Correcting Neil Reynolds
Last weekend, I pointed out that Neil Reynolds had misleadingly presented figures on capital-gains realizations as being capital-gains tax revenues. Tuesdayâ€™s Report on Business included the following item:
Correction – January 4, 2011
U.S. capital gains tax realizations fell to 3 per cent of gross domestic product in 1987, when the rate was hiked. Incorrect information appeared in a Dec. 29 column.
I appreciate the acknowledgement that incorrect information appeared in Reynoldsâ€™ column. But the first sentence is pretty backhanded.
Instead of clearly stating the error (confusing realizations with revenues), it just restates the columnâ€™s assertion that capital gains decreased in 1987 due to a tax change rather than due to that yearâ€™s stock-market crash. Some correction!
Reynoldsâ€™ latest column is yet another attempt to claim that tax cuts magically increase tax revenue. Correcting him could be a full-time vocation.
The Jurist has already done an excellent job of exposing the flawed logic. But the numeric presentation is also flawed. In particular, there are at least three problems with this paragraph:
Mr. Flahertyâ€™s corporate tax cuts are already paying off â€“ for the government. In its most recent fiscal update, the Finance Department reported in October that corporate tax revenues had increased, year over year, by 3 per cent â€“ notwithstanding lower corporate earnings and Mr. Flahertyâ€™s incremental corporate tax cut a year ago. With receipts at $30.3-billion, corporate tax revenues were running 8 per cent ahead of the governmentâ€™s expectations.
2. This amount was for the 2009-2010 fiscal year: April 1, 2009 â€“ March 31, 2010. So, â€œMr. Flahertyâ€™s incremental corporate tax cut a year ago [January 1, 2010]â€ only covered the final quarter. For most of that fiscal year, the federal corporate tax rate was still 19%, appreciably higher than the rates trumpeted by Reynolds.
3. The fiscal update explicitly stated, â€œMost of the higher-than-expected corporate income tax revenues do not carry forward over the outer years of the forecast period, as they were due to exceptional one-time factors.â€ It is interesting that corporate tax revenues exceeded expectations in 2009-2010 and it would be interesting to know what the exceptional factors were. But a one-year blip in revenue hardly proves that ongoing corporate tax cuts pay for themselves.