From an editorial in today’s WSJ:
The facts about capital gains rates and revenues are well known to our readers, but we’ll repeat them as a public service to the Obama campaign. As the nearby chart shows, when the tax rate has risen over the past half century, capital gains realizations have fallen and along with them tax revenue. The most recent such episode was in the early 1990s, when Mr. Obama was old enough to be paying attention. That’s one reason Jack Kennedy proposed cutting the capital gains rate. And it’s one reason Bill Clinton went along with a rate cut to 20% from 28% in 1997.
It is in fact possible to give the accompanying chart such a reading (I’d show it here but, as a blogger working for a major media corporation, I’m a little worried about the copyright thing). But it’s only possible if you believe that financial market fluctuations (and with them capital gains realizations) are driven entirely by changes in the tax code. Which just can’t be true. There’s been a huge rise in asset prices over the past quarter century, and there are just all sorts of reasons for it apart from the decline in the capital gains tax rate. We’re currently in the midst of major drop in asset prices, and you certainly can’t pin that on any change in the capital gains tax rate.
So I’m starting to think that Clinton or Obama, if either is elected president, ought to keep the danged capital gains tax rate where it is, at least for two or three years. Because capital gains realizations are going to be way down, no matter what, and capital gains tax receipts with them. Why let the WSJ editorialistas blame that on the higher rate?