's the short list. For more information see fairtax.org or search: "national sales tax" OR "national retail sales tax"
Generating more cash for Congress to steal and squander is just wrong. We need to strangle the cashflow, because these parasites just will never get it. It's not their money, and they can buy votes, so why would they stop as long as we find ways for them to steal more of it?
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