The Effect of Capital Gains Tax on Investment - Appendix

In comments to my previous post, Robert requested the unsmoothed data from Graph 3.  Here it is.   GPDI is plotted against the Capital Gains Tax Rate.

Since the Capital Gains Tax Rate (X-axis) is quantized, the result is columns of data.  Compared to the smoothed version, there is little change in either the slope or intercept of the best fit straight line.  R^2 is, of course, much lower.

The Effect of Capital Gains Tax on Investment

Matt Yglesias, servitor to our corporate overlords, suggests that the reduced capital gains tax rate paid by rentiers like Willard Romney is really a very, very good thing.  To wit:

The main reason Romney's effective rate is so low is that the American tax code contains a lot of preferences for investment income over labor income.
. . .
But this is definitely an issue where the conservative position is in line with what most experts think is the right course, and Democrats are outside the mainstream.
.  .  .
That's the theory, at any rate. It's a pretty solid theory, it's in most of the textbooks I've seen, and it shapes public policy in basically every country I'm familiar with. Even researchers like Thomas Piketty and Emmanuel Saez (see "A Theory of Optimal Capital Taxation") who dissent from the standard no taxation of investment income position think capital income should be taxed more lightly than labor income. Empirically, it's a bit difficult to verify that variations in capital gains tax rates and the like really are making a material difference to investment levels. But then again the data is noisy.

Scott Lemieux at LGM demurs.

Sure, if you 1)accept the premise that reducing or eliminating capital gains taxes will result in productive infrastructure investments rather than worthless accounting tricks, 2)ignore the economic benefits created by consumption, 3)assume that significant numbers of people will forgo money for doing nothing just because the profits will be taxed , and 4)ignore the fact that in most jurisdictions consumption is also “double taxed,” then reducing capital gains taxes looks good.   But since all of these assumptions are (to put it mildly) highly contestable, it’s just question-begging.

My response to Matt is that in my jaundiced opinion, you might as well consult The Necronomicon of Abdul Alhazred as an economics textbook for an issue like this; and that in a world that has on the one hand Krugman, Thoma and Delong, and on the other Fama, Cochran and Cowan, a consensus among experts is about as likely as lions lying down with lambs for some purpose other than a quick snack.

To Scott I say, why assume or ignore anything when that oh-so-noisy data is readily available?