Tuesday, January 30, 2007


So the elitist Left still thinks that raising the taxes on "the rich" is their ticket to fiscal salvation?

They had better think again. According to the Wall Street Journal's house editorial (shamelessly schisted below), the tax cuts of 2003 have actually increased federal tax receipts rather than shrunk them.

When will they learn that penalties for production and performance do not encourage "rich" businesses and investors to do productive things with their money? Higher taxes only discourage growth and investment by these so-called rich entrepreneurs and business people.
Soaking the Rich, Again
January 29, 2007; Page A16

Democratic Senator James Webb of Virginia played the class card in his State of the Union response Tuesday night, but he is apparently too new to the job to realize how crucial "the rich" are to his party's spending ambitions.

Data released last week from the Congressional Budget Office confirm that the tax cuts of 2003 keep soaking the rich, especially on their capital gains. CBO and Congress's Joint Tax Committee originally estimated that reducing the capital gains rate to 15% from 20% would cost the Treasury $5.4 billion from 2003-2006.

Whoops. Actual revenues exceeded expectations by 68%, creating a $133 billion revenue bonanza for the feds. CBO's original forecast for 2006 was for $57 billion in capital gains revenues, but actual receipts were $110 billion. This surprise windfall is one reason the budget deficit is also far lower than CBO predicted.

The lower capital gains tax has raised stock values by raising the after-tax return on capital investment. It has also given stock owners a greater incentive to sell their shares, and then reinvest the proceeds, because the tax penalty on these transactions is lower. Class warriors like Mr. Webb often forget that the capital gains tax is voluntary. Investors can defer paying the tax for years by holding on to their stock. This creates what is called the "lock-in effect" that deters an efficient allocation of investment capital.

The 2003 rate cut liberated hundreds of billions of dollars of capital for new investment. By the way, the National Venture Capital Association reports that venture capitalists invested $25.5 billion in 2006, the biggest burst of dealmaking since the stock market bubble burst in 2000. This is seed money for new companies and new jobs that will lift future tax revenues.

Copyright 2007 Dow Jones & Company, Inc. All Rights Reserved

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What's the lesson here? Lower taxes encourage growth and investment, thereby increasing tax revenue.

Yay for capitalism.

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