Well, shag - that whole dissertation is nice, but it has nothing to do with what I was talking about - capital investment didn't change (in percentages) between the times when the tax rate for it was 28% and 15%.
Consider all the variables involved in your metric;
- GDP = private consumption + gross investment + government spending + (exports − imports)
- GNP = GDP + (income from overseas investments by residents - income from the domestic economy by overseas residents)
Overall, we have 7 variables plus that added layer of statistical abstraction in comparing investments (as a percentage) to calculations from those 7 variables.
If your goal is to measure increases in investment dollars why would this be a more accurate measure then simply looking at the actual amounts of investment dollars after a tax drop?
Toward that end, why would your metric be more accurate then looking at the tax returns which can only go up after a rate drop if the tax base increased?
In your metric, how do you determine if some
other factor rose at such a high rate as to hide any increase of investment dollars?
During the two administrations you cite (Reagan and Dubya), we were running
huge deficits and increasing military spending. That would likely
hide any rise in investment under your metric. On the other hand, in the 1990's we had a balance budget, so government spending was comparatively low. Do you have the same metric for that time?
Also, a simple number from an 8 year period is overly broad. A lot can happen in those 8 years. Bush started out with a recession, had an economic boom and ended with the beginnings of a new recession. Considering the gravity of our current recession, a single figure would hide the fact that there was a boom in those 8 years. Context matters.
Stats are simply a snapshot in time. For them to be anything more then meaningless numbers they have to tie back to an logical explanation of
how the phenomenon in question occurred and fits in with a broader understanding of the economy. Also, it has to be viewed in the context of history from which it is derived. Otherwise, it is simply a case of bias confirmation.
You need to
justify your metric.
Stats do not explain "how" and are not an economic argument.
We need an argument for
how economic growth occurs without investment.
Here are the facts:
- Capital gains rates were cut in 1978 (from 48% to 28%), 1981 (28% to 20%), 1997 (28% to 20) and 2003 (20% to 15%). In each instance, tax revenue from capital gains increased.
- Capital gains rates were raised in 1986 (20% to 28%) and were followed by a decrease of tax revenue from capital gains.
The Concise Encyclopedia Of Economics has some
interesting facts regarding capital gains and business creation. They cite three measures of new business generation, "the number of initial public stock offerings (IPOs), the dollars raised from those IPOs, and the dollars committed to venture capital firms". The facts regarding the change in capital gains tax rates is rather telling...
- The 1978 rate drop went into effect in 1979. In that year, IPO's increased by 145% over the previous year, the dollars raised from IPO's were up 73% but the commitments to venture capitalists were dropped by 54%. However, in 1980, those commitments increased by 114%, IPO's were up by 151% from the previous year and dollars raised from IPO's were up an astonishing 227%
- 1981's rate drop went into effect in 1982. IPO's initially dropped by 54% that year but rebounded an incredible 328$ in 1983. Dollars from IPO's dropped in 1982 by 58% then rose by 887% in 1983! Commitments to venture capitalists rose 30% in 1982 and 140% in 1983.
- Rates were increased to 28% in 1986 and took effect in 1987. IPO's dropped to 33% in the first year of the new rate and dollars from those IPO's dropped 14%. However, in that year, commitments to venture capitalists increased by 5% that year before dropping 57% the following year when the top capital gains rate when up to 33%.
- The capital gains rate was dropped back to 20% in 1997 and retroactively took effect that year. Initial IPO's dropped that year and the next (by 25% and 39% respectively) before rebounding by 40% in 1999. Similarly, the money from those IPO's dropped 20% in the first year and 17.5% in the following year but rebounded the following year by 90%. The commitments to venture capitalists is where it get's real interesting. 1997 saw an increase by 52%, 1998 was up by 31%, 1999 was up by 162% and 2000 increased by 79%
The general trend is for investment activity and new business creation to
increase as corporate tax rates drop (at least initially). Without capital gains rate cuts we would not have had the tech boom or the budget "surplus".
Most economists recognize that the ideal capital gains rate is zero.
Here is a study that claims, “Lower financial income taxes stimulate innovation and enhance labor productivity in the long run.” Here is another study concluding that, "the optimal tax on capital income is zero."
Of course, economists tend to focus on generally universal goals like increasing government revenue and increasing economic prosperity. They also recognize that businesses simply function as tax collectors. A tax on capital will be passed on to the consumer in some fashion. One way or another, taxes on capital are ultimately paid by the middle class and the poor as the tax burden is shifted onto them. There is no law that can change that except to abolish taxes on capital.
We have a
minority in this country who think we should focus on statistical abstracts (income inequality) over
real world consequences and accept their subjective priorities over our own.
Should taxes be determined by who they
seem to reward or on the incentive structure created and how far it goes toward
universally held goals. Should we allow the values of a
minority to override the interests of all simply because that
minority is too blind to see that their preferred values actually undercut that generally shared interest?
While the economics of the situation are interesting, that is where the ultimate debate is. For the longest time, discourse has been dominated by attempts to redefine universally held priorities in a manner consistent with partisan redistributionist goals (redefining "fairness" for instance). With OWS, Obama's aggressive push for higher taxes, and not his calls for "fairness", the mask has slipped off.
If we are to fundamentally change our national values, the Left should be forced to make an
honest argument and let the people make up their mind. Rarely is that the case. More often we get sanctimonious condescension and bullying or attempts to manipulate and confuse the issue (which is why so many non-Leftists are highly distrustful of the Left).
My hope for this election is that we finally get that honest national debate.
