Interesting Wall Street Journal editorial, Non-Dynamic Duo:

A House-Senate conference committee is still mulling whether to extend the 15% capital gains and dividend rates through 2010, and it seems the only roadblock is the Congressional budget estimate that this two-year extension would "cost" the Treasury $20 billion. But here comes Senate Finance Chairman Chuck Grassley to the rescue.

The Iowa Republican has sent a crisp letter to the Congressional Budget Office questioning that revenue estimate given its dreadful forecasting record. With the 15% tax rate, Mr. Grassley writes, "capital gains taxes are now projected to exceed the amount originally projected under the higher capital gains tax rate [of 20%] that prevailed before 2003." As the nearby chart shows, tax receipts are now expected to be $87 billion more than CBO originally predicted for the years 2003-2006.

CBO’s letter of explanation for its blunder is a doozy [blogged here]. The agency threw up its hands and acknowledged that its computer model fell "well short of explaining the surge in [capital gains] realizations that occurred in 2004" and that nearly half the increase in capital gains realizations between 2003 and 2004 "remains unexplained" by the model. Perhaps it’s time for a new model. Then CBO resorted to economic mumbo jumbo and claimed that "we cannot conclude that the unexplained increase is attributable to the change in capital gains tax rates." Maybe it’s the tides.