Bush Sr. called it right from the beginning: "voodoo economics." What's astonishing is how many people continue to believe in it no matter how many times it fails. That's a tribute to the power and skill of the Republican propaganda machine.

What a chery picked bias PDF. Evidence? That's nothing but your own usual propaganda.

A simple google debunks it.

** The Center on Budget and Policy Priorities, a liberal think tank, argues that capital gains tax cuts lose revenue in a paper entitled: "Experts Agree that Capital Gains Tax Cuts Lose Revenue". The paper is a good example of some of the arguments made by proponents of raising the capital gains tax rate. Below is a sample of the claims made by the paper:

Claim 1: “While a capital gains tax cut can lead investors to rush to ‘cash in’ their capital gains when the lower rate first takes effect, it does not raise revenue over the long run.”

The argument here is that capital gains tax reductions might increase revenue in the short term, but still lose revenue in the long term. The problem with this argument is that it is contradicted by the actual data. There has been a strong jump in revenues after each of the four capital gains tax cuts in the short run. But, the growth of capital gains revenue is also self-evident over the long run. Specifically, from 1977 to 2007—a period covering the last year the capital gains rate was 35% to last year—the top capital gains rate declined by 57% and capital gains tax collections increased by 1,488.0%.

Claim 2: “Cutting capital gains rates reduces revenues over the long run. That’s the conclusion of the federal government’s official revenue-estimating agencies...”

But how have these past projections compared to actual revenue collected? In January 2001, CBO famously released budget projections showing a $5.6 trillion surplus over the period from 2002-2011. Since the federal budget has actually run a deficit in every year thus far covered by this period—including the three single largest budget deficits in U.S. history—the January 2001 CBO outlook is often noted for being too optimistic in its projections (though it is also the case that Congress spent $487 more in FY 2007 than CBO projected). However, in one respect, CBO’s projections were pessimistic. In January 2001, CBO projected capital gains receipts under the then 20% top capital gains tax rate would come to $106 billion in 2007. Under the lower 15% top tax rate enacted in 2003, capital gains revenue actually came to $127 billion in 2007, or 20% above the projection that assumed the higher rate would be in effect.

Overview of Capital Gains Tax Rates and Revenue from 1977-2007: In 1977, the top capital gains tax rate was 35%. After five changes between 1978 and 2003, four that lowered the capital gains rate, the top capital gains tax rate is currently 15%. This 57 percent reduction in the top capital gains tax rate over the last thirty years has coincided with a fifteen-fold increase in capital gains revenue. From 1977 to 2007, capital gains revenue increased from $8 billion to $127 billion. To put this increase in perspective, from 1977 to 2007, capital gains tax revenue increased by a factor of 15 while overall federal revenue increased by a factor of 7 (increasing from $355 billion to $2.6 trillion). Consequently, with the downward trend in the top capital gains tax rate, capital gains revenue has increased sharply as a percentage of federal tax revenue—increasing from 2.3% of all federal revenue in 1977 to 4.9% of all federal revenue in 2007.

wow, talk about cherry picked evidence. I don't know how valid the report from The Center on Budget and Policy Priorities is since I admit to not having read it (or havingg time to read it), but I can say that the previous comment by Steve is pretty absurd. Economists like to conduct studies under the assumption of "all things being equal" the problem with Steve's analysis is that all things aren't equal, in fact, almost nothing is. He first cites the growth in collections over a 30 year period without any consideration to normal real GDP growth (about 3% annually) or population growth. Of course collections have gone up, there are more people making more money, what you really want to compare is tax revenues relative to the purchasing power of a dollar and relative to population growth. The other fatal flaw in what Steve does is to act as though Capital Gains are the only taxes that have been cut from 1977 to 2007. All the change in percentages really demonstrates is that capital gains have been cut less than other taxes.

There is something to be said that something which produces an immediate budgetary shortfall, if targeted properly might produce a longer term increase in revenues. With Steve's analysis I can certainly accept that perhaps a Capital Gains tax cut is better than an Income Tax cut. The problem in general that I suspect the The Center on Budget and Policy Priorities report is really getting at is that tax cuts by nature tend to benefit the wealthy since poorer people who are more likely to respond to an increase in income with an increase in spending don't pay much in taxes, so its difficult to target tax cuts at the spenders, and its better to direct spending increases through improved services to benefit that group of people most likely to actually pump money into the economy rather than tucking it into a bank account.

Corey, The only thing absurd about my previous comments are the twisted version of them you created. I never cherry picked or acted as though Capital Gains are the only taxes that have been cut from 1977 to 2007.

I would agree that a Capital Gains tax cut is better than an Income Tax cut. The problem with the Center on Budget and Policy Priorities report is of course they are trumpeting that any tax cut tends to benefit the wealthy. That's what they do. Despite the fact that as you noted poorer people don't pay much in taxes. Many pay none or even get paid through the earned income tax credit and other redistribution programs.

Your description "that it's better to direct spending increases through improved services to benefit that group of people most likely to actually pump money into the economy rather than tucking it into a bank account" says it all.
Increasing government spending pumps money into the economy but tax cuts only let the rich horde their money in bank accounts?

How marvelously liberal and confused that is. An amazing viewpoint. Apparently you forgot the whole spectrum of millions of taxpayers who benefit from tax cuts and are not "wealthy" and use that money throughout our economy. Far better than ANY government services can.

Please explain how you are going to tax me into prosperity?

OUTSIDE of government it is only about the spending, inside government it is only about the revenue.

Maintaining revenue is NOT relevant to anything. In down years when we the taxpayers have less money, spending needs to correspondingly come down. The notion that all existing spending must always be maintained ludicrous.

Gov't doesn't make anything and is only an expense for the taxpayers. Govt spending is not our goal. Leaving as much money as possible in the pockets of those who made it should be sacred. Any tax and or revenue question should always be followed with the question "how much is enough?" We probably average 50% total aggregate tax and fees now, what do you spenders want, 75%, 95%????? I think you are getting plenty, please just pare down your spending and quit helping us.

To reiterate, from the CBPP report:

Given the evidence, economists across the political spectrum reject the notion that tax cuts pay for themselves. They include Edward Lazear, current chairman of President Bush’s Council of Economic Advisers (who told Congress, “I certainly would not claim that tax cuts pay for themselves”)and N. Gregory Mankiw, the CEA chair earlier in President Bush’s administration (who once compared an economist who says that tax cuts pay for themselves to a “snake oil salesman trying to sell a miracle cure”).10

In addition, the Bush Treasury Department’s own “dynamic” analysis of the cost of the 2001 and 2003 tax cuts estimated that they would generate only enough economic growth to cover less than 10 percent of their long-term cost.11 Furthermore, that estimate was based on a best-case scenario; it depended on the assumption that the cost of the tax cuts would be fully offset by spending cuts.

I agree with Chuck and the Center... report. However, it's not as absolute as that. Let's say you lower the lowest tax bracket down to 12%. Since that level of the economic ladder lives at a Ricardian "subsistance" level, any money that goes back to that level will go straight to consumption (C), which has a direct impact on GDP. This is why Wal-Mart lobbies so hard for federal minimum wage increases, because it flows right to its bottom line. That's partially offset by the import factor, but it still helps to make the Walton heirs richer.

This is a no-brainer post, and I say that with no specific disrespect toward Steve, who seems to be ignorant of inflation effects--the dollar dropped at the same time, as did real wages. However, a better topic would be what kind of tax cuts SHOULD be embraced by the left.

How about a 100% deduction for tuition costs, over X number of years, for certain college majors that are deemed to be a "national interest?" Among these might be nursing, Chinese, Russian, Farci, computer programming, mechanical engineering, etc. Rather than tax giveaways for oil companies, how about relative advantages for American citizens who pursue studies that help to fill deficiencies in the labor market?

Here's another. Instead of capital gains tax cuts, how about TARGETED cap gains cuts? Cap gains stay the same, unless they end up on a congressionally approved list of "green" and/or "diversified" companies that support wind power, solar power, biodegradable plastics, etc. That would help send money toward companies that are investing in the solutions we need, in the same way Muni's steer old money to municipal bonds.

Instead of "Tax cuts = Bad" versus "Tax increases = Good" dialectic BS, we as lefties should break the chains of propaganda and think of how conservative fiscal policy could BENEFIT progressive causes. That puts the Neocons back on their heals, rather than play into their ruse and feed the fantasies of dittoheads like Steve.

Kari,

Am I to infer from your post that the goal of the tax system should be to maximize revenue for the government?

<h2>In economics, that goes to monoply pricing strategies. Oops, I guess the government is a monopoly when it comes to taxes.</h2>