Yesterday, the House and Senate conferees extended President Bush’s tax relief on capital gains and dividends. In 2003, President Bush and Congress cut capital gains and dividends taxes from 20% to 15%. It was set to expire in 2008 before the Budget conferees extended it until 2010. While it would have been nice for the conferees to permenantly extend such tax relief, the move is welcomed nonetheless.
Since President Bush cut these taxes in 2003, the results have been nothing less than impressive. A lower tax rate gave investors an incentive to take their profits from existing investments. Over the entire economy, the reforms unlocked $539 billion in assets this year. Compare that to the $269 billion in 2002, the year before the tax reforms. With more money actually unlocked from the capital markets, instead of circumvented through the usual 1031 exchange, the government actually collected more revenues with a lower rate. Imagine that.
According to today’s Wall Street Journal:
The latest evidence is Treasury’s monthly budget report for May that tax receipts were up by $137 billion, or a remarkable 11.2%, for the first seven months of Fiscal 2006 through April. That’s more than triple the inflation rate. And it comes on top of the $274 billion, or 14.6%, increase in federal revenues for all of Fiscal 2005, which ended last September 30.
These columns have been documenting this trend for the last couple of years, as well as the revenue tide flowing into state budget coffers. Overall state revenues climbed by 8% in 2004 and nearly 9% in 2005, according to the Census Bureau, and more and more states are piling up big surpluses. We’ve reported this news because politicians like to disguise these tax windfalls so they can spend it all with impunity and still plead poverty. Journalists contribute to this ruse by focusing their budget coverage on deficits, rather than on the spending and revenue trends that are the actual components of any budget.
But WSJ cautions that the usual suspects may not be content:
This means you can expect lots of media and liberal rhetoric about “the deficit” and “the rich,” but the real news is how well these lower rates have been soaking the rich to fill government coffers.