A Neighborly Blog Grapple

On Tuesday, I put up an unminced rebuttal to a post entitled "The official word on whether capital gains tax cuts increase revenue (it's no)" written by Justin Fox at Time .  Fox's argument, which was based on an odd interpretation of a new Congressional Budget Office publication, I declared the "Worst Argument Of the Day".

Today, Fox has put up a counter-counterargument, one only modestly less unsound than the original, in which he claims not to have made the claim I claim he made.  My critique, it turns out, had amounted to the "Worst Reading Comprehension of the Day" (hoist by my own zinger).

I dunno.  I've re-read everything for double negatives I might've taken as singles and wiped my monitor off with my sleeve, in case the specific arrangement of dust and smudges had caused certain words in Fox's post to resemble other, roughly antonymous words.

No such luck.  On reflection, I'm confident I managed to grasp the case he presented (the subtle clues in the title of the post were a helpful starting point).  The original argument (along with its natural policy extensions involving the efficacy of capital gains tax cuts) remains so deficient as to be irresponsible, particularly for a financial journalist of Fox's pedigree.

I won't heave it on you here, but for sake of posterity, I offered a counter-counter-counterargument over at Fox's place this morning, in response to the "Worst Reading Comprehension" post.

Some of the points of contention begin treading into esoterica, but this issue is one of very high significance over the next several months.  The major capital gains tax reform enacted in 2003 will expire in 2010 if it isn't extended/made permanent and the results of November's elections (Presidential and Congressional) will likely determine that outcome.

As I've discussed here in the past, those tax cuts (which followed up the first Bush tax cuts in 2001) almost immediately ushered in the longest period of consecutive job growth on record and added fuel to a brilliant recovery from the mild recession Bush inherited from Clinton, despite the economic shock of 9/11 having occurred just as the recession was ending.

Given the economic stage that had been set, the economic growth (3% per year, with not a single negative quarter), unbroken job creation (52 months, 19 longer than Clinton's longest stretch), and stock market appreciation (the S&P gaining more than 50%) that we've seen since the capital gains tax cuts have been staggering.

No, it doesn't deductively prove that capital gains tax cuts were the cause (or a necessary condition) of the unlikely expansion.  Nor does the fact that tax revenues from individuals soared 44% since those capital gains tax cuts deductively prove that such cuts generally do - when rates are high - increase tax revenues (we have to make do with sound economic theory, common sense, and the preponderance of empirical data if we want to swallow that one).  But there's also no data out there definitively debunking that proposition (or even, as far as I'm concerned, refuting it in a remotely credible way).

In this case, supply-side theory and empiricism (while both inexact) tend to support the same conclusion.  And given the high significance of the policy choices such conclusions inform, these are points that warrant belaboring (and occasional grappling).