Dave & The Capital Gains Tax Cuts: Premature Congratulations
During his confirmation hearing new Fed Chairman Ben Bernanke said, "It's unusual for a tax cut to completely offset the revenue loss." But here we have Dave with the headline of his new column reading "The 2003 capital gains tax cut has paid for itself."
Indeed, Dave gleefully points out the fact that the capital gains tax has deposited $47 million unforseen revenue into the government's coffers. How did this happen, exactly? Well, when you consider the fact that the capital gains tax cut overwhelmingly is titled in favor for the wealthy- only 6.6% of households making less than $100,000 earn any capital gains income- it could be summed up very simply: when rich people pay less taxes they have more money available, either to spend or to invest.
In a letter to the Senate Finance Commitee last Feburary, the Congressional Budget Office (CBO) wrote: "[I]ncreases [in capital gain realizations] might suggest a large behavioral response to the tax rate cut - except that realizations also increased by 45 percent in 1996, before the rate cut. Thus changes in realizations are not necessarily the result of changes in taxes; other factors matter as well." So investors did take advantage of the lowered capital gains tax cut to sell some assets and buy others looking to make a return, but that's what the investing class does. Any stimulation in activity would naturally follow such a tax decrease. However, considering that, according to the IRS, of the 92 million tax returns for individuals earning less than $50,000 in 2003 (representing 70 percent of total returns), only 15 percent filed a return with dividend income. The share of the total tax benefit given to these individuals was 7.8 percent and the average tax cut was $14. That means that the capital gains tax cut means diddley-squat to the average reader of The Oregonian.
Anyways, $47 million in the US Treasury is good. At least we're seeing something in return for Bush's economic policies. Considering that these policies have reduced government revenue by $870 million since 2001, you might think that $47 million is a nice start, but Dave shouldn't be patting himself on the back just yet.
Dave's column is a retort to tax cut critics. He's attempting to state: "See? Tax cuts do stimulate the economy." However, any qualitative connection between capital gains tax cuts and economic improvements are tenuous at best.
Just as are the examples and the illustrations Dave uses to make his argument. The jobs situation, for example. Dave practically crows about the "2 million [jobs created] in the last year alone." Never mind that last year's job creation represents a gain of 1.5%, which is absolutely horrible. This rate is less than half the 3.5% job-creation rate of similar business cycles. The standard job-creation rate would've brought the U.S. 4.6 million jobs. But as Dave seems to actively welcome low standards, I can see why he'd settle for 2 million instead. Dave points out that 200,000 jobs were created in January, the same month that saw the lowest number of employed American workers since last May, which was the last time the unemployment rate was over five percent.
Now, I'm not stating that the job situation in the United States is particualrly bleak: we still have Bush's ever-expanding federal government to provide worthwhile employment opportunities. Let's examine the sluggish private-sector growth under Bush: in the fiscal years from 2001 to 2006, two million jobs were created in the private sector, but 1.495 million of those were due to increased defense spending. Non-defense discretionary spending created 1.325 million jobs, and mandatory spending created even more jobs. How would our country's employment numbers look without the Defense Department's budget being continually jacked up? For all the hand-wringing conservatives do over the "socialistic" policies enacted by Franklin Roosevelt in creating jobs sixty years ago, they are now conspicuously silent on a similar course of action being taken by the Bush administration.
And isn't it fabulous that Dave is citing Oregon's honourable Senator, Gordon Smith, as the bearer of such good news regarding the capital gains tax-cuts? The same Senator whose idea of a bold stand is that he's against hate crimes? Dave quotes Senator Smith as saying, "Freedom works, and it's even filling government coffers." As it turns out, Senator Smith has been taking extracurricular trips down to the Virgin Islands in an attempt to protect a millionaire's tax dodge (and netting himself a cool $47,000 in the process), which I'm sure is a high priority for the Senate Finance Committee.
Looking to Gordon Smith for sound tax policy advice is like taking quail-hunting lessons from Dick Cheney- it just doesn't make sense. If there's an Oregon Senator who should be listened to in regards to sound tax policy, it should be Ron Wyden, who's even been heralded in the op-ed pages of the Wall Street Journal for his "fair & flat tax" proposal.
Dave can gloat about the "hard numbers" in regards to justifying the capital gains tax cut all he wants, citing the Congressional Budget Office in doing so. However, he better ignore the other hard numbers from the CBO: that if Bush's tax cuts are declared permanent, it would cost the government $3.4 trillion in revenue over the next ten years.
Indeed, Dave gleefully points out the fact that the capital gains tax has deposited $47 million unforseen revenue into the government's coffers. How did this happen, exactly? Well, when you consider the fact that the capital gains tax cut overwhelmingly is titled in favor for the wealthy- only 6.6% of households making less than $100,000 earn any capital gains income- it could be summed up very simply: when rich people pay less taxes they have more money available, either to spend or to invest.
In a letter to the Senate Finance Commitee last Feburary, the Congressional Budget Office (CBO) wrote: "[I]ncreases [in capital gain realizations] might suggest a large behavioral response to the tax rate cut - except that realizations also increased by 45 percent in 1996, before the rate cut. Thus changes in realizations are not necessarily the result of changes in taxes; other factors matter as well." So investors did take advantage of the lowered capital gains tax cut to sell some assets and buy others looking to make a return, but that's what the investing class does. Any stimulation in activity would naturally follow such a tax decrease. However, considering that, according to the IRS, of the 92 million tax returns for individuals earning less than $50,000 in 2003 (representing 70 percent of total returns), only 15 percent filed a return with dividend income. The share of the total tax benefit given to these individuals was 7.8 percent and the average tax cut was $14. That means that the capital gains tax cut means diddley-squat to the average reader of The Oregonian.
Anyways, $47 million in the US Treasury is good. At least we're seeing something in return for Bush's economic policies. Considering that these policies have reduced government revenue by $870 million since 2001, you might think that $47 million is a nice start, but Dave shouldn't be patting himself on the back just yet.
Dave's column is a retort to tax cut critics. He's attempting to state: "See? Tax cuts do stimulate the economy." However, any qualitative connection between capital gains tax cuts and economic improvements are tenuous at best.
Just as are the examples and the illustrations Dave uses to make his argument. The jobs situation, for example. Dave practically crows about the "2 million [jobs created] in the last year alone." Never mind that last year's job creation represents a gain of 1.5%, which is absolutely horrible. This rate is less than half the 3.5% job-creation rate of similar business cycles. The standard job-creation rate would've brought the U.S. 4.6 million jobs. But as Dave seems to actively welcome low standards, I can see why he'd settle for 2 million instead. Dave points out that 200,000 jobs were created in January, the same month that saw the lowest number of employed American workers since last May, which was the last time the unemployment rate was over five percent.
Now, I'm not stating that the job situation in the United States is particualrly bleak: we still have Bush's ever-expanding federal government to provide worthwhile employment opportunities. Let's examine the sluggish private-sector growth under Bush: in the fiscal years from 2001 to 2006, two million jobs were created in the private sector, but 1.495 million of those were due to increased defense spending. Non-defense discretionary spending created 1.325 million jobs, and mandatory spending created even more jobs. How would our country's employment numbers look without the Defense Department's budget being continually jacked up? For all the hand-wringing conservatives do over the "socialistic" policies enacted by Franklin Roosevelt in creating jobs sixty years ago, they are now conspicuously silent on a similar course of action being taken by the Bush administration.
And isn't it fabulous that Dave is citing Oregon's honourable Senator, Gordon Smith, as the bearer of such good news regarding the capital gains tax-cuts? The same Senator whose idea of a bold stand is that he's against hate crimes? Dave quotes Senator Smith as saying, "Freedom works, and it's even filling government coffers." As it turns out, Senator Smith has been taking extracurricular trips down to the Virgin Islands in an attempt to protect a millionaire's tax dodge (and netting himself a cool $47,000 in the process), which I'm sure is a high priority for the Senate Finance Committee.
Looking to Gordon Smith for sound tax policy advice is like taking quail-hunting lessons from Dick Cheney- it just doesn't make sense. If there's an Oregon Senator who should be listened to in regards to sound tax policy, it should be Ron Wyden, who's even been heralded in the op-ed pages of the Wall Street Journal for his "fair & flat tax" proposal.
Dave can gloat about the "hard numbers" in regards to justifying the capital gains tax cut all he wants, citing the Congressional Budget Office in doing so. However, he better ignore the other hard numbers from the CBO: that if Bush's tax cuts are declared permanent, it would cost the government $3.4 trillion in revenue over the next ten years.
posted by true_slicky at 12:17 AM
3 Comments:
I was a little suspicious about Dave's source for that $47 million excess revenue figure. He cites an analysis of CBO data by the American Shareholders Association, which is not exactly an organization without an axe to grind, and there I looked to find the original source.
By googling I quickly (in 0.11 seconds, to be exact) found the CBO letter you mention. There the CBO folks indicate that capital gain realizations are very volative and are very difficult to predict. For that reason, building a case for capital gains tax cuts, as Dave does, by comparing the predicted with the actual value is not only incorrect, but is intellectually dishonest -- not that that bothers Dave, I suppose.
no need to do any googling, I do the googling for ya, and provide the links within the text.
I should say that if everything Dave & Senator Smith have been saying is true- and given Republicans' track recrod of being histronic to distract, I'd be doubtful- then perhaps they deserve to crow about it.
I mean, after the economic disaster that's been the Bush administration, they should be allowed to cling to whetever silver lining presents itself, correct?
Also, unlike previous job growth cycles, the type and wage breakdown of these 2 million jobs is very important to understanding the nature of the economy. The majority of them (~60%+) where in the service industry and wage growth has been pituful.
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