I didn’t watch the debate last night. I’m afraid I just can’t bring myself to watch presidential debates. Which helps explain why I’ve never really made it as a political reporter.
But I can, after a suitable amount of time has passed, bring myself to read at least parts of the debate transcript. Such as Charlie Gibson’s questions to Barack Obama about capital gains:
GIBSON: You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.
But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
…
GIBSON: And George Bush has taken it down to 15 percent.
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GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
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GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.
I’ve left out Obama’s responses, which were mostly about fairness ‘n’ stuff, because he failed to give the only appropriate answer, which was that, no, history doesn’t show that. Yes, capital gains tax cuts invariably result in a revenue increase the next year, because investors aren’t idiots: If they see a cut coming, they’re likely to delay capital-gains-generating transactions until after the tax rate drops. But I don’t know of any serious economist who thinks that cutting the capital gains tax rate increases revenue over time.
Here’s a chart of the last ten 12 years of capital gains tax revenues, which first ran in a post I did in January:
My point in that post was that fiscal year 2007 is going to represent a peak in capital gains tax receipts not to be equalled for years to come–and it’s lower than the previous peak in 2000. Over the course of the business cycle, a lower capital gains tax rate left us with less revenue. Now there were other factors at work–the stock market bubble that finally began to deflate in 2000 was of historic proportions. But you certainly can’t declare from that evidence that cutting the rate increased revenue.
And this is even leaving aside the basic point that the trend for tax revenue in a growing economy is going to be up. So if you’re going to claim that a tax cut increased revenue, you need to offer some evidence that revenue rose even more than would have been the case if rates had remained the same.
There are all sorts of good arguments for keeping capital gains tax rates relatively low (but also some good ones for keeping them pretty close to rates on regular income). But to repeat: Cutting them does not increase tax revenue. And that Charlie Gibson was spouting the totally bogus line that they do on national TV last night was an outrage. One of many, I hear.
Update: More on the topic here.