Something's screwy with my e-mail so if my responses are slow in coming I plead victimization by unseen forces. > >I rely on Max for such information. Could he be wrong? Impossible... Actually I've been meaning to post an update to my response, based on the CBO stuff Doug has described below. I probably understated the contribution of cap gains to revenues, though previously the wonk position was as I reflected. So I beg for mercy based on the "what did I know and when did I know it" principle. > I've got some unpublished estimates that Robert McIntyre of Citizens for > Tax Justice did of the capgain contribution to federal revenues - around > $50-75 billion a year over the last 3-4 years, or 3-4% of federal > revenues, but a very large portion of the surplus. But they're unlikely to go to 0, even in a bear market. The CBO's latest Economic & Budget Outlook has a section on capgains estimates; they say one standard deviation in the > projections is about $20 billion at current levels, and departures of more > than 1 SD in either direction for two consecutive years are rare and > unlikely, or so they say. Of more importance, the following section in the Note that the projection would not logically take recent and current stock market performance as the future norm. So the current share of cap gains revenues in the surplus and CBO's projection of future contributions (with the qualifications about standard deviations) are different things. > CBO analysis says, is the growth in income of top-bracket taxpayers; since > they're taxed at a higher rate than anyone else, federal revenues > have been growing much faster than personal income. The effective tax rate on personal income has, therefore, been rising about 1 percentage > point a year throughout the 1990s; if this were to continue (that is, if the rich were to continue getting richer), this would make a difference of $152 billion in federal revenues in 2009 - compared to just $17 billion if > capgains came in 1 SD above the projections. > > The CBO projects surpluses even in what they call a "financial turmoil > scenario," but this implies a growth recession (1/2-1% of GDP) and not a > deep swoon. The projections factor in the effects of recessions, but since their timing is unpredictable, they spread the negative effects over the projection period. Note that assorted parties have ideological interests in how the projections come out. Those who would like to cut taxes favor higher surplus projections. This year, the CBO projections are more optimistic than the Administration's, a reversal of previous patterns. Deficit/debt hawks like to discount the probability of surpluses with assorted canards (e.g., it's only Social Security revenues, a recession will eliminate a surplus). Presently this category includes the White House and many left/liberal interest groups, including some within organized labor. Their motives may vary from the pragmatic and tactical to deeply held faith in neo=classical savings/growth theory, but operationally they are deficit hawks at present. My own view is that any objections I have to whatever CBO says the projection is will be ignored, so I need to premise policy recommendations on whatever they say is going to happen. Right now, the projections could not be more favorable to proposals for new domestic initiatives. We're swimming in money and could not be better positioned to make a case for an expansion of the public sector. mbs
