Charlie Gibson: Wrong On Cap Gains Taxes

The question came during part of the seemingly ten minutes of the debate that wasn’t focused solely on controversy, and even then Charlie Gibson did his best to make the two candidates on stage look as bad as possible.  The subject was taxes on capital gains.

What bothered me was that he was doing what I really don’t like my moderators doing; arguing with candidates over specifics.  If a candidate dodges the question, that’s fine, but it’s not up to a moderator to agree or disagree with a candidate in the midst of the debate; they aren’t conducting interviews.

The reason why I believe this is because it destroys the integrity of the debate.  The purpose of which is to put the two candidates head to head. If they want to challenge the veracity of each other, that is fine, but for the moderator to challenge whether a candidate is factual is overstepping his boundaries.

But this is a boundary that Gibson crossed many times during the course of last night, one of those times being to argue with the candidates that cutting taxes, not raising taxes, on capital gains raises revenue.  Point one: who the hell is Charlie Gibson to make that assertion in a debate where he is not one of the debaters?

Point two: he wasn’t even right about it.  From the New Republic:

My recollection was that Gibson’s premise was wrong, but I couldn’t remember the details of why. Fortunately, I know a few economists. Here’s one of them–Jason Furman of the Brookings Institute–with the story: 

Joint Committee on Taxation and Treasury both score raising capital gains taxes as raising revenues. There is some behavioral response but much of that is timing and doesn’t affect the medium-to-long term revenue loss.

Note that the experience after the 1997 cut and the 2003 cut is not a meaningful way to assess the impact of capital gains tax cuts on revenues because so many things were happening simultaneously. The JCT score of the capital gains cut in 1997 was a few billion dollars annually. The 2003 cut was something like $5 billion annually. But capital gains revenues can go up or down by tens of billions annually. So it is hard to look at the noisy data and infer ex post the revenue impact of these changes.

Or, to put it more simply, Gibson’s logic was flawed.

If that goes over your head, my colleague DrGail did some quick research on the subject in the middle of our liveblogging event and came up with a clearer explanation of it.

I think I found out the answer to the capital gains tax rate vs. revenue issue: Capital gains accrue when an asset is sold. Except in a few specialized instances, people have a choice about when to sell an asset. If they know the capital gains tax rate will be going down as of a certain date, they are likely to sell assets AFTER that date rather than before it, in order to minimize the tax due. So the increase in revenues experienced once the capital gains tax rate goes down is largely due to the fact that more people are selling assets.

Short answer: Charlie Gibson was technically correct, but his statement reflects an artifact.

In other words, Charlie Gibson took a very noisy and complex system, cherry picked a couple of data points, and used it to make his argument in an event where HE WASN’T SUPPOSED TO HAVE ANY ARGUMENT AT ALL!

Are you kidding me?

(Update:  Thanks to Blogging Heads for linking in!  Apparently we’re mentioned in the video clip, not sure in what context as I can’t watch the video right now, so I have no idea if I’m getting praised or slammed, but I’ll see in a few short, or grossly long, hours)

One Response to “Charlie Gibson: Wrong On Cap Gains Taxes”

  1. kEVIN dURKIN says:

    Why are you guys so committed to raising tax rates?God its like a religion and you’ll do anything to defend it….If lowering the capital gains tax raises tax revenues, providing MORE money for social programs that you guys say you care about it so much, why wouldn’t you at least be open to the idea? The economy is not that easy to understand, but common, if you lower the tax rates, you create more taxable revenue, hence actually raising taxes. If you get to keep more of your money, you’re more motivated to create revenue. Common sense right? I still think you guys don’t quite get the fact that wealth is not a finite resource….Its infinite, it is created, with new ideas and innovations…if it were finite, where did we all get it from?Did we steal it from marsians?Think, wealth is created, letting people keep a greater share of what they create means they create more…got it??jeeez we gotta explain every stupid little thing….


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