JONATHAN CHAIT JULY 2, 2010
The right-wing think-tank Institute for Policy Innovation emails:
The Institute for Policy Innovation has joined with 15 other organizations in a letter praising Senator Jim DeMint (R-SC) for his work to protect Americans from capital gains tax hikes that would negatively impact the economy.
Click here to read IPI's previous study from 2001 “A Capital Gains Tax Cut: The Key to Economic Recovery” by Steve Moore and Phil Kerpen.
Wait. If they're going to argue that cutting the capital gains tax is the key to a strong recovery, do they really want to remind people that they made the same argument in 2001? Because the government did cut the capital gains tax in 2003, and the result was not something conservatives tend to boast about these days.
I actually skimmed over the report, and it's filled with the expected supply-side hokum about how cutting the capital gains tax will increase revenue. I especially enjoyed this chart claiming to prove that lower capital gains tax rates cause higher growth:
This chart, the study explains, shows that capitals gains taxes cause higher economic growth:
The historical evidence, on balance, indicates that there is a strong inverse relationship between capital gains tax rates and overall economic growth. As the chart shows, the real annual GDP growth rate was higher from 1981–1986, when the capital gains rate was 20 percent, than it was from 1987–1996, when it was 28%. Growth again dramatically accelerated following the 1997 cut, although it has recently slowed.
I bolded that last bit about how growth had recently slowed. (Remember, the report was written in 2001.) I thought it might be interesting if I updated this chart. (By "I," I mean "Reporter-Researcher James Downie.") Remember that the capital gains tax rate was cut in 2003. That should have produced even faster growth, right? Wrong:
By IPI's logic this shows that low capital gains dramatically depress economic growth. Of course IPI's logic is totally batty. But the logic drives a good chunk of the data in the report, most of which is centered around showing that various aspects of the economy (growth, venture capital, the stock market, etc.) have improved since the 1970s, and capital gains tax rates have fallen since the 1970s, so obviously capital gains tax cuts caused those things to happen. If you actually updated every chart in the report like I did the one above, it would read as one long argument for raising the capital gains tax.
Of course, if you're dumb enough to buy the arguments the report made in 2001, you're probably also too dumb to realize that you should bury the report instead of re-publishing it and reminding everybody how wrong you were.