Gibson and McCain: Lousy economists

Can we all agree that ABC's Charlie Gibson should stop pretending to understand economics? Here's what he said at the latest Democratic primary debate:

-“Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20 percent and George Bush has taken it down to 15 percent and in each instance when the rate dropped, revenues from the tax increased. The government took in more money.”

-"So why raise it [the capital gains rate] at all, especially given the fact that 100 million people in this country own stock and would be affected.”

But as the folks at the Center and Budget and Policy Priorities point out, that's not accurate.

Cutting capital gains rates reduces revenues over the long run. That’s the conclusion of the federal government’s official revenue-estimating agencies, as well as outside experts and the Bush Administration’s own Treasury Department.

-The non-partisan Congressional Budget Office (CBO) and the Joint Committee on Taxation have estimated that extending the capital gains tax cut enacted in 2003 would cost $100 billion over the next decade. The Administration’s Office of Management and Budget included a similar estimate in the President’s budget.

-After reviewing numerous studies of how investors respond to capital gains tax cuts, the non-partisan Congressional Research Service concluded that cutting capital gains taxes loses revenue over the long run.

-The Bush Administration Treasury Department examined the economic effects of extending the capital gains and dividend tax cuts. Even under the Treasury’s most optimistic scenario about the economic effects of these tax cuts, the tax cuts would not generate anywhere close to enough added economic growth to pay for themselves — and would thus lose money.

Let me state that again. Once again, the supply-side argument has been undercut by the administration's own economists.

Of course, that didn't stop John McCain, who has frequently claimed that tax cuts increase revenue, from making the same argument on ABC's This Week today:

MCCAIN: And [Barack Obama] obviously doesn't understand the economy, because history shows every time you have cut capital gains taxes, revenues have increased, going back to Jack Kennedy.

The Wall Street Journal also made the same claim in an editorial Friday (subscription required). It's sad to see the mainstream media giving life to this kind of supply-side foolishness.

Update 4/21 1:06 PM -- Time's Justin Fox points to more contradictory evidence from former Bush administration economists (via Mark Thoma):

ut on this particular topic I tend to rely on professors at fancy universities who have served in the current Bush administration, because I figure it's hard to dismiss their verdict as political. The current consensus of this crowd is pretty well reflected in a 2004 paper by Greg Mankiw, the former chairman of Bush's Council of Economic Advisers, and Matthew Weinzierl, which concluded that "for standard parameter values, half of a capital tax cut is self-financing."

Comments

[David]

There are different points of view regarding economics. It's nasty and unhelpful to say that someone who holds a different view "doesn't understand" the subject. McCain's POV is respectible, since it's the one espoused by the WSJ. Surely Brendan wouldn't claim that he understands economics better than the WSJ.

FWIW I have more disagreement with McCain's logic than his economics. It is indeed true that the capital gains rate cuts back to Reagan were followed by big increases in tax dollars collected. However, it doesn't follow that any future rate cut would have the same impact.

[Brendan Nyhan]

Dave, while I'm no economist, I actually would claim that I know more about economics than the Wall Street Journal editorial board. That's because they constantly make claims about economic issues that are almost certainly false (primarily, that tax cuts increase revenue) and I don't.