Capital Gains Tax

[Gunit Hussein Sangh]

One of the issues that seemed near and dear to gibson in ABC's *debate* was the capital gains tax. He made the statement that cutting the capital gains tax rate always causes an increase in revenue. Clearly if people know the capital gains tax is going to be cut, they will hold off any financial transaction to take advantage of the lower rates.

But long term

One of the most cherished beliefs of supply-side zealots is that cuts in capital gains tax rates always increase revenue. To be sure, there are often dramatic upward revenue swings right after the cap gains rate is cut. But that is in part because people can choose when to enter into the transactions that result in capital gains--and they'd be idiots not to hold off a few months if they know the tax rate is about to drop.

A better test is whether receipts are higher over the course of an entire business cycle. Last week, as part of its latest 10-year budget projections (pdf!), the Congressional Budget Office published its estimate of capital gains receipts in fiscal 2007. I'm willing to bet that, recession or no, FY 2007 will prove to be a peak in capital gains receipts that won't be matched for several years. Which means we can compare it with the peak of the last cycle, in 2000. Here's the chart, with the numbers adjusted for inflation:



So no, the reduction in the capital gains tax rate from 20% to 15% in 2003 did not result in an increase in revenue over the course of the business cycle. In 2000 receipts totaled $119 billion, which equals $143 million in 2007 dollars. In 2007, they totaled $122 billion. That's a 15% decline.

Now I guess you could argue that 2000 was the peak of a once-in-a-lifetime stock market boom, making it an unfair comparison. But that would amount to admitting that forces other than the capital gains tax rate determine the course of the stock market. Perish the thought!

http://time-blog.com/curious_capitalist/2008/01/do_capital_gains_tax_cuts_incr.html

[Vermouth]

That's true, people time the selling of stock to minimize their tax liability.

At least it was a real question on a relevant issue.

[wow]

It's obvious, capital gains tax revenues decrease with the stock markets.
If the US Govt taxes capital gains at 15%, why can't investors write off 15% of their capital or investment losses? Currently, you can only write-off a max of $3,000 in capital losses. 
The middle-class pays the price again.

[Peter1469]

It would be more accurate to state that the graph depicts the revenue generated by the capital gain tax during the years 1995-2007.  Period.   If you wanted to meaningfully compare the tax rates and the revenue generated you would need more data to include the amount of money invested (actually the amount of money generated in stock sales) for each year.  Then you would see whether people invest in the market more when the rates are lower as compared to when the rates are higher.  But then what’s the point: the answer is obvious.  

[wow]

It would be more accurate to state that the graph depicts the revenue generated by the capital gain tax during the years 1995-2007.  Period.   If you wanted to meaningfully compare the tax rates and the revenue generated you would need more data to include the amount of money invested (actually the amount of money generated in stock sales) for each year.  Then you would see whether people invest in the market more when the rates are lower as compared to when the rates are higher.  But then what’s the point: the answer is obvious. 

I misled you, I was not doing a comparison.
I was trying to change up the thinking here.
Why not focus on less money for Politicians and more money for the American taxpayers?

[they call me MR. GRUMPY god damn it!]

tax it, regulate it, redistribute it.....baghdad sang economics 101

[Peter1469]

It would be more accurate to state that the graph depicts the revenue generated by the capital gain tax during the years 1995-2007.  Period.   If you wanted to meaningfully compare the tax rates and the revenue generated you would need more data to include the amount of money invested (actually the amount of money generated in stock sales) for each year.  Then you would see whether people invest in the market more when the rates are lower as compared to when the rates are higher.  But then what’s the point: the answer is obvious. 

I misled you, I was not doing a comparison.
I was trying to change up the thinking here.
Why not focus on less money for Politicians and more money for the American taxpayers?

My response was to Gaunt and the original article.  Sorry, your post popped in while I was drafting mine.  You are exactly right.  I was going to add at the end of mine:

Shouldn’t the first question be- what is the government’s authority to tax income made through investment?  I am not one to believe that any taxation by the government is nothing more than thugery; but I do maintain that we must remember that tax money is the people’s money, not the government’s money.  The government is not entitled to tax money.  It is a necessary evil.