Sunday, May 21, 2006

Tax and Spending Round-up

Willisms updates a graphic on Federal spending to reflect entitlements:

Federal Spending Posted by Picasa

A frequent complaint of the Left is that U.S. military spending is greater than the rest of the world's combined, but our GDP is also far and away the biggest. To put it in perspective:

According to the CIA World Factbook, the United States spent roughly 4% of GDP on the military, which positioned America in 26th place in the world in military spending as a percentage of its economy. Despite that relatively low level of spending (the U.S. spent in the double-digits throughout much of the 20th century), the United States still spent more than six times more than second place China in actual dollars. That's, perhaps, one reason why many left-wingers at home and abroad want to destroy America's economy with high taxes, overzealous environmental and labor regulations, and other Marxist ideology-in-action. America's enormous, booming economy allows for substantial force projection in the world, all at a relatively low cost.
The truth is "entitlements" (a politically correct term for "hand-outs") represent the majority of Federal outlays and dwarf military spending.

On the other side, Tax Prof Blog picks up on a WSJ editorial pointing out the rise in tax revenues following the capital gains cut - Tastes Great, More Filling:

Well, what do you know. The latest statistics on capital gains tax collections were recently released by the Congressional Budget Office, and receipts are not down but way up. By 45% to be exact. As part of President Bush's 2003 investment tax cut package, the capital gains tax rate was reduced to 15% from 20%. Opponents predicted, as ever, that this would reduce tax revenue.

Not even close. Here's what actually happened. This 25% reduction in the tax penalty on stock and other asset sales triggered a doubling of capital gains realizations, to $539 billion in 2005 from $269 billion in 2002. One influence was the increase in stock values over that time, thanks in part to the higher after-tax return on capital induced by the tax cuts.

But another cause for the windfall was almost certainly the "unlocking" effect from investors selling their existing asset holdings in order to realize some of their profits and pay taxes at the lower rate. They could then turn around and buy new assets, hoping for higher rates of return. This "unlocking" promotes the efficiency of capital markets by redirecting investment into new and higher value-added companies. It also yields a windfall for the Treasury. In 2002, the year before the tax cut, capital gains tax liabilities were $49 billion at the 20% rate. They rose slightly to $51 billion in 2003, then surged to $71 billion in 2004, and were estimated by CBO to have reached $80 billion last year -- all paid at the lower 15% rate. In short, the lower rate yielded more revenue.

Capital Gains Tax Revenues Posted by Picasa