Auros ([info]auros) wrote,
@ 2008-01-24 19:43:00
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Current mood: amused

Best economic stimulus proposal ever.
From Len Burman, director of the Urban-Brookings Tax Policy Center, in the NYTimes.

[I]f they were repealed in a year [note that this means moving the sunset date a year earlier than currently scheduled], the Bush tax cuts could spur a burst of economic activity in 2008. If people knew that their tax rates were going up next year, they'd work to make sure that more of their income is taxed at this year's lower rates. Investors would likewise have a giant incentive to cash out their capital gains now to avoid paying higher taxes later. In 1986, stock sales doubled as taxpayers rushed to avoid the capital gains tax rate increase scheduled for 1987. If people pour their stock gains into yachts and fast cars, that's pure fiscal stimulus.

The money involved could be considerable. Capital gains in 2007 were something like $700 billion, representing well over $1 trillion in asset sales. It looks as if gains will be much lower in 2008, but a looming tax increase could easily spur an additional $500 billion in sales. If only 20 percent of that translated into extra spending, we'd have as much or more short-term stimulus as we could get from the package Congress and the president are considering.

Best of all, this is one stimulus proposal that would reduce the deficit -- the single largest threat to the economy's long-term health. And that long-term benefit wouldn't depend on our getting the timing and amount of stimulus right, something policymakers are notoriously inept at.

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[info]eviladmin
2008-01-25 07:48 pm UTC (link)
On the downside, if people did this as suggested, and spent the capital gains rather than rolling them over into stocks (or given the current unease in the stock market, did what I am doing and taking the gains and putting them in cash), we could see the Dow go to 8,000 which would make a recession 100% likely, and make all the pension funds insolvent. It would also freak out all the 401k people and really cut into consumer spending. It would also insure that the next administration would see revenue fall by several hundred billion - which would be a perfect "I told you so" moment for the "higher tax rates don't always increase revenue" people.

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[info]auros
2008-01-25 08:01 pm UTC (link)
Unless people feel certain that the tax cuts are going to be extended, they should be planning to engage in a pull-out by '09 anyhow, so I'm dubious that we'd see as much of a disruption as you suggest.

Additionally, I'd note that the stock market is not the true primary driver behind recession and growth -- employment is far more important. As I'm sure you know. Driving up aggregate demand (including demand for luxury goods and services) puts money in the pockets of workers, who turn around and spend it on other things, creating a virtuous cycle. Given that most of the rich are not actually very good at productively investing the extra money handed to them by trickle-down theorists (growth was much faster during the Clinton, higher-tax regime years than during the Reagan or Bush II years) I doubt that persuading to pull their money out of the conservative, wealth-protecting, tax-evading investments they tend to use will have a huge impact on growth.

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