Graph of the Day for November 25, 2009

By Randall Hoven

"Figure 3 shows the maximum capital gains tax rate and capital gains realizations as a percentage of GDP. The major spikes in realizations correspond to changes in tax rate. The simple correlation between the two time-series is -0.64, which suggests that realizations increase when the tax rate decreases."

Source: Congressional Research Service report, The Economic Effects of Capital Gains Taxation.

Source: Congressional Research Service report, The Economic Effects of Capital Gains Taxation.

Hoven's Index for November 25, 2009

The Congressional Budget Office's error in revenue estimates for 1990-94 from capital gains taxes (the period of high capital gains tax rates): $737 billion (estimate higher than actual).

Economist Allen Sinai's predictions in 1997 of the marginal effects of a capital gains tax cut if enacted then (and it was):

Increase in real GDP annually: $51 billion.
New jobs by end of 2000: 500,000.
Increase in real business spending annually: $18 billion.

Source: US House of Representatives Joint Economic Committee Study, 1997.

Actual results (total, not just marginal effects of tax cuts) from 1997 to 2000:

Average annual increase in real GDP (4Q96 to 4Q00): $436 billion.
New jobs (Dec. 96 to Dec. 00): 11.5 million.
Average annual increase in real gross private investment (4Q96 to 4Q00): $142 billion.

Source: St. Louis Fed (links embedded above).

Graph of the Day Archive.