Early this morning, I caught a few minutes of Stephen Moore’s Supply Side arguments on CNBC re Tax Cuts.
Rather than discuss what some have called Economic’s biggest mistake, and what the Chairman of President Bush Council of Economic Advisors Greg Mankiw described in the third edition of his book Principles of Economics textbook as the work of
"charlatans and cranks," I thought I would simply debunk his Capital Gains Tax Cut argument as increasing treasury receipts:
Moore is arguing that since tax reciepts went up after the Capital Gains Taxes were cut in 2003, it should therefore get all the credit. I would respond simply by going to the charts, and pointing out that THE ABSENCE OF CAPITAL GAINS FROM 2000-20003 is the primary reason.
This first chart shows the pre-tax cut period of October 2000 to March 2003; Gee, anyone want to hazard a guess for why Capital Gains Taxes paid were so low after the Nasdaq dropped 78%?
How about NO CAPITAL GAINS = NO CAPITAL GAINS TAXES!
The second chart shows what happened after the War began in March ’03. Note that the Nasdaq selloff was very similar in depth to the initial 1929 crash.
Gee, when markets rally, people pay more Capital Gains! Go figure . . .
(And this is before we even mention increased Housing sales due to half century low interest rates and the potential capital gains taxes there)
If you are really interested in Supply Side, have a read of this: 2004: A test of Supply Side economics
And, here is a passage from a section of N. Gregory Mankiw (1998), Principles of Economics textbook, entitled
"Charlatans and Cranks":
An example of fad
economics occurred in 1980, when a small group of economists advised
Presidential candidate, Ronald Reagan, that an across-the-board cut in income
tax rates would raise tax revenue. They argued that if people could keep a
higher fraction of their income, people would work harder to earn more income.
Even though tax rates would be lower, income would rise by so much, they
claimed, that tax revenues would rise. Almost all professional economists,
including most of those who supported Reagan’s proposal to cut taxes, viewed
this outcome as far too optimistic. Lower tax rates might encourage people to
work harder and this extra effort would offset the direct effects of lower tax
rates to some extent, but there was no credible evidence that work effort would
rise by enough to cause tax revenues to rise in the face of lower tax rates. . .