April 17, 2008

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GIBSON: [H]istory shows that when you drop the capital gains tax, the revenues go up.

While much of the well-deserved criticism of ABC's Democratic debate on Wednesday night centered around the dwelling on gotcha questions and smears instead of substantiative issues, when they finally did get around to a question that could have been considered a real issue, Charlie Gibson, who has a history of sandbagging Democrats with right-wing disinformation about Bush's tax cuts, once again loaded up a question, disadvantaging the candidate and misled the millions of people watching:

As Jason Furman explains here, and as Len Burman explains here, the best evidence suggests otherwise. Cutting these taxes may lead to a temporary spike in revenue, because people sell stock to realize gains while rates are low. But over the long term, the biggest owners of stock—the wealthiest Americans—will mostly save what they will save, regardless of fluctuations in the rate.

The Congressional Budget Office notes that “the potentially large difference between the long- and short-term sensitivity of realizations to tax rates can mislead observers into assuming a greater permanent responsiveness than actually exists.”

As Barack Obama correctly alluded to, an article that same day reported that "the top 50 hedge fund managers earned a combined $29 billion in 2007. Five managers earned more than $1 billion." One of the main reasons they are doing so well while the economy is teetering is that the income derived from stocks is currently being taxed at less than half of the rate of what people who actually work for a living have to pay on their salaries.

Salary in the highest tax bracket is taxed at 35 percent, but profits from stocks held long enough to be called "long-term capital gains" are taxed at 15 percent. A hedge fund manager making $100 million in a year would pay $15 million to the government if he is able to take his income as capital gains, not the $35 million he would have to pay if the income was considered salary.

Full debate transcript here.

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