Note: since this originally appeared a Republican Congress reduced the capital gains tax rates and the U.S. government saw an enormous increase in Capital Gains revenues. So much so that both parties on Congress fell over each other trying to make plans to spend it during the 2000 election cycle. We'll be bringing you all the details when we update this page.

Congress, at least one run by liberals, apparently never learns its lesson. Despite continual evidence that hikes in capital gains tax rate reduce revenues and cuts in the rate increase revenues, congress still thinks it can increase revenues by increasing the rate. Thus the 1986 tax package (which included an 8% increase in the rate) soon met with disaster.

And as the Wall Street Journal confirmed:

The 1991 figures confirm clearly that a trend has built since 1986, when the capital-gains rate was raised to 28% from 20%.

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From 1988 through 1991, inflation-adjusted taxable capital gains plummeted, remaining below the 1985 level every single year. In fact, inflation-adjusted taxable capital gains in 1991 were half what they were in 1985 and lower than they have been in any year since 1978.

The drop-off has been so dramatic that in 1991 the federal government took in 21% less revenue at 28% than it did in 1985 at the 20% rate.

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A soon to be released study by the Republican members of the Joint Economic Committee yields this interesting scenario: Had capital gains rate remained at 20%, and had capital gains continued their 12% rate of growth from 1980 to 1985, the government would have netted $60 billion more in capital gains revenues in the years 1986-91.

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Invariably since the late 1960's every time capital gains tax rates have risen, capital gains realizations have fallen; every time the rates have been cut, realizations have accelerated because of an unlocking affect.

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The JCT (Joint Committee on Taxation) argued in a highly publicized 1989 study that 60% of the benefits of a capital gains tax cut would accrue Americans making more than $200,000 a year. This mantra of a "tax cut for the rich" was predicated on forecasts that taxable capital gains would accelerate even after rates were raised.

These predictions were spectacularly wrong. In Jan. 1990 the CBO (congressional budget office) extimated that taxable capital gains would be $269 billion in 1991; in 1987, JCT projected that they would be $285 billion in 1991. In reality, taxable capital gains totaled $108 billion.

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A report by the Texas based Institute for Policy Innovation released in Feb. calculates that indexing capital gains to inflation would add $511 billion to gross domestic product by 1997, create 550,000 jobs and raise $111 billion in capital gains and other federal tax revenues as a result of the enhanced economic growth.

[Source: Monday April 5, 1993, editorial page.]