Monday, January 29, 2007

500th Posting on Carpe Diem

From today's WSJ, an editorial about the $133 billion forecast error for federal tax revenues that I previously reported in Carpe Diem.

"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 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 Senator James Webb (D-Va) 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."

P.S. As the headline mentions, this is the 500th posting on Carpe Diem since its inception on September 20, 2006, which is 131 days ago. That's an average of 3.82 postings per day!



1 Comments:

At 1/29/2007 11:13 PM, Anonymous bob wright said...

Mark,

Absolutely fabulous blog.
I appreciate all the work you put into your posts.

 

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