From: thf2@ellis.uchicago.edu (Ted Frank)
Subject: Re: A Supply Side Call to Arms
Reply-To: thf2@midway.uchicago.edu
Organization: University of Chicago Computing Organizations
Date: Mon, 16 Nov 1992 04:12:35 GMT

(Stupendous Man) writes:
>>>     GDP growth rate, 1982-1990: 3.5%  Up 102% from 1980--equivalent to an
>>>economy the size of Germany was created.  Even after infation, GDP was up by
an
>>>astounding 31% from 1982-1990.
>>
>> The first number, of course, is meaningless.  As for the second, it's
>> a tribute to three trillion dollars of Keynesian deficit spending, no?
>
>       Why is it meaningless?

Because it doesn't account for inflation, and therefore it's not a "real"
number.  Unless you're being a polemicist, rather than someone interested
in an accurate portrayal of the economy, there's no reason to present
numbers not adjusted for inflation, and this type of intentional error
puts everything else you say in question.

>>>     Captial gains receipts increased every year until the tax was increased
>>>(1986) again proving the merit of tax cuts.
>>
>> Brett, this canard of yours was refuted last time you brought it forward.
>> Receipts went down in 1986 because they were abnormally high in 1985.  They
>
>       Why would they be "abnormally high" in 1985?

Because of people selling off their stocks in December 1985 (or whenever
the tax took effect) for the tax break.

>They've continued to
>decline after the supposed "spike" that was "caused" by the capital gainst tax
>hike.

Repost the numbers again, Bret.  That's not true when one accounts for
the stock market movement.

>> were abnormally high in 1985 because investors are intelligent enough to
>> sell and then rebuy so that their capital gains are taxed at 1985 rates and
>> not 1986 rates.
>
>       I demonstrated why holding was wiser than selling and buying (incurring
>two commissions along the way.
>       I can repost it, if necessary.

And I refuted it.  I can re-explain that, if you'd like.

Someone holding onto stocks with significant capital gains on the eve of
the tax change takes a huge hit that they don't have to if they sell and
rebuy the stocks.  Yes, this transaction incurs two commissions.  And for
*some* people, it's more profitable to take the hit.  But are you really
arguing that there wasn't a single American out there whose tax advantages
didn't outweigh the sum total of the commissions?  There
were billions of dollars of capital that were sold off and sometimes, but
not necessarily, rebought, for the sole purpose of avoiding the tax hit.
Which increases revenue dramatically in 1985 and drops it dramatically
in 1986.

Ask any tax lawyer who was around in 1985, Brett.  Or draw up the scenarios
yourself.  For a certain capital gain greater than some N, it was more
profitable to sell off in 1985 and pay taxes that year.  And there's
lots of money in that when you consider the large number of long-term
investors out there.
-- 
ted frank                     | thf2@ellis.uchicago.edu 
standard disclaimers          | void where prohibited
the university of chicago law school, chicago, illinois 60637
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