Comments on: McCain Subscribes to the Gibsonian School of Economics http://commentsfromleftfield.com/2008/04/mccain-subscribes-to-the-gibsonian-school-of-economics Loaning brain cells to those in need since 2003 Thu, 08 Jan 2009 21:40:16 +0000 http://wordpress.org/?v=2.7 hourly 1 By: Crazy Politico http://commentsfromleftfield.com/2008/04/mccain-subscribes-to-the-gibsonian-school-of-economics/comment-page-1#comment-31630 Crazy Politico Mon, 21 Apr 2008 18:38:49 +0000 http://commentsfromleftfield.com/?p=3924#comment-31630 Here's an article from last year that explains the reason why taxes (collected) go up when rates go down. http://www.safehaven.com/article-8482.htm. It has some good references on the laffer curve which shows how there is a "sweet spot" to have a tax rate before increases cause returns to sink. (Ask Nixon's folks about the 49% capital gains rate and how much it collected). There are two reasons why collections go up when the rates go down. Your explaination (holding until the rate drops, selling before it rises) is one of them, but would only explain a short term increase in collections. After that, revenue should level off, but it doesn't. The reason they continue to rise is that it takes less time for an investment to be worth selling with a lower rate. People are more willing to sell the investment earlier, usually to reinvest, with a lower rate because it takes less time to make up what they lost in taxes on the investment. Because investments are rolled faster, the taxes (at a lower rate) are collected more often than at a higher rate. The net effect ends up being more tax income on the lower rate. Here’s an article from last year that explains the reason why taxes (collected) go up when rates go down. http://www.safehaven.com/article-8482.htm. It has some good references on the laffer curve which shows how there is a “sweet spot” to have a tax rate before increases cause returns to sink. (Ask Nixon’s folks about the 49% capital gains rate and how much it collected).

There are two reasons why collections go up when the rates go down. Your explaination (holding until the rate drops, selling before it rises) is one of them, but would only explain a short term increase in collections. After that, revenue should level off, but it doesn’t.

The reason they continue to rise is that it takes less time for an investment to be worth selling with a lower rate. People are more willing to sell the investment earlier, usually to reinvest, with a lower rate because it takes less time to make up what they lost in taxes on the investment. Because investments are rolled faster, the taxes (at a lower rate) are collected more often than at a higher rate. The net effect ends up being more tax income on the lower rate.

]]> By: rawdawgbuffalo http://commentsfromleftfield.com/2008/04/mccain-subscribes-to-the-gibsonian-school-of-economics/comment-page-1#comment-31620 rawdawgbuffalo Mon, 21 Apr 2008 14:27:20 +0000 http://commentsfromleftfield.com/?p=3924#comment-31620 well from what i have discertned thus far, he has no understanding of the diff between macro and micro economics. and dont talk about indicators that reflect a recession --- love the new digs folk well from what i have discertned thus far, he has no understanding of the diff between macro and micro economics. and dont talk about indicators that reflect a recession — love the new digs folk

]]> By: Fargus http://commentsfromleftfield.com/2008/04/mccain-subscribes-to-the-gibsonian-school-of-economics/comment-page-1#comment-31615 Fargus Mon, 21 Apr 2008 13:40:26 +0000 http://commentsfromleftfield.com/?p=3924#comment-31615 Also, you've got to look at the context of what was going on when the rates were dropped. Namely, bubbles. Dot-com and housing, respectively. The market was going up independently of the change in the capital gains tax, and there's nothing in Charlie Gibson's formulation that asserts that revenue was higher with the tax cut than it would have been without it. Only that taxes were cut and revenues went up. That formulation ignores any other possible contributing factors, of which there are many. Also, you’ve got to look at the context of what was going on when the rates were dropped. Namely, bubbles. Dot-com and housing, respectively. The market was going up independently of the change in the capital gains tax, and there’s nothing in Charlie Gibson’s formulation that asserts that revenue was higher with the tax cut than it would have been without it. Only that taxes were cut and revenues went up. That formulation ignores any other possible contributing factors, of which there are many.

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