Capital Gains Taxes and the Deficit

Bruce Bartlett says it's time for Republicans to give up the idea that tax cuts are the solution to all our woes:

How Much Did Capital Gains Contribute to 1990s Budget Surpluses?, by Bruce Bartlett: I like the way Derek Thompson of The Atlantic characterizes an op-ed in the Wall Street Journal this morning as a “column/slash/GOP strategy memo.” Unfortunately, much of what appears on the Journal’s editorial page these days falls into this category—how else to explain why GOP political hack Karl Rove has a column there?

What Thompson specifically objects to in the column is its statement that the budget surpluses of the late 1990s can somehow be attributed largely to a cut in the capital gains tax rate that was passed by a Republican Congress in 1997 and signed into law by Democrat Bill Clinton. This is not really a debatable topic because we have precise data upon which to base our analysis. ...[T]he increase in capital gains revenues accounted for a little over 20 percent of the total increase in federal revenues and just over 10 percent of the total change in the deficit between 1996 and 2000.

In any case, it’s silly to attribute all of the increase in capital gains revenues to the economic effects of reducing the tax rate. Undoubtedly, some portion of the increase was due to an unlocking effect as people sold assets acquired over many years when the rate fell, but obviously there were a lot of other things going on as well, such as the growth and spread of the Internet.

I think it’s a good idea to keep the capital gains tax rate as low as possible, but I am tired of hearing Republican partisans attribute virtually magical powers to changes in the capital gains tax.

Some other bright idea from the op-ed linked above are to campaign on canceling health care reform, ending help for people hurt by the recession, and to go after Social Security and Medicare. I hope they follow through since that's the key to electoral success - for Democrats. But what I really liked was this, the top idea on the list:

1) Take a lesson from Ronald Reagan... Reclaim the party's franchise for economic growth, entrepreneurship, personal liberty, and spending restraint. This is the route to a big victory in November—and a true service to the nation.

Is he kidding? Economic growth? It's been dismal under Republicans, especially if you look at the growth in underlying factors such as wages and jobs (and net out growth from the housing bubble). Personal liberty? Tapping phones, body searches at airports, etc., etc. under Republicans have decreased, not increased freedom and liberty. And that doesn't even touch upon social issues where their authoritarian instincts also reduce freedom and liberty for some segments of the population. Spending restraint? Has the author actually looked at the Bush years. (And earmarks should be the focal point of the attack on the budget? That's a minuscule part of the problem.) Oh, and I left out entrepreneurship. I suppose if undying support for big business translates into support of entrepreneurship, they have a point, but beyond that what is so special about their views here? That they oppose the minimum wage, that sort of thing?

The key to electoral success for Republicans appears to be to fool people into believing things that aren't true (Tax cuts pay for themselves! We're the party of liberty! We'll reduce the debt!). It's worked before, so I guess it's hard to blame Republicans for trying it again.