Tag: commonwealth

An Australian Lesson about Capital Gains Tax Rates and Revenues

A decade ago, amid much controversy, I persuaded the Australian government to cut the capital gains tax rate in half.

Stephen Kirchner, an economist from Australia’s leading think tank, the Center for Independent Studies, reviewed the results last November.

This a brief summary:

The introduction of capital gains tax discounts for individuals and funds as part of the 1999 Ralph business tax reforms has received a lot of bad press, but much of this commentary is ill-informed… .

Those who called for reform of Australia’s capital gains tax regime 10 years ago argued that the Ralph reforms would likely raise more revenue because of the increased incentive they provided for taxpayers to realise capital gains that would otherwise go untaxed. Supply-side economist Alan Reynolds predicted that the reforms would raise twice as much revenue in the long run. He was right. The capital gains tax share of Commonwealth tax revenue nearly doubled between the introduction of the Ralph reforms and 2006–07. In absolute terms, CGT revenue rose from $4.6 billion in 1998–99 to $17.3 billion in 2006–07. CGT revenue growth has been strongest among individuals, who received the larger discount of 50%, followed by funds, which received a 33% discount. The slowest CGT revenue growth has been from companies, which received no discount.

The data suggest that the Ralph CGT reforms have resulted in more tax revenue through increased realisations of capital gains. They have thus strengthened rather than weakened the ability of the tax system to serve equity objectives. The Ralph reforms demonstrate the basic supply-side insight that lower effective tax rates lead to faster growth in the tax base and tax revenue.

False Accounts of Massachusetts’ Health Reforms

Recent editorials in both the Boston Globe and The New York Times contained some staggering falsehoods about the cost of Massachusetts’ health reforms.  Here is a poor, unsuccessful letter I sent to the editor of the Globe:

The editorial “Mass. bashers take note: Health reform is working” [Aug. 5] states that “the cost to the state taxpayer” of the Massachusetts health reforms is “about $88 million a year.”  That claim is unquestionably false.  The cost to state taxpayers is 19 times that amount, while the total cost is 24 times that amount.

The Massachusetts Taxpayers Foundation explains that the $88-million figure represents not the total cost to the state government, but the average annual increase in the state government’s costs.  Worse, the editorial completely ignores new spending by the federal government and the private sector, which account for 80 percent of the law’s cost.

According to Massachusetts Taxpayers Foundation estimates, health reform will cost at least $2.1 billion in 2009.  The total cost to state taxpayers is at least $1.7 billion and growing.  (The fact that other states’ taxpayers bear the balance should not be a source of pride.)

One wonders how such a falsehood comes to appear on a leading editorial page.

And one I sent to the Times:

The Massachusetts Model” [Aug. 9] understates the cost of the Massachusetts health plan.

The editorial claims, “the federal and state governments each pa[y] half of the added costs, or about $350 million” in 2010.  The Massachusetts Taxpayers Foundation, which generated that estimate, assumes that Massachusetts will eliminate $200 million in subsidies to safety-net hospitals next year.  Given that those hospitals are currently suing the Commonwealth and exerting political pressure to increase such payments, those assumed cuts are hypothetical.  More certain is the foundation’s estimate that the on-budget cost will reach $817 billion in 2009.

Yet the foundation’s estimates also show that the law (1) pushes 60 percent of its cost off-budget and onto the private sector; (2) costs about three times the $700 million that the editorial suggests, and (3) is covering 432,000 previously uninsured residents at a cost of about $6,700 each, or $27,000 for a family of four.  That’s more than twice the average cost of family coverage nationwide.

The editorial admonishes that “the public should demand an honest assessment, from critics and supporters” of the Massachusetts health plan.  Indeed.

A fuller response to these spurious claims may be found here.

I wish I could run a newspaper, so I could print false stuff and then not correct it.  Oh wait, I do blog…