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.
The beauty is that if we only reduced spending growth rates below GDP growth rates - surpluses will again be possible and sustainable long into the future - of course barring unforeseen catastrophies.
When will Americans hold the left responsible for their continued lies on the matter?????
Nope. This article won't get any airplay. It won't be seen anywhere outside of FR and NRO.
There goes another argument by the leftists.
This article doesn't need a deep explanation of the numbers to be understood... just tell people that it is concrete proof that cutting taxes raises revenue.
Unfortunately, I don't think this piece will get a lot of airtime.
Wendeeeeeeeeeeee!!!!!
Just kidding!
Please send the article from the NRO source original to all your friends that has the data links included which my post didn't - due to how my computer is set against trojans and worms.
Unfortunately the government went on a spending spree after these tax cuts just like they did after Reagan and have again masked the true effect the tax cuts had.
I agree - too bad the Newt revolution lost it's sticktoitiveness. We need a new CWA!
The Pelosi spewed Dem plan is just more of their hollow rhetoric with zip for substance - I despise them all to my very core.
You are the goods - my heart-felt thanks - spread the good word!!!
Does W and company know this?
What great data to report during State of the Union!
FR activits use your email power to bring this to the attention of "The Architect"!
Of course it did. And the dividend cut. Tax cuts always pay for themselves.
But they didn't pay for the socialism the phony "conservatives" rammed down our gullible throats!
Even Clinton reluctantly signed a cap gains cut. And he had a GOP congress to actually try to reign him in.
ping
I'm going to help circulate this one. I've got a few non-Freepers that would be interested. Thanks for the post because I know mainstream media won't call attention to it.
Why am I not surprised that:
1. this little item is buried in the report.
2. the media is ignoring it.
3. tax cuts work particularly tax cuts which increase the spending power of consumers.
This leads me directly to the question:
What would happen if we entirely did away with this bit of subtrafuge called the corporate income tax?
Then we would be using the tax code to influence economic decsions. Eliminating the corporate income tax would make land and capital tax-preferred over labor. A good tax policy would make producers indifferent between the three inputs of production: land, capital and labor.
I know you prefer tax policy to be decided on emotion rather than economics (I've seen your support of the Fair Tax). But give the reins over to the Supply Siders and you will make the economy as efficient as possible.
Taxpayers would get more for their dollar and exports would increase significantly and ergo GDP - our corp taxes are higher than EU's and are just passed thru to consumers as they always have been anyway.
Zero is the correct tax rate.
Ain't it a biooch!
Are you saying we should keep corp taxes as is?
Forbes yes - Boortz no!
Absolutely not! Corp taxes should have a single flat rate applying to the first dollar. Income should be defined in economic terms (no tax on corporate cap gains, etc.) Immediate expensing of capital purchases.
As you indicate, do it the Forbes way!
Oh, and most importantly, the tax rate on corporations (land and capital) must equal the rate on individuals (labor). We must tax all three factors of production equally.
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