Sunday, September 28, 2008

Capital Gains Tax

The CBO has a bit up on the changes in revenues from individual taxes over time. They find that the revenue from taxes went way up in the Clinton years due to events unconnected with Clinton, rather than changes in the tax code, while tax revenues did change in the Bush years due to new laws. Of the non-legislative gain in tax revenue during the Clinton years, capital gains taxes on the sale of investments constitute about half. Clinton also drastically cut capital gains on housing, so the housing bubble resulted in relatively little in the way of capital gains revenue. This change may be responsible for the rise in house prices; more on this later, data willing.

There's some debate over the ideal capital gains tax rate is. Charles Gibson and a WSJ editorial I once read make the supply-side argument that lowering this rate increases revenue. I'm skeptical, but in any case the variation in taxes gives Clinton an undervedly good reputation for managing the economy and Bush a worse reputation than he deserves. In reality, the rate of economic growth and the pace of tax revenues vary more or less randomly and place huge constraints on what Presidents can do. This fact tends to be ignored by people who expect elected officials to both not overstep their Constitutional boundaries and wield absolutist power to revive the economy.

Basically, I want to stop reading pointless articles on how some things are correlated to other things, because the world is basically random and few people have any influence on or understanding of the events that go on. Okay, that's a little extreme, but at least come up with a defense that (though it may raise an interesting point connecting inequality and women's relative wages) justifies blatant political pandering.


Bolkonsky said...

It is true that almost all the debate around who has the better economic plan is hogwash (although i do like the thought of warren buffet being a senior economic advisor). but presidents do have a lot of influence over government fiscal responsibility. And I find it annoying that for the past several decades, it always seems to be the democrats who have to tax people's asses off because of prior republican spending. Government debt is fine, and even necessary for stable growth. But it should only be redlined because of emergency, not before it. long term prospects demand fiscal responsibility, otherwise the GAO will start quoting the book of relevation. so yes, bush does deserve some blame, if only because his lack of economic understanding allowed his government to dance like no-ones watching.

what i like about obama is that he occasionally mentions that college and human capital is important for economic growth. thats one of those no-brainers that everyone seems to ignore, instead arguing about capital gains, the benefit or detriment of which is highly debatable.

Thorfinn said...

But Starve the Beast totally works.