Here's a column /slash/ GOP strategy memo published in the Wall Street Journal. It's predictably uncontaminated by insight or fresh thinking. But there's this one bit that's practically begging for a smackdown:

The surpluses of the late '90s were to a significant extent a product of the growth in revenues that came after the capital gains tax was cut. The Democrats' theology--actually economic superstition--prohibits them from renewing the 2003 tax cuts, the looming expiration of which has been a drag on the economy ever since they recaptured Congress.

These are two bizarre sentences. The first is merely questionable. The second is a little more pernicious.


Did the surpluses of the late '90s occur after President Clinton cut the capital gains tax rate from 28% to 20%? Yes, they did. But that doesn't mean that capital gains tax cuts created the surplus. Surpluses are the result of rising tax receipts and falling outlays. And look what happened to government spending as a percent of GDP during the '90s. It fell, by a lot.

570 govtincomeoutlay.jpg
But look! That purple income line crashes in 2002 -- after the capital gains tax cut and the Bush tax cut in 2001. Why? As Pete Davis points out, capital gains revenues increased 0.7% of GDP from 1994 through 2000 under President Clinton, and they fell 0.6% of GDP from 2000 to 2004 under President Bush. This isn't very hard to explain (it's not even all Bush's fault). Tax revenue exploded during the tech boom, imploded after the burst, and continued to fall after the Bush tax cuts. I'm not sure what the ideal capital gains rate should be. But I see no reason why the turn of the century should go down as victory parade for the impact of low capital gains taxes.

But it gets worse. Just one sentence after praising a Democratic president's tax cut, the author bashes Democrats for being theologically (is that really the mot juste?) opposed to extending the Bush tax cuts. Bizarre. But this sentence isn't merely inconsistent with the paragraph. It's the exact opposite of what President Obama has repeatedly promised: Extending the Bush tax cuts for 90 to 95 percent of payers, while increasing the capital gains and income tax on the top percentiles.

Finally, Judge invokes Ricardian equivalence to claim that this phantom tax increase -- which hasn't happened and isn't likely to happen -- is somehow spooking the economy. Could he be more obtuse and misleading? It's one thing to falsely characterize the president's tax policy. It's another to claim that your false characterization is imposing "a drag on the economy."

I really don't like this paragraph.