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Politics : Formerly About Advanced Micro Devices
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To: combjelly who wrote (317890)12/29/2006 6:03:53 PM
From: TimF  Read Replies (1) of 1578646
 
"Tax cuts can increase revenue over the very long run, even if they don't over the short run."

Only if spending is cut at the same.

Government borrowing taxes money from the private sector, but so does taxation.

If taxes are cut and spending is not cut (and so more money is borrowed) you lose the biggest benefit from tax cuts (leaving more money for the private sector), but you still gain the benefit of a reduction in the distorting effect of taxation on spending and investment decisions. That effect might not be very large because presumably your left with just as complex of tax code (we're talking about tax cuts, not tax reform/simplification), but at lower rates there is less incentive, at the margin, to worry about the effects of the tax.

Remember this little gem is from a group with a vested interest in cutting capital gains taxes.

That's isn't a refutation of what they say.

Their premise is flawed.

The basic premise is pretty good. In practice other factors/variables can overcome the general tendency, esp. if your starting from a low tax rate, but generally cutting capital gains taxes, increases investment.

An investor who changes his investment strategy because capital gains has been cut to 15% from 20% is going to be in a small minority.

Changes in prices, tax rates ect. happen at the margin. A specific small change might not seem like much, but it will have its effect. A cut from 20% to 15% is a 25% reduction in the tax payed. It isn't insignificant.

Your point that you can't attribute all the changes in the stock market to changes in capital gains taxes is a good one, OTOH its not reasonable to attribute none of the market's moves to changes in taxes.
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