A collectibles researcher in Vera Cruz, Pa., Mr. [Harry] Rinker, 64, himself collects everything from jigsaw puzzles to antique toilet paper.(Emphasis added.)
Since this is a family-oriented blog, we will let this pass without comment.
A collectibles researcher in Vera Cruz, Pa., Mr. [Harry] Rinker, 64, himself collects everything from jigsaw puzzles to antique toilet paper.(Emphasis added.)
• CBO now projects a 10-year baseline deficit of $831 billion in the unified budget for fiscal years 2007 to 2016. The budget outside of Social Security faces a baseline deficit of $3.4 trillion.The bottom line is that we will be paying for the folly of George Bush for a long time to come.
• Over the first five years of the Bush Administration, the 10-year fiscal outlook deteriorated by $8.3 trillion. In January 2001, the unified baseline for 2002 to 2011 projected a surplus of $5.6 trillion. The baseline for the same period now projects a deficit of $2.7 trillion. (Emphasis in the original. So much for Republican fiscal responsibility.)
• The budget projections have deteriorated since the beginning of 2005. On a comparable basis, the baseline 10-year unified deficit for 2006 to 2015 has risen by almost $400 billion since January 2005.
• About 58 percent of the deterioration in the official baseline figures since 2001 is due to lower revenues, and 42 percent is due to higher spending. Specifically, the decline can be attributed to legislated tax cuts (29 percent), other declines in revenue (28 percent), legislated spending increases (36 percent) and other changes in spending (6 percent). Declines in revenue have also accounted for most of the deterioration in actual budget outcomes (as opposed to 10-year projections) between 2000 and 2006. Tax revenues as a share of GDP have fallen dramatically since 2000, and are low relative to their average value between 1960 and 2000. (So much for claims that tax cuts will add revenue.) Spending as a share of GDP has risen somewhat since 2000, but nonetheless remains at or below its average level between 1960 and 2000.
• As is now widely recognized, the baseline projections use mechanical assumptions that may not reflect the best representation of current policy. Among other things, the baseline assumes that (1) almost all expiring tax provisions will be allowed to expire, (2) the alternative minimum tax (AMT) will be allowed to grow explosively, (3) no additional funding requests will be necessary to conduct the wars in Iraq and Afghanistan and (4) real discretionary spending (including defense) will be held constant in real terms. (In other words, Bush's SOU message concerning the deficit was a lie.)
• If almost all of the expiring tax provisions are extended, the AMT is held in check (as described below), and real discretionary spending keeps pace with population growth, the 10-year unified budget deficit will be $4.8 trillion (2.8 percent of GDP), with deficits of 2.4 percent of GDP or more in every year. The differences between the CBO baseline and this adjusted unified budget projection grow over time. By 2016, the annual difference is $784 billion (3.8 percent of GDP).
• The unified budget figures include large cash-flow surpluses accruing in trust funds for Social Security, Medicare, and government pensions over the next 10 years. In the longer term, Social Security and Medicare face significant deficits. Outside of the retirement trust funds, the adjusted 10-year budget faces a deficit of $7.8 trillion over the next decade (4.6 percent of GDP). Thus, a simple way to summarize the fiscal status of the government is to note that the retirement trust funds face substantial long-term deficits, and under realistic assumptions about current policy, the rest of government faces deficits in excess of 4 percent of GDP over the next decade. (In other words, the cash surplus in Social Security and Medicare has been hiding the true extent of the deficit run by the rest of the government.)
• We estimate that over a permanent horizon, the long-term fiscal gap for the federal government as a whole is now 8.0 percent of GDP under the CBO baseline and 10.8 percent of GDP under an adjusted baseline.
• While the primary driving force behind the deficits over the next 10 years is reduced revenue, the primary driving force behind the deficit over the long term is increased spending due to demographics – in particular the retirement of the baby boom generation, a smaller number of new entrants into the labor force, and lengthening life spans – coupled with increasing per-capita health care expenditures.
• Despite heated political debate about deficits, there is broad consensus, extending even to the Administration’s top economists, that sustained budget deficits have adverse macroeconomic consequences, reducing the capital stock and future national income and raising interest rates. Moreover, even without any immediate macroeconomic consequences, these deficits will eventually require substantial and deleterious tax increases and spending cuts to deal with the debt that accumulates. It is inconceivable that the economy will be able to grow its way out of the deficits, and delaying steps to deal with the problem simply makes it worse. In addition, simply paying for the tax cuts embodied in the adjusted baseline would require massive cuts in other spending that are far beyond anything likely to be considered in the political arena. In such an environment, policy-makers, especially those who support making the tax cuts permanent, will be sorely tempted to turn to budget gimmicks. (My emphasis in both places.)
• The only real solution to the nation’s fiscal imbalance is some combination of reduced spending and increased revenue. Restoring fiscal discipline will require painful adjustments, and it is unrealistic to think that the required adjustments can be undertaken entirely on one side of the budget or the other. The painful decisions necessary to restore fiscal balance might be easier to enact and to enforce if policy-makers reinstated credible budget rules governing both spending and taxes, either of the form used in the past or perhaps a new variant.
[P]rojections of a revenue source characterized by high volatility are bound to be uncertain. Moreover, much of that volatility seems unrelated to changes in capital gains tax rates.The letter then goes on to describe in meticulous detail the methodology the CBO uses to predict revenue realizations. In essence, capital gains realizations do tie to changes in capital gains tax rates, but only with respect to timing, not total increases in governmental revenues. Thus:
In analyzing the relationship between capital gains tax rates and capital gains realizations, it is important to distinguish between the temporary and permanent effects of tax rate changes. Investors can generally choose when to realize their gains; if they believe that tax rates will change in the future, they may try to time their realizations to occur during a period with lower tax rates. As a result of such timing decisions, capital gains realizations may increase shortly before scheduled tax increases or after tax reductions. Similarly, realizations may temporarily decline before scheduled tax reductions and after tax increases. Such timing effects are, by their nature, temporary. Over longer periods, the pace of capital gains realizations is also influenced by capital gains tax rates; realizations are higher when tax rates are lower.(Emphasis mine.)
CBO has updated its latest models with available data through 2004. Those models, which incorporate changes in the tax rate, fall well short of explaining the surge in realizations that occurred in 2004. Roughly half of the growth in realizations between 2003 and 2004 remains unexplained. After examining the historical record, including that for 2004, we cannot conclude that the unexplained increase is attributable to the change in capital gains tax rates. Volatility in gains can stem from other factors, such as changes in asset values, investor decisions, or broader economic trends.(Emphasis mine.)
In an increasingly common arrangement, an IRC 501(c)(3) educational organization formally or informally affiliates with an IRC 501(c) (4), (5), or (6) lobbying organization with a related IRC 527 political organization or PAC. For instance, in a House ethics investigation of then-Speaker Newt Gingrich, Mr. Gingrich's counsel submitted an exhibit showing 26 such groups, including such well-known organizations as the National Organization of Women and the Sierra Club, where the organizations in each group shared a common address. . . . Such an affiliated group of organizations is typically committed to a certain idea or movement, such as civil rights, family values, or environmental preservation.The paper reached several conclusions. First, in analysing the relationship between IRC 501(c)(3) and 501(c)(4) entities:
Are such affiliations of IRC 501(c)(3) organizations with non-IRC 501(c)(3) organizations permissible under IRC 501(c)(3)? Are any arrangements impermissible under Subchapter F? Does the form of the affiliation matter? Are there any potential problems to watch out for on audit? This article will address these issues, with a focus on the exemption of the IRC 501(c)(3) organization affiliated with other organizations engaged in political intervention and substantial lobbying.
[T]he Service will recognize the IRC 501(c)(4) subsidiary and its activities as separate from the IRC 501(c)(3) parent under the following circumstances:
1. The IRC 501(c)(4) subsidiary must be separately organized.
2. The IRC 501(c)(4) subsidiary must keep records and bank accounts separate from those of the IRC 501(c)(3) parent.
3. If there are overlapping paid officers, directors, or employees, their time must be allocated between the organizations based on the activities they work on for the respective organizations.
4. The organizations must reasonably allocate other shared goods, services, and facilities.
In essence, an organization affiliated with an IRC 501(c)(3) organization must observe the formalities of its separate organizational status and deal with the IRC 501(c)(3) organization at arm's length. Otherwise, its activities may be considered activities of the IRC 501(c)(3) organization, especially if the IRC 501(c)(3) organization provides any subsidy.
Second, with respect to the relationship between 501(c)(3) and 527 organizations, the report stated:
Where do we draw the line between an IRC 501(c)(3) organization "establishing" an IRC 527 organization, on the one hand, and IRC 501(c)(3) officials acting in their individual capacity establishing an IRC 527 organization, on the other? What does it mean for one organization to "establish" another? Basically, there are three requirements.
First, an IRC 501(c)(3) organization cannot formally control an IRC 527 organization. For instance, it cannot have the right to appoint (or approve) the board of the IRC 527 organization. The governing documents of the IRC 501(c)(3) or IRC 527 organization cannot say that the IRC 501(c)(3) board members constitute the IRC 527 board members. There should be no such formal affiliation.
Second, none of the IRC 501(c)(3) organization's assets can be used to set up or operate the IRC 527 organization. There are many ways in which IRC 501(c)(3) assets can be used to support an IRC 527 organization, which must be avoided. An organization's assets include its funds and investment assets, facilities and equipment, personnel, mailing lists, and its name or goodwill. If personnel, facilities, or equipment are shared, then there must be reasonable allocations of expenses based on arm's-length standards, and records kept to substantiate the allocations, including the time spent by shared employees working for each organization.
Unlike other assets of the IRC 501(c)(3) organization, its mailing list may be unique and so particularly valuable to one or more political organizations or candidates. Thus, the IRC 501(c)(3) organization may not sell or rent its mailing list to the IRC 527 organization without making it available to all other political organizations and candidates on an equal basis. Any dealings also must be on arm's-length terms.
Third, any IRC 501(c)(3) officials assisting the IRC 527 organization must truly be acting only in their individual capacity, which is a factual issue. Agency principles determine whether the IRC 501(c)(3) organization has authorized or ratified the acts of those individuals as official acts of the IRC 501(c)(3) organization. For instance, the following statements and other acts would ordinarily be attributable to the IRC 501(c)(3) organization, absent other facts:
• Transaction of business of the IRC 527 organization on stationery bearing the letterhead of the IRC 501(c)(3) organization or signed by IRC 501(c)(3) officials in such capacity (e.g., "John Doe, President of IRC 501(c)(3) organization").
• Acts explicitly authorized by the IRC 501(c)(3) organization's board of directors.Readers may recall that last October I commented on a WaPo story that reported that money moved, via a pre-arranged plan, from a Jack Abramoff client to a Grover Norquist-controlled 501(c)(3) or 501(c)(4) and thence to a "shell" 527 organization. The transaction would have been clearly verboten if the intermediary organization was the 501(c)(3). Whether it violated 501(c) rules if the intermediary was the 501(c)(4) is not as clear. As noted in the IRS's CPE paper, "Without tangible evidence, or (in the rare case) reliable insider testimony, it is difficult to prove that the IRC 501(c)(3) directed and controlled the political intervention activities of the IRC 501(c)(4) or IRC 527 organizations."
• Statements published by the IRC 501(c)(3) organization in its official publications (including Internet sites) or in mass media advertisements or programs acknowledged as produced by the organization, except where the statement is clearly attributed to someone other than persons who normally speak for the organization.
• Statements made by officials at official events of the IRC 501(c)(3) organization.
Even if the IRC 501(c)(3) organization did not establish the IRC 527 organization, it might indirectly intervene in a campaign or operate for a substantial nonexempt purpose if it improperly coordinates or colludes with the IRC 527 entity. For example:
• Joint fundraising mailings or events.
• Coordinating the content, timing, or distribution of information materials;
• Distribution by the IRC 501(c)(3) organization of materials prepared by the IRC 527 organization, or vice versa. Reg. 56.4911-2(b)(2)(v) may provide general guidance in this regard.
[S]ome important matters to consider in examining relationships between IRC 501(c)(3), IRC 501(c), and IRC 527 organizations include the following:(Emphasis mine.)
1. The organizations must be separately organized, including having separate employer identification numbers. However, the organizational test for IRC 527 organizations is very informal.
2. The organizations should maintain separate records and finances.
3. The IRC 501(c)(3) organization should not subsidize any political intervention activity or substantial lobbying activity of the affiliated organizations in any manner. A subsidy can take several forms:
a. Direct transfer of funds to the other organization.
b. Paying expenses of the other organization.
c. Non-arm's-length dealing for shared facilities or employees.
d. Use of the IRC 501(c)(3) mailing list on a preferential or non-arm's length basis.
4. The IRC 501(c)(3) officials should not direct or assist in the political intervention activities of other organizations in their capacity as IRC 501(c)(3) officials.
5. The IRC 501(c)(3) organization should not coordinate its activities with a non-IRC 501(c)(3) organization for partisan political purposes, including any coordination with a candidate or IRC 527 organization.
In summary, organizations, despite affiliations, must observe the formalities of their status as organizations separate from the IRC 501(c)(3) organization, the IRC 501(c)(3) organization must deal with them on an arm's length basis, and the organizations must confine their activities to those permitted by their respective exempt Code sections.
The Senate Indian Affairs Committee has sent nearly 100 pages of documents regarding ex-lobbyist Jack Abramoff’s use of nonprofit groups to the Senate Finance Committee, opening a second avenue into Congressional probes surrounding the admitted felon, ROLL CALL's Paul Kane reports Tuesday. Excerpts:
Indian Affairs agreed Feb. 10 to send a limited batch of files to the Finance Committee, covering how Abramoff and his network of nonprofits helped conceal a multimillion-dollar bribery conspiracy. These documents will allow Finance to engage in the probe it announced almost a year ago into Abramoff and his nonprofits. The Finance Committee said the Abramoff documents would be part of an ongoing probe into whether some nonprofits are violating laws by taking on roles beyond what their tax-exempt status allows.
Grassley and Baucus declined to spell out what was in the Indian Affairs documents, but another source who was familiar with them said there were between 80 and 100 pages of e-mails and other files related to nonprofits.The abuse of IRC Sections 501(c)(3) and 501(c)(4) by conservative organizations has become fairly blatant and should be addressed. I am somewhat troubled, however, by a Congressional investigation at this point. There is always the possibility that ongoing civil or criminal investigations could be impeded as a result. Criminal investigations of Norquist and Reed could lead to elected officials who are not directly connected to Abramoff, thus expanding the pool of elected officials exposed as being implicated in criminal activity. If not undertaken carefully, the Congressional investigation could turn into a form of Republican damage control.
A source told ROLL CALL that roughly 75 percent of the material sent hasn't been publicly aired.
"The committee's probe could also shine new light on the activities of two of Abramoff’s closest political allies, Grover Norquist, who runs the nonprofit Americans for Tax Reform, and Ralph Reed, the GOP activist who took more than $4 million in Abramoff cash," Kane writes. "Reed, a self-proclaimed opponent of gambling, sometimes received payments from Abramoff — money that originated from tribes who operated wealthy casinos — after it had first been routed through Norquist's anti-tax group or other Abramoff-linked entities."
The Indian Affairs probe released many e-mail exchanges between Abramoff and his two friends regarding financing of Reed's efforts to shut down casinos in the South that would have been rivals to Abramoff's clients.
second lieutenant of the Special Force of Texas Rangers under 1st Lt. Leigh Hall, on January 26, 1877. . . . He was assigned to the Eagle Pass area, where he operated on both sides of the border, assisted in the breakup of several bands of outlaws, and helped arrest John King Fisher in April 1877. While recovering from an accidental self-inflicted gunshot wound suffered at Goliad, Armstrong asked to be allowed to arrest the notorious gunman John Wesley Hardin. The ranger pursued Hardin first to Alabama, then to Florida, then confronted him and four of his gang on a train in Pensacola. In the affray that followed, Armstrong killed one of Hardin's men, rendered Hardin unconscious with a blow from his handgun, and arrested the remaining gang members. After considerable delay in the execution of extradition papers, Armstrong returned Hardin to Texas, where he was tried and sentenced to twenty-five years in prison in September 1877.The ranch is generally described as being approximately 50,000 acres. Let me try to put that in perspective. The City of Baltimore (which, unlike most cities, is not a part of a county, but is, in effect, a county unto itself) is, including both land and water, 55,674.97 acres. In other words, the Armstrong Ranch is only slightly smaller than a major city.
Quail hunting is a gentleman's game and is often a spectator and participator sport at the same time. Normally quail hunting involves a pair of hunters and a pair of bird dogs in the field at the same time.
Now lets look at the type of shotgun that is best suited for quail hunting. Quail can and are pursued by hunters using every gauge from 410 to 12. It is important to select the proper barrel length and choke. The shorter barrels and more open chokes are preferable for quail hunting. I would recommend a 26" barrel and a skeet or improved cylinder choke. While the 20 gauge is the most common gauge of choice, the 28 gauge is gaining rapid popularity among quail hunters.
Prior to moving on up and allowing the birds to flush, each hunter should visibly and mentally locate: each other, both dogs, the hunting rig, and the hunting guide if on a guided hunt. Each hunter should know in advance where he can and cannot swing the muzzle of his gun to follow an escaping quail.Using the suggested improved cylinder choke, using #6 shot with a 1 oz. load, we find that at 30 yards, the distance that Vice President Cheney allegedly was from his victim, the shot pattern would have been 173 pellets in a 30 inch circle. See here.
Each hunter's range of gun swing should be from the mid-point between him and his partner and out to his side. He should never cross the mid-point to shoot at a quail flying on his partner's side. Not only is this poor shotgunning etiquette, it is dangerous.
[S]pending on elementary and secondary education, for instance, would rise to $22.8 billion in 2007 from $21.1 billion this year under the president's plan. But it would steadily slide from there to $21.6 billion by the decade's end. The NIH budget, long protected by Congress, is in for a small increase for 2007, to $28.59 billion from this year's $28.58 billion. But a long slide in the budget requests would bring the NIH budget down to $27.5 billion by 2010.Even an analyst from the normally sycophantic Heritage Foundation ain't buying what the Administration is selling. Brian M. Riedl, a federal budget analyst at the Heritage Foundation said that the Administration's budget numbers "raise serious questions about the legitimacy of the White House deficit projections through the end of the decade."
The effect of these cuts, should they occur, would be heightened by the fact that the spending figures do not take inflation into account.
"Discretionary spending beyond next year are simply numbers filled in to make a future deficit look small," Riedl said. "Those discretionary numbers are driven by the goal to cut the deficit in half by 2009."Translated back into simple English: They're lying.
[R]evenues declined in nominal terms for three straight years in 2001, 2002, and 2003 (the first time this happened in the U.S. since the 1920s) and in 2004 reached their lowest level as a share of the Gross Domestic Product since 1959, CBO found itself consistently overestimating revenues. This may have led CBO to be especially cautious in raising its projections as revenues began to rebound somewhat in 2005 (especially since, as a share of GDP, actual revenues in 2005 are still well below the average of 18.3 percent of GDP for the last 30 years). It would not be surprising, therefore, if at least some of CBO's increase in projected revenues since last August were the result of a natural tendency to become somewhat less cautious after another year of revenue growth.(I have included some material from the original CBPP report that Nyhan had edited out.)
Although the economy grows in response to tax reductions (because of higher consumption in the short run and improved incentives in the long run), it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity.Just two things I don't understand: Don't these knaves know their own prior statements can be discovered and used to discredit their baloney de jour? And why do fools keep buying into this nonsense?
House Ways and Means Committee member Phil English, R-Pa., has joined other members of Congress in calling on the Bush administration to build on the tax reform debate sparked by the final report issued by the President’s Advisory Panel on Federal Tax Reform.On the other hand, TaxProf carries this report from the Associated Press, "Senate's top Democratic tax writer declares tax reform report 'dead.'" In the AP story, it is reported that:
"I think the time is now for us to move forward in the wake of that recommendation," English said February 7. The tax reform panel recommended an income tax-based option as well as a consumption-based plan, the Growth and Investment Tax option.
"Treasury needs to aggressively push forward with their inquiry and recommendations," he said.
"That thing's dead. That's dead, Mr. Secretary,” Sen. Max Baucus, D-Mont., told Treasury Secretary John Snow, who had been called before the Senate Finance Committee to discuss the president's budget.The AP story also reported that:
"We don't accept that," Snow replied.
"Congress thinks it's dead," Baucus said. "That's going nowhere."
Former Sen. John Breaux of Louisiana, who is vice chairman of the tax reform panel, said last week that he's disappointed the White House hasn't pressed lawmakers to get to work rewriting the tax laws.Me thinks that the tax reform panel's report is a Dead Parrot.
The day after Bush outlined his priorities for the year in his State of the Union address, Breaux said the commission's report seemed to have disappeared.
"Must be in a closet somewhere, on a shelf somewhere," he said.
The most recent IRS data show few low- and middle-income taxpayers benefit from the home mortgage interest deduction. Those who filed tax returns with under $30,000 in adjusted gross income (AGI) in 2003 received just 9 percent of deductions for home mortgage interest, despite filing 52 percent of all tax returns. (The median taxpayer’s AGI was approximately $29,000 in 2003.) In contrast, 36 percent of home mortgage interest deductions were claimed by taxpayers with AGIs over $100,000.In fact, the recent run-up in real estate prices and the proliferation of McMansions can be attributed to the home interest deduction:
Despite the claims of various industry groups that the home mortgage interest deduction is an important factor promoting broad-based home ownership, IRS data show the bulk of mortgage interest deductions are claimed by a relatively small fraction of Americans with incomes well above average. As a result, it is likely that the deduction primarily encourages larger and more expensive homes among a relatively small share of taxpayers, rather than promoting broad-based home ownership among ordinary Americans.
It is often argued that the saving rate in the United States is too low. Many observers suggest that the federal tax system can provide an effective way of increasing the U.S. saving rate. Indeed, one of the major directives to the President's Advisory Panel on Federal Tax Reform was to recommend modifications to the tax system that would provide simple and straightforward ways for Americans to save free of tax, which, they argue, would increase saving in the United States. The panel recommended two reform options, one based on the current income tax system and the other based on a hybrid income/consumption-based tax. The panel considered, but did not recommend, a pure consumption-based tax. Two observations can be drawn from the analysis contained in this report with respect to the effects of tax reform on the level of saving. First, public dissaving in the form of federal budget deficits reduces net national saving. So, if tax reform adds to the federal budget deficit, then, everything else being equal, tax reform would reduce net national savings. Second, even if tax reform is revenue neutral, the offsetting nature of income and substitution effects reduces the chances that changes to the tax system alone will increase saving. Indeed, because economic theory is not clear and because of the lack of compelling empirical evidence, it cannot be determined conclusively whether moving to a pure consumption tax would significantly increase the level of saving in the economy.(My emphasis.)
[I]f there is an increase in the federal deficit then, absent any offsetting changes, net national saving will go down. Therefore, the effects of tax reform on federal revenue will have a direct bearing on the level of saving in the economy. If, under tax reform, federal revenues fall and the deficit increases, then net saving will decrease. Conversely, if federal revenues rise and the deficit decreases, then net saving will increase.Translation: supply side economics is truly the province of (in Greg Mankiw's wonderful term) "charlatans and cranks."
[A]n important point with regard to the ultimate effects of tax incentives on the level of saving, a point which applies to incentives targeting both personal and business saving. If a tax incentive to promote private saving is deficit financed (the revenue loss from the tax reduction on saving is not recouped by raising other taxes), then the income effect may well dominate and the level of national saving could drop. Depending on how the tax incentive is designed, the reduction might manifest itself directly as a reduction in private saving or as a reduction in both private and public saving. (For a deficit financed tax incentive to increase total saving each dollar of tax reduction (public dissaving) would have to be matched by more than a dollar increase in private saving.)(My emphasis.)
Only if the tax incentives for saving are fully tax financed (the revenue loss from the saving incentive is made up by raising other taxes) will the income effects be eliminated. Even under these conditions, however, the overall effectiveness of the tax incentives on the level of savings is unclear.
[E]mpirical evidence regarding the effect of tax incentives on saving is inconclusive. For instance, The Economic Tax Recovery Act of 1981 reduced marginal income tax rates, expanded the availability of individual retirement accounts (IRAs), and accelerated depreciation deductions. Life-cycle models would predict that these changes would increase private savings, but that did not happen.Finally, the study concludes that:
Because of the inconclusive empirical evidence and the theoretical ambiguities, it cannot be determined definitively that even switching to a pure consumption tax would significantly increase the level of saving in the economy.
The strong recovery in capital gains realizations since 2002 has pushed them to a level that, relative to the size of the economy, is above that implied by their past historical relationship. . . Consequently, CBO projects that, beyond 2005, capital gains will rise a bit more slowly than GDP. As it has tended to do in the past, the ratio of gains realizations to GDP is expected to gradually approach its long-run average level relative to the economy. Between 2007 and 2016, capital gains realizations are projected to grow by an average of 2.5 percent annually, lower than the 4.7 percent growth rate of both GDP and taxable personal income. Receipts from gains are expected to grow in step with gains realizations, except when tax rates increase in 2009.In other words, the capital gain tax cut is much like retailers' price cutting before Christmas: Both activities raise revenue, but both also reduce profit margins. However, unlike retail purchases, sales of capital gain assets are not likely to be repeated. Think about it: you may be encouraged by price cutting to buy three instead of two shirts. But you can only realize the profit that is tied up in capital once. After you have sold the asset, there is no taxable gain left. Tax "price cutting" (i.e., the reduction in capital gain rates) only encourages a different timing of the events of realization. Thus, the net result of a decrease in capital gains taxes is that, over time, government revenues will decline. The jump in revenue that the WJS trumpets is merely an artifact of the timing of the receipt of income.
The scheduled return to higher capital gains tax rates in 2009 is expected to alter the timing of realizations by encouraging taxpayers to speed up the sale of assets that will generate gains from that year to late 2008. In addition, realizations will be depressed after 2008 because the projected long-term equilibrium level of gains will be slightly lower as a result of the higher tax rates. Realizations are projected to rise by 17 percent in 2008 (boosted by the speedup in realizations), decline by 29 percent in 2009 (held down by the speedup and the adjustment to the lower equilibrium level), and rise by 21 percent in 2010 (when they rebound after the onetime speedup). After 2010, realizations are projected to rise by 3 percent to 4 percent annually through 2016.