Friday, July 11, 2008

You Couldn't Tell It

Optimal tax theory pretty much hates capital gains taxes because they, as their
very name suggests, impede capital formation. Also, capital is much more
mobile than labor, which is why countries like Sweden focus their taxation on
incomes. In fact, when I look at the graph he posts, it seems to tell me a very
different story than it is telling him.
capitalgainstaxreceipts.jpg

By 2007, capital gains revenues had nearly returned to their 2000 highs in real dollars, even though the indexes hadn't regained their previous (real and/or nominal) heights. When you consider that the capital gains revenues in 2000 were coming off nearly 20 years of uninterrupted growth, this in fact suggests that the capital gains tax raised revenues. Moreover, the inflection point is at the time of the cut to 15%, with revenues marching steadily upward thereafter.

Now, I'd be the last person to suggest that correlation is causation--I'm only
pointing out that if they didn't raise revenues, you couldn't prove it by this
graph.