The Senate's Big Cloture Vote

Once again, this is an example of the folly in using static tax analysis for public policy, perhaps especially on capital-gains tax rates. Democrats in 1986 — and now — assume that hiking the CGT rate by 69% will produce 69% more revenue that what was received at the old rates. That doesn’t take into account market behavior after tax conditions change. A capital-gains tax hike will push investors to cash out before it hits, and then shelter their assets rather than putting them to work. After all, at a CGT rate of 25.4%, they would probably pay less tax by getting interest off of their cash than by assuming the risk of losses and paying higher tax rates on the gains.

During the presidential campaign, Barack Obama stumbled when he...