The Wall Street Journal's editorial board is at it again. Their latest riposte in their ongoing duel with mainstream economics is an attempt to cast a normal upswing in capital gains tax revenue, which always occurs in an economic cycle, as proof that cutting capital gains taxes actually increases revenues. As a new paper from CTJ explains, this revenue is well below the peak it reached during the Clinton era... when taxes were higher.
The Journal points to data from the Congressional Budget Office (CBO) that documents this most recent increase in capital gains tax revenue.
But the CBO points out that capital gains "plunged between 2000 and 2002" because of the economic downturn occurring at the time. The implication is that we would expect capital gains to increase from that low point as the economy recovered even without a new capital gains tax break. In fact, it would be very unusual had they not increased from that very low point, regardless of whether the tax laws had changed.
Revenues from capital gains taxes, adjusted for inflation, are well below their level at the end of the Clinton administration, and capital gains tax revenues are not projected to come close to their Clinton-era levels at any time in the next decade.
Measured as a percentage of the economy (GDP), capital gains tax revenues have actually declined even more dramatically.