buried headline:
" the revenue maximizing capital gains tax rate, which appears to be a bit under 10 percent "
"Many types of tax changes move revenues in the normal direction predicted by static analysis.
Tax rate increases raise revenues; tax rate reductions reduce revenues.
They do not alter economic growth and incomes enough to completely offset their projected revenue gains or losses.
For example,
across-the-board income tax rate reductions
recover only about a third of their static revenue losses with additional growth
(while adding more than $2 to people’s pre-tax incomes for each dollar of revenue loss to the government).
Likewise,
excise taxes, sales taxes, and payroll taxes
are generally not over the revenue-maximizing hump of the Laffer curve.
Nonetheless,
some tax reductions (or increases) are unusually effective in raising (lowering) incomes and recovering (losing) revenues.
Capital formation is highly sensitive to after-tax earnings.
Some tax changes that aim directly at capital formation
can trigger enough of a change in
the stock of buildings,
the amount of equipment,
and the hiring of workers
to utilize them to come close to, or even more than offset, the initial revenue change.
These include
reductions in
the estate tax
and steps that offset some of the double taxation of corporate income,
including lower corporate tax rates and lower taxes on capital gains
(which hit retained after-tax corporate earnings)
and dividends (which are paid out of after-tax corporate earnings).
Raising these taxes can often be entirely counter-productive."
