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.
You are correct, spending cuts are just as important as tax cuts, but given a choice of one - I'll take the tax cuts which might force the starvation gambit.
As I think I once saw - the fiduciary pecking order is thus:
Spending one's own on one's self
Spending one's own on other's
Spending other's on one's self
Spending other's on other's
As you state - Govt has the LEAST incentive possible in responsible spending of the people's money.
The whole point of the article was that cutting taxes increases the cashflow from which Govt's take, evan at a smaller percentage rate = more revenue.
FWIIW, the CBO has been dead wrong with virtually every estimate they have ever made about the economy!
The reason is they use "static" scoring for proposed changes in the tax code vice "dynamic" scoring. IOW, they refuse, even after decades of contrary evidence, to take into account personal and corporate taxpayer behavior in the face of tax code changes.
The "conventional wisdom" under the static scoring model is that when the government raises tax rates, revenues increase and when tax rates are lowered, revenue decreases.
They are wrong, of course, and Dr. Laffer is absolutely correct, as has been proven time after time after time.
The sad truth is that the CBO poobahs are tax and spend lieberals, and the Republicans, when afforded an opportunity to replace the CBO old guard in 1994 with FResh intellects schooled in dynamic scoring, blew it, and left the old guard in place.
Which gives you some idea of the magnitude of the problem we are faced with -- not only with the CBO, but also with the Congress!
For example, the static scoring model the CBO uses has resulted in some incredibly wrong-headed conclusions which the LIEberal/Socialist/Marxist Bastards in Congress, on K Street and at the Brookings Institute have used with manifest glee to trash the FairTax.
When you understand that the CBO wields incredible power in the House and Senate re: changes to the tax code, you will begin to appreciate the nature of the beast we are warring against.
Simply put, the CBO can make or break a tax code change, and for that reason, reform minded Congressmen and Senators have been trying to re-staff the CBO since 1994. Without success, I must regretfully add. The lieberal tax and spenders are still in there doing their bit to keep the income tax and the IRS alive.
To this point, they are succeeding.
We have all suffered mightily FRom their "handiwork."
Please read Frank's post #42.
It makes some very important points that are very important for us all to understand about where we are and why we are where we are vis a vis fundamental tax reform.
Patronizingly silly thing to say.
You flat income taxers are something. You'll admit that some freedom from the income tax monstrosity is good, but just can't see how freeing it would be to kill the monster entirely.
... and that's why when the SQLers post papers and studies by CBO and/or the workers therefrom the information is worse that meaningless - it is actually quite biased against any significant change in the tax system.
One of the "gleeful warriors" in using this sort of trash trash is Nightie, of course - but there are others.
This is quite an admission...you're clearly showing that you want to retain the social and economic engineering aspects of the income tax.
Sorry, but in my mind, you're no more help in restoring liberty and prosperity than the most vociferous defender of the graduated income tax system.
Your #42 is a great post, my friend.
Every American should have your points explained to them.
Thanks.
Bingeroo! The Wall Street Journal has editorialized on occasion about the improprieties in this tax model.
You simply can't ignore the behavior of taxpayers. But when you think about it, the more the populace is kept in the dark about these things the easier it is for John Kerry to babble about tax cuts for the rich. The sheer prevarications that we hear incessantly in the MSM about taxes are enough for charges of journalistic fraud.
I know people who took long term capital gains as soon as the rate went to 15%. This is an action they wouldn't have taken otherwise: more money for the treasury was the result. If the rate hadn't been cut: zero money for the treasury.
From the bill:
"EDUCATION AND TRAINING- The term `education and training' means tuition for primary, secondary, or postsecondary level education, and job-related training courses. Such term does not include room, board, sports activities, recreational activities, hobbies, games, arts or crafts or cultural activities."
And also from the bill:
"EDUCATION AND TRAINING- Education and training shall be treated as services used to produce, provide, render, or sell taxable property or services."
So yes, clearly, you would be way out of line suggesting that medical care and food be exempt for the same rationale. They are quite different in concept from the idea of not taxing certain educational expenses.
Your overstatement of how certain education expenses is handled under the FairTax and attempting to compare it to things not comparable shows your own ignorance of the bill.
Absolutely correct.....
Dynamic scoring IS the way to go.....but the science is in its infancy. The models must solve simultaneous, non-linear, differential equations at multiple loci to truly model the global economy. Mathematically speaking, it is the same problem that the global climate models must solve. If done well, it is mind-numbingly complex and limited by our current computing capacity.
Here's an interesting paper on the subject: http://www.heritage.org/Research/Taxes/cda04-05.cfm
Yep, the Laffer Curve works. Now we need to convince gov't idiots that cutting taxes to zero is even better. Think of all the money you'll get then, parasites!
I'm not so sure that so much complexity is actually required - maybe yes, maybe no - but in any event it seems to make litle sense to stick with the analysis technique that has been substantially off target 100% of the time as present methods have been.
Even a finger to the wind might do better that that.
His comment on "first dollar" is wildly deceptive as well. An income tax never applies to all 'revenue' but only to 'net income'.
He entirely skips over the difficulty of defining 'income' as revenue minus all VALID business expenses. This is the root of the IRS' most intrusive activities for businesses. He claims his plan would save the $250B in compliance costs, just as removing all taxes from business vis-a-vis the FairTax would. As though there are no compliance costs in satisfying the IRS that all your expenses -- and hence your net income reported -- are valid.
Thank you congressman Bill Thomas. W was adamantly against a capital gains tax cut.
He entirely skips over the difficulty of defining 'income' as revenue minus all VALID business expenses.
Bingo!!!
Precisely the problem of the Flat Tax model and why it is not the answer in addressing the root problem of the income tax, exponentially growing complexity.
An interesting insight from the viewpoint a tax preparer/consultant as regards the Armey/Forbes/Hall/Rebushka Flat Tax.
Seems the devil is always in the details:
Flat Tax as Seen by a Tax Preparer
by Vern HovenNote: This article was first published as a Special Report by Tax Analysts Tax Notes, Volume 68, No. 6, pp 747-754. The publisher has granted permission for this article to be reprinted with attribution.
You are absoFReepinglutely correct, Bigun.
How I long for the day when true statesmen will rule the roost in DC!
Then, the tar and feathers concession I own there will become very, very valuable!
The enemies of the people (among others, the aforementioned bureaucrats, lobbyists and such) will be identified by OUR statesmen, and we'll tar 'n featherem and runem out of town on a rail!
I see that you do not understand the UN Charter, nor the method by which OWG can become an actuality.
Our President is a solid globalist through to the core.
Taxes are meant to control populations. Having individual Americans become financially wealthy increases our authority over our legislators, which is not something they would choose to do.
Keeping the US from becoming stronger and by actually reducing our influence on the world will permit the third world countries to rise in power which is the UN goal.
Our President has chosen to use tax cuts to stave off economic depression not increase our spending capital. If he was interested in reducing the national debt, that is possible also. Instead he is permitting it to rise.
I am questioning how he intends to fight a war with Iran and win when we are broke to the tune of $8 trillion in debt. Fight war on a credit card? That's a new one.
I am sorry I didn't say that myself re: static vs dynamic scoring. Of course the Dumbocraps use static idiocy to their best advantage, much in the same way they use MOST school teachers to promote their insidious socialist innuendo anti-capitalism.
The Dem simpletons/liars are simply denying to admit they/we have had 3++ historical example cases of tax cuts revving revenues - JFK, RWR, Newt & W. I was in 5th grade when JFK was shot - but in 1980 or so I had heard his speech urging tax cuts to grow the economy. RWR amplified it and I immediately turned into a fiscal conservative. 19 shares of IBM as a graduation present began my avid following of investing and the politics that affect it so greatly.
High taxes cause capital flight and tax evasion by all classes - but the elites always have their outs & we little'uns never had.
Kerry paid 12% on $5 MILLION. The walking PR##K!!
All the marxist "philanthropies" of the left were set up for the express purpose of promoting the socialism/fascism that works to concentrate their wealth even more, and at taxpayer's expense, while at the same time shielding from taxation the vast wealth of those fantastically wealthy dynasts. Rockefeller leaps into mind - the creator of those commies at the CFR.
In 1979-80, at the time RWR was campaigning, I took an econ 101 course and our Prof David Denslow (who I'll never forget) taught us about the Laffer Curve. Simple stuff really - common bell curve - zero tax rate = zero revenue & 100% tax rate likewise (why work?).
Somewhere in between is the tax rate that maximizes revenue at the top of the bell. The Dems have always prefered (x-JFK) to keep tax rates between the optimum and 100%. That way the economic malaise created is used to make us think we need them to enact more laws, protect more industries and RAISE taxes!!!! I hate them to my very core almost to the point of a rampage of bodily harm!! It is SOOOO exasperating!! Arrggghhhh!!
I myself was a longhaired lefty in the late 60's, still libertarian re: ltd Govt, but never have, and never will, vote for the socialist bastard Dems.
Art was on Kudlow today along with a Banker who is refusing to loan developers money where the property was taken by ED NOT for public use but private. A GREAT American he is, Art too. I love him for it.
If anyone thinks Kerry and the rest of the Govt assisted/subsidized/sweetheart super wealthy in Davos are up to any good, guess again my friends.
Eternal: of course income taxation is unconstitutional and we should be working to remove it altogether, but I don't see how to abolish it until Govt is already in serious devolution? What say you?
Norquist thinks it can be halved in one generation - could we do it?
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