Are Capital Gains Tax Cuts Different?
In its most recent Budget and Economic Outlook report issued in late January, 2006, CBO revised upward its estimates of capital-gains revenues over the 2003-2005 period. Some have cited this CBO reestimate as evidence that capital-gains tax cuts, if not other tax cuts, pay for themselves. More careful scrutiny shows, however, that this narrower claim is seriously flawed as well. • CBO noted that it has raised its estimate of capital-gains revenues based on information showing higher-than-expected capital-gains realizations. Describing this reestimate as a “technical revision,” CBO explained that capital-gains realizations have been above historical levels (relative to GDP and the capital-gains tax rate) over the past few years, but that it does not expect this trend to continue. The effect of the lower capital gains tax rates on CBO’s reestimates of capital-gains realizations was minor. • The higher capital-gains revenues could not have resulted from higher-than projected economic grow
