Yoyos with a yoyo

I found this at www.spectator.org This is a sort of mainstream conservative magazine, technically The American Spectator. R. Emmett Tyrell is its long time publisher. I’ve been reading it for about thirty years, at least since the early 1980s, when I was at New York University. Back then I argued for stability. Just plain old economic stability. For a few years change no tax codes. Change no laws. Take a look at what we have. Think of things as related systems, not as stand alone issues. Examine and think, then plan and phase in whatever changes required, always towards less intrusion and ordering about, taking, spending and taxing, but always more fraud, theft and chicanery protection. Then, tonight, in 2010, I find this description of the ups and downs of tax rates on capital gains over the past forty years. The question I have is below the data.

From what I know of this magazine they are 90% of the time factually correct, and about 10% of the time factually corrective. If they’re wrong, they’ll point that out. So I’ll go with this data as real data. One thing we know for sure, even if these numbers are rounded wrong, or slightly off for any number of reasons, including different ways of recording the issue in different years in the time span, it’s been a rollar coaster of ups and downs.

But the truth is that over the past 40 years, every time capital gains tax rates have been cut, revenues have increased, and every time capital gains tax rates have been increased, revenues have declined.

In 1968, a 25% capital gains tax rate generated real capital gains tax revenues of $40.6 billion calculated in 2000 dollars. The capital gains tax rate was then raised 4 times in the next 7 years to 35%. By 1975, at the higher rate, capital gains revenues totaled $19.6 billion in constant 2000 dollars, less than half as much.

In 1978, the capital gains tax rate of 35% yielded $29.9 billion in 2000 dollars. The rate was then cut 3 times to 20% over the next 4 years. By 1986, the new rate, 43% lower than the 1978 rate, raised $92.9 billion in 2000 dollars, about three times as much.

The capital gains rate was raised by 40% the next year, to 28%. Capital gains revenues fell to $56.2 billion that year, and declined all the way to $34.6 billion by 1991.

In 1997, Congress cut the capital gains tax rate from 28% back down to 20%. Despite this almost 30% cut in the rate, capital gains revenues rose from $62 billion in 1996 to $109 billion in 1999. Revenues over the period 1997 to 2000 increased by 84% over the projections before the tax cut.

Finally, Congress cut the capital gains rate from 20% to 15% in 2003. Capital gains revenues doubled from 2003 to 2005, despite this 25% cut in the rate. Revenues increased by $133 billion during the years 2003 to 2006 as compared to pre-tax cut projections.”

Question: Why on earth does this rate go up and down like the Cyclone at Coney Island?

Always a reference to NYC to give a metaphor. The Cyclone is the oldest, and for decades the biggest, roller coaster in the world. It is still among the largest wooden roller coasters around. It brings you up to the roof top level of the 20 story Coney Island Projects across Surf Boulevard from the beach front amusement parks. Then it slams you down into the ocean before slinging you back to the walls of the towers, wings you around again and scoots you to the sea again, until finally several minutes later you come to a stop. Sort of like the economy of the USA is doing right now, as we go yet again to the fiddle table to futz with every single thing, always with more going to Washington. Then the problems get worse, and we need Washington to help us. So we get up on the Cyclone again. Yippee!

By the way, Coney Island is a section of Brooklyn. It used to sort of be an island if you counted as water the mushlands between Bay Ridge and Rabbit Island. I worked for about a year in a supermarket on the filled in mush called Stillwell Ave, where the subways come in from the city. Coney is Dutch for rabbit. Apparently a lot were scurring around when it was New Amsterdam. Scurring without reason except to get what one can, like the capital gains rate. Why? Why do this? This cannot be good.

Perhaps it’s because from time to time Congress likes to stick it to people who are making money? Perhaps they think, when they do this, that this is some sort of golden egg that will keep getting laid? Perhaps they believe that they are entitled to this money because, well, they are. They are the state. The wealth of the people is theirs to command. It is so ordered by nature itself, or something. Its the way every other nation runs itself, so I guess we should try it too right? Or is it Hemlock tea they drink? But why the ups and downs, near incessantly, like a bad child with an evil grin and a yoyo near the crystal. Who knows. I’m sure there are wonks who will come up with all numbers of reasons. I’m sure there are those on every side of the political wheel that have a perfectly rational political reason for doing what they did when they did it. Who cares anymore? It’s all mush. And it’s got to stop.

Why stop? Here’s why: what is true – what must be true – what is inesacable and inexorable because of the reality of math – is that no one can plan to contend with this mushbrained yoyo shtick. So they run and jump, skip and hop, from this course of action and tax strategy, production schedule and hiring decision, to the next, in ever anticipatory contra-direction, they hope, to the actions of government. And what is government doing? Manufacturing a continuos churning cycle of instablity! What a fine bunch of fellows.

Purposeful, deliberate, incessant meddling for the apparent glee of seeing instablity. And from this we are supposed to help anyone in the nation and make for the common wealth and pursuit of happiness. It is no longer pursuit of happiness, it is the pursuit of some inscrutable clue, or better, inside information, about what changes in the tax code are forthcoming, and careful consideration of how we might avoid them or mitigate the rapaciousness. And not just for capital gains. But for anything that can be taxed, that which moves and does not included. What can one say? Oh yes, do you want some tea?

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