A LESSON FOR THE TAX THE RICH CROWD

Here’s more ammo for you when discussing taxes with your lib and prog friends or co-workers. Most of them cannot seem to wrap their brains around the idea that if you lower taxes, you actually generate MORE revenue. Instead, they preach this “tax the rich!” mantra because it sounds cool and it satisfies a primeval quest for revenge . Unfortunately for them, the numbers are not on their side.
Now, let’s talk about capital gains taxes. These evil taxes have come to the forefront of debate as of late because of Warren Buffett. I’ve explained how Warren Buffett does not pay a lower income tax rate than his secretary; he pays an entirely different tax – capital gains tax. And yes, the rate of capital gains is lower (for some) than income tax rates. But all that might change, if Democrats get their way. It will be just another way for them to nail those evil rich investors! From Forbes …

In 1997, Congress was considering a cut in the capital gains rate from 28% back down to 20%. The Joint Tax Committee (JTC) estimated that as a result revenues would increase by $7.8 billion from 1997 to 1999, but the tax cut would produce a loss of $28.8 billion over the following 7 years, for a net loss of $21 billion over the 10 year period.
The actual numbers after the tax cut was passed showed an increase of $84 billion over the pre-tax cut projections for 1997 to 2000. Despite an almost 30% cut in the rate, capital gains revenues rose from $62 billion in 1996 to $109 billion in 1999.
Similarly, when Congress considered cutting the capital gains rate again in 2003, from 20% to 15%, the JTC estimated that this would cause a loss of revenue of $5.4 billion from 2003 to 2006. But after Congress passed the tax cut, capital gains revenues increased by $133 billion during those years, as compared to the pre-tax cut projections. As Dan Clifton of the American Shareholders Association said, “There is no excuse for this $138 billion error.” Capital gains tax revenue doubled from 2003 to 2005 despite a 25% cut in the tax rate.

Wealth envy is a political scheme used to buy votes. It should not be dictating economic policy.