I used to think that liberals were mistaken, but well-intentioned.

Now, I am not so sure.

Of course I still believe that most liberals I meet are genuinely good people, not nefarious plotters out to line their own pockets and accumulate as much power as humanly possible. But I can’t get past the idea that liberals in the public policy world, who are presumably smart and well-informed have ulterior motives.

Why? It’s pretty simple, really. So many things that liberals argue about economics are simply and demonstrably wrong. But even when you prove beyond the shadow of a doubt that they are wrong, the liberals keep mouthing the same basic untruths.

A great example of this is the recent report put out by the Congressional Budget Office on the effect of President Bush’s Capital Gains Tax cuts of 2003.

At the time Bush proposed cutting capital gains taxes, the Joint Committee on Taxation came out with an estimate of how much doing so would cost the Treasury. You see, Congress still uses economic assumptions that changes in the tax rates have no economic impact, so every tax cut brings less money in, and every tax increase adds to government’s bottom line.

Liberals have used this ridiculous assumption to argue against capital gains tax cuts as “tax cuts for the rich,” as if reducing the government’s take on investment profits is somehow a plan to redistribute income from the poor to the wealthy. How many times have we heard the canard that Bush is a toady for a wealthy cabal trying to rape and pillage the economy while they can?

Well, the latest numbers released by the Congressional Budget Office put the lie to that notion. Since the 2003 tax cuts were passed, actual capital gains taxes collected outstripped the estimates by a cumulative $133 billion, or 68% more than was estimated originally. In the past 2 years the estimates were off even more dramatically—by over 100%. Those “rich” people Bush was supposedly selling out to are actually paying much more in taxes than they were before.

How is that possible that the estimates were so dramatically wrong? It’s not like we are talking about estimates many years out—the forecast was made in January 2004, and it was off by over 100% by 2006. Two years, 100% over forecast. Pretty spectacular!

The truth is that every reasonable economist could have told you that the Joint Committee on Taxation was going to be very, very wrong, because tax policy affects economic activity. Lowering the capital gains rate stimulates economic growth, and by extension increases tax revenue for the government. Capital gains tax collections go up as economic activity grows, and of course income taxes rise as incomes get bigger. Continued...