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.
Somehow I don't think the NYT or NPR are gonna report this...
I knew it was something along those lines but just couldn't quite "get it".
You are absolutely right about that as well.
The FairTax prebate is not really a subsidy but a return of tax money paid to everyone - not just the low end. Nor is it an entitlement, boosting expenses (as do S/S & M/C which ARE subsidys.)
The biggest problem is that we don't know what the differential equations are. Small changes make large changes in only a relatively few iterations. And we are a long way from defining these equations.
But we can easily just keep dropping the tax rate until we see no further positive impact.
Yes, it will take several iterations to refine the equations....but that is no reason to cling to static scoring which is WRONG 100% of the time.
With respect to reducing rates until revenues drop...that is the practical answer to the problem, which simply won't do for the inside the beltway crowd. Each bill is must be scored......http://www.urban.org/publications/1000553.html
I am in total agreement that some dynamic scoring needs to be done on tax law changes, and I am also a supply side, Laffer curve believer. With that said, I don't believe that the entire economy can be accurately modeled and there is always going to be errors made. Smaller changes are easier to estimate.
The FairTax "prebate" is not, in reality, a subsidy for anybody. It is an advance payment on the sales tax a given size family unit will pay on the necessities of life.
The prebate will be sent monthly to each family unit, irrespective of income, if they file the paperwork necessary to receive it (a form similar to the current W-4).
HST, acceptance of the prebate is optional; if one did not want to receive it, one simply would not file for it.
I thought you might, just might, mind you, be "in the business."
I am Mighty Glad you like the FairTax.
Sorry for the late reply, and I did see Boortz's presentation. It makes good sense to incentivise saving and investing and would be a vast improvement.
Now, what about socialist security and drug entitlements?
IMHO, SS, Medicare and the SS Drug plan ought to be privatized -- er, "personalized."
HST, the FairTax leaves SS, Medicare and the SS Drug plan untouched, in respect of payment protocols.
The funding for all three is rolled into the FairTax rate.
To track the benefits an employee is eligible for, one's employer would send a report to the SS Administration reporting said employee's annual FICA wages. That is how it is done now.
I think I also prefer to get govt out of all their "businesses" of perverse incentives outside of the military, treaties and coining the currency.
I also favor a gold standard to fiat.
Just what is it that the states can NOT or should NOT do for themselves??
The Fed's involvement to the large degree it affects state's biz, hampers/dampens state's accountability to it voters IMHO.
Isn't/wasn't that the already reached goal of the socialist/corporatist copycats of the 30's Euro-dictators?
At least then we could vote with our feet as the Founders intended? I dare say the blue states would empty out in a hurry and all the misallocated resources would reallocate where they are treated best.
Just like they derogate "windfall profits" and "gouging", it is plainly the speech of market/economic know-nothings.
Most of here could do a better job than any Dem I've seen, and a bunch of Reps to boot.
If only the whole country would just read Hayek, like my man Ronnie did (and loved), and Thatcher too, we could re-limit the beast back to a constitutional pre-ICC, pre-Fed, pre-New Deal semblance of freedom again.
OT: Ain't it rich that beheadings are shown worlwide to enthuse the base and are cheeered, but a bomb headed Mo-ham-head cartoon is verboten.
Time for some serious vitrification, IMHO, make em glow!
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