Earlier today, I examined the twin problem of spending and revenue.  What about that “hump” in revenue for the years 2004 to 2008?  Was it the Bush tax cuts?  Politicians drinking the Republican juice often repeat the mantra that tax cuts produce more revenue.  If only it were true.  The revenue hump consists chiefly of the taxes from capital gains that occurs during any asset bubble.  We had a similar spike in capital gains taxes during the stock market bubble of the late nineties.  Below is a chart of IRS data of capital gains reported during the past decade. 

As the Federal Reserve continues its stimulus attempts to revive demand by pumping money into bonds and lowering the value of the dollar, it drives up asset prices like stocks.  When investors sell those assets which are in non-tax sheltered accounts, the sale often generates a capital gain which generates revenue for the Treasury.

Voters have conflicting views of the Obama stimulus program initiated in the spring of 2009.  However, it is the Federal Reserve that has pumped in double the total amount (some of it not spent yet) of Obama’s stimulus program and most of that amount was put in before Obama took office.  Here’s a quick chart of the balance sheet of the Federal Reserve.  Click on the “All” tab on the second chart.  Good thing that the Federal Reserve members do not have to run for Congress.