Charlie Gibson really hammered the candidates--both candidates--over their proposals to raise the capital gains tax. Why woudl they do that, he asked, when lowering the cap gains tax during the 1990s raised revenue?
My recollection was that Gibson's premise was wrong, but I couldn't remember the details of why. Fortunately, I know a few economists. Here's one of them--Jason Furman of the Brookings Institute--with the story:
Joint Committee on Taxation and Treasury both score raising capital gains taxes as raising revenues. There is some behavioral response but much of that is timing and doesn't affect the medium-to-long term revenue loss.
Note that the experience after the 1997 cut and the 2003 cut is not a meaningful way to assess the impact of capital gains tax cuts on revenues because so many things were happening simultaneously. The JCT score of the capital gains cut in 1997 was a few billion dollars annually. The 2003 cut was something like $5 billion annually. But capital gains revenues can go up or down by tens of billions annually. So it is hard to look at the noisy data and infer ex post the revenue impact of these changes.
Or, to put it more simply, Gibson's logic was flawed.
Update 3: For those visiting via the home page, here is what I had to say about Gibson's performance early in the debate. And here is Isaac. OK, no more updates--I promise!