September 19, 2007

IT'S NOT ABOUT REVENUE, BUT ABOUT REACTION:

Obama Pushes for Higher Investment Taxes (James Pethokoukis , 9/19/07, US News)

[D]an Clifton over at Strategas Research thinks the Dems may be disappointed by the ROT—return on taxes—from higher cap-gains rates. After reviewing the connections between changing cap-gains rates and government revenue during the past five decades, he concludes that higher cap gains could well be a revenue loser for Uncle Sam.

We examined the impact of capital-gains tax rates on investors realizing their gains. As the tax rate increases, investors hold their gains to avoid paying the higher tax. Conversely, lowering the capital-gains tax rate spurs realizations. Interestingly, the 1986 Tax Reform Act increased the capital-gains tax rate from 20 to 28 percent, but investors were given roughly three months before the tax increase was enacted into law. In turn, investors rushed to realize their gains before the higher tax rate kicked in, and capital-gains realizations remained depressed for nearly a decade thereafter with the higher tax rate in place.... Therefore, proposals to raise tax revenue from capital-gains tax increases will be scored as a net revenue gain to pay for new spending, but in reality, the tax revenue may not materialize, which will force tax increases elsewhere to pay for spending.


After 27 years of ranting about how Republican economics benefit the rich the Democrats want to be seen to be doing something, no matter how ineffective, or even counterproductive.

Posted by Orrin Judd at September 19, 2007 12:46 PM
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