Capital Gains Cut
I understand that conservatives take the view that cutting capital gains tax rates will produce substantial long-term growth benefits. Consequently, whatever the question, conservatives think the answer is cutting the capital gains tax. Still, it’s crucial to recognize what a lousy stimulus this is:
On top of being ineffective as stimulus, such a cut is, as Faiz Shakir observes, strongly regressive in its distributive impact. Basically we can choose between methods that will be effective stimulus (boosting incomes for all) and somewhat egalitarian in their impact, or else the conservative alternative which gives us less stimulus but more inequality. This is the sort of mentality that leads to the outcomes Larry Bartels has observed in which trends in growth and inequality are strongly tied to the ideological orientation of the White House.
40 Responses to “Capital Gains Cut”
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October 14th, 2008 at 12:21 pm
A Conservative Dialog:
Q. What’s 6 times 7?
A. Capital gains tax cut!!
October 14th, 2008 at 12:21 pm
That table makes a good case for hiking capital gains taxes and using the revenue to institute a payroll tax holiday. It would be revenue neutral and hugely stimulating.
October 14th, 2008 at 12:26 pm
I agree with you that it’s regressive. But I disagree with the idea that it’s “lousy” unless all your looking for is a short-term bump.
Capital gains tax cuts are all about long-term growth, not short-term. You can get a very short-lived bump out of a rebate, but it won’t change our long-term investment patterns.
We need more long-term thinking and less short-term.
October 14th, 2008 at 12:37 pm
On top of this, McCain’s price tag for his entire plan is $52.5 billion. I have no clue what sort of voodoo he’s used to project changes in capital gains revenue that’ll wind up with this result.
October 14th, 2008 at 12:43 pm
If you want to make a case about a capital gains cut, please break down the chart. For non-wonks, it is not self-explanatory.
October 14th, 2008 at 1:29 pm
Also, seriously: who’s going to be having any capital gains this year? Isn’t that like flood insurance during a drought?
October 14th, 2008 at 2:00 pm
The fundamental problem with capital gains taxes is not that they tax twice (Go look at a VAT and come back to me). It is that they ignore inflation. So you could be losing purchasing power, but still have to pay taxes because your asset went up nominally in price.
If they adjusted properly for inflation, I (as an investor) would have no problem with them taxing the hell out of capital gains. In fact, it would probably help in clamping down on asset bubbles.
October 14th, 2008 at 3:04 pm
How did this canard about the capital gains tax discouraging investment regain traction? Has the current level of capital gains tax discouraged investment over the last ten, twenty, thirty years? I don’t think so.
The last round of capital gains tax cuts made no sense, and another round makes even less sense. Let these buffons keep going like this, and pretty soon they’ll be asking us to pay them to invest.
October 14th, 2008 at 4:00 pm
I call B.S. on Matt.
What is happening here is that conservatives knowingly advocate policies that are bad stimulus, but (the believe) good long-term economic policy. They do so because they don’t think short-term fiscal policy should be used in recessions. It is cynical, and it is wrong. That chart Matt puts in there is totally awesome, and I will refer to it in all future stimulus debates. The post is good too, until the quoted passage.
BUT! The Bartels results have nothing to do with this! If you’re saying that superior short-term fiscal stimulus is the key to long-term trends in growth, inequality, income, etc., you don’t know what you’re talking about. The Bartels results show a correlation. You’re taking business-cycle policy views and saying they prove causation. Bullshit!
October 14th, 2008 at 6:38 pm
Maybe I’m missing something, but wouldn’t a capital gains tax cut temporarily (but perhaps not briefly) encourage more stock sells, and thus more stock market losses?
October 15th, 2008 at 5:25 am
i think you are missing the other point that as a specific stimulus in a time of crisis, repealing the capital gains tax will not accomplish anything–even if you agree with the underlying theory–because no one has a capital gain in a huge recession. It’s more than a little pathetic that this was the knee jerk response of the House Republicans to stimulate the economy (along with selling insurance, which requires upfront payments TO the government and only payments FROM the government after institutions fail; thus we would subsidize ONLY failed institutions).
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