The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Understanding the Revenue Surge


Over the past several months, a combination of higher-than-expected revenues and lower-than-expected spending levels has been shrinking the federal deficit at a healthy clip. James Pethokoukis of the American Enterprise Institute recently observed that if growth climbs above 4 percent by 2014, it is at least possible that there will be a surplus by the 2015 fiscal year. The news that the federal government generated a substantial surplus in April came as icing on the cake. Yet Red Jahncke, a Greenwich-based management consultant, suggests that what we’re really seeing is a last-ditch attempt to take advantage of the lower capital gains taxes of the Bush-era tax code as the post-cliff ATRA legislation goes into effect:

Much of the increase in 2013 receipts is due to final tax payments for 2012 deriving from a rush to realize long-term capital gains before the 15% “Bush” tax rate on such gains expired at the end of 2012—and before the new 23.8% rate on long-term capital gains for higher-income taxpayers took effect on Jan. 1. How do we know this? Because virtually the same tax change occurred during the Reagan years, when the long-term capital gains tax rate jumped eight points, to 28% in 1987, when the Tax Reform Act took effect, from 20% in 1986.

Jahncke acknowledges that we can’t be sure that the recent revenue surge reflects shrewd tax planning, at least not yet, but he makes a compelling case. One hopes that a stronger recovery is doing at least some of the work, and Jahncke’s scenario doesn’t preclude that possibility. But it ought to temper our enthusiasm.


Subscribe to National Review