Look at what the actual facts and figures tell us about the capital gains tax cut. It increased revenue, even as it allowed folks to keep more of their money.

On Thursday the Congressional Budget Office released its annual Budget and Economic Outlook, and buried in one of its nearly impenetrable tables of numbers is a remarkable story that has gone entirely unreported by the mainstream media: The 2003 tax cut on capital gains has entirely paid for itself. More than paid for itself. Way more.

To appreciate this story, we have to go back in time to January 2003, before the tax cut was enacted. Table 3-5 on page 60 in CBOÂ’s Budget and Economic Outlook published in 2003 estimated that capital-gains tax liabilities would be $60 billion in 2004 and $65 billion in 2005, for a two-year total of $125 billion.

Now letÂ’s move forward a year, to January 2004, after the capital-gains tax cut had been enacted. Table 4-4 on page 82 in CBOÂ’s Budget and Economic Outlook of that year shows that the estimates for capital-gains tax liabilities had been lowered to $46 billion in 2004 and $52 billion in 2005, for a two-year total of $98 billion. Compare the original $125 billion total to the new $98 billion total, and we can infer that CBO was forecasting that the tax cut would cost the government $27 billion in revenues.

Those are the estimates. Now letÂ’s see how things really turned out. Take a look at Table 4-4 on page 92 of the Budget and Economic Outlook released this week. YouÂ’ll see that actual liabilities from capital-gains taxes were $71 billion in 2004, and $80 billion in 2005, for a two-year total of $151 billion. So letÂ’s do the math one more time: Subtract the originally estimated two-year liability of $125 billion from the actual liability of $151 billion, and you get a $26 billion upside surprise for the government. Yes, instead of costing the government $27 billion in revenues, the tax cuts actually earned the government $26 billion extra.

In other words, supply-side economics – AKA Reaganomics – works.

Posted by: Greg at 02:38 PM | No Comments | Add Comment
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