With the presidential candidates arguing over lowering taxes and cutting spending, the Congressional Research Service has weighed in with a historical analysis that claims that reducing tax rates for the highest-income taxpayers does not promote growth.
The CRS, a nonpartisan arm of Congress, examined data going back to the late 1940s, when the top marginal tax rate was typically above 90 percent, and growth in gross domestic product averaged 4.2 percent. The top rate in this century is typically 35 percent, and growth in GDP has average 1.7 percent.
Over the course of the 65-year period studied, the CRS found no evidence suggesting “a relationship between tax policy with regard to the top tax rates and the size of the economic pie.”
“The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth,” the report concluded.
However, “There may be a relationship to how the economic pie is sliced,” the report noted, citing evidence that income inequality grows substantially during periods when tax rates on the highest-income taxpayers are lowered.
The CRS does not make its reports easily available to the public; the full report is available online here from The New York Times.
8 Comments
I would have thought that accountants would absolutely know better than the nonsense about 'job creators' and tax cuts. It is actually destructive to our economy in many ways to have such income disparity as we see today. One prime example was mentioned already. Those who have so much excess throw it at the Wall Street casino. It affects the price of commodities people depend on for survival.
Corporations in the US have been making record profits. Of course they are taking jobs to China where people work for pennies on the dollar. What's the rate these days? $3/day or so? Maybe $10? And is anyone expecting that American workers should try to compete with that? What advantage is it to be a low tax country for them? They would end up costing us more than they pay. They pay a smaller and smaller piece of the total revenue pie over time. And we are not yet recovered from the devastation caused by these geniuses. We've been stuck cleaning up their oil spills and all sorts of other damage they have caused. We pay for all the regulatory agencies in some futile attempt to ensure they are in compliance with our laws. How much of our court system is clogged with the business to business law suits?
I have never seen or heard of a business owner who said, 'oh gee. I got this tax cut - now I can hire someone.' No. I'm sure none of you have.
Mind boggling.
Posted by: LACPA | October 8, 2012 4:39 AM
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Thank God , this report got out before the election. I was so worried that there was going to be some political posturing made by various sources trying to influence the election outcome. Not here, Not Now. SINCE there is no correlation between tax cuts and economic growth THEN tax increases should lead to the utopia village that the peasants want someone to build for them. Can't we simply ask that each individual provide what they can and only take what they need...From each according to his ability and to each according to his needs! We need to storm the Bastille and let the reign of terror begin !
Who is John Gault ?
Posted by: Unknown | September 19, 2012 11:26 AM
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Having experienced the entire span of years covered by the report, I can personally attest to the one outstanding significant difference between 1945 and today: industrial production has fallen off from approximately 47 to 49% total GDP to a current range of 11% to 13%.
The additional significance of that stat is that industrial production back in 1945 was one of the principal sources of wealth to American families. Also, returns were generally lower than returns from today's preoccupation with finance and investment by a sizable margin.
The prominent families addressed in the study, now spend the majority of their efforts in tending to their wealth and following the promise of the most enriching ventures, which meant through the years they turned from the industrial sector to the intermediate venture capital activities to the current highly leveraged speculative activities of currency and currency substitutes.
That easily explains the difference between the 1945 4.2% and the 2007 12.3% accrual of wealth to that segment.
Secondly, as posted by gone2fish to head this sequence: the recipients of this largesse, do not view it in the same manner middle income families do. Which then means that it is not necessary to reinvest, or in any way to husband resources. The current crop spends it, enjoying a lifestyle foreign to the rest of taxpayers. This shows up in no way in economic data other than as retention of the accrual, the generous surplus beyond that spent. A path, by the way, their very fortunate predecessors would follow cautiously - mindful always of the severity those impending sudden economic collapses delivered.
Posted by: Old and Gray | September 18, 2012 4:56 PM
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I am proud to be able to give an opinion on matter of politics; as a tax professional we see things related to the tax system unlike the average person, whereas, when it comes to giving tax breaks to the top 3% as my colleagues have said when the "rich" are given tax breaks it not like they feel it because of the every day working class have done them a favor it is something they think they have earned and they do whatever they please; that include opening up shop in these third world nations where they can continue to spend money without giving back to the communities that's supported their businesses while making it possible for them to be "rich" from the start. The rich do not believe that the common people count but their money count more than people; whereby, people is what made them rich to began,even if it had been handed down through inheritance or if somewhere along the way they acquired it through hard work and good decisions related to business dealings, its all correlated to other people in the general society who supported you and or your businesses. Now they think that simply because they are "rich" they no longer need the people who had supported them, well, that seems to be their beliefs which is far from reality! Take a look at the Koch brothers who think that their money can control with the "top to bottom" theory, seems that they are finding out that it is the people that count and all over the Country we are starting to stand up and be counted,i.e., the state of Wisconsin recalling the Governor who tried to destroy the unions while taking big donations from the Koch bothers and the state of North Carolina recalling the school board members on the Koch brother's payroll. The situation that real bother me to the core our military persons who give their lives to protect this country "is only looked at as a money making business", point as references Halliburton and KRB were suppose to be there to help our military personnel have good food and sanitary water but instead many of them will die because making a profit was put before their safety and they were fighting so these Corporations could keep making billions. Halliburton have over charged us tax payers more than a Billion dollars and killed more many more military personnel to make a dollar. The diseases that our men and women will have 10 to 15 years after returning from Iraq is going to be unparalleled to any war, whereby an American owned corporation killed more of our military personnel than the war did; that tells me what the "rich" think about the people that support them.
Posted by: gone2fish | September 18, 2012 1:51 PM
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Is the Congressional Research Service as nonpartisan as the Tax Policy Center? Or the CBO which called the Affordable Care Act "deficit neutral?" Anything out of Congress is always partisan. That is the nature of Congress.
Lowering taxes and spending is the key to growth. The above hypotheses would be true if this were not a global economy and the United States were the only market, but the rich have a choice and they have at least 190 other economies competing for their investment dollars.
The rich stay wealthy by working. They do this by building plants and office buildings and hiring people. The rich have the power to do this all over the world. People decide where to invest their capital and the smartest will take a good look at tax rates to determine their return of capital. If they can get a better deal on salaries and wages in China and India and Mexico, why wouldn't they go there? If Dubai offers them a much better tax rate than the United States and attracts increasingly more investors and money because of a much more simplified tax structure, why wouldn't business go there?
In the U.S. we charge among the highest tax rates in the world and look at how well we have "recovered" since 2008. This is the slowest recovery since the Great Depression.
Where is John Galt?
Posted by: pusherhombre | September 18, 2012 1:29 PM
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Kate... When you "Give" a "Rich" person a tax cut they can do what ever they want with the money. Spend it on a cabin in the alps or buy a vineyard in Italy. The government is not giving you anything, they take it!
So my point... more often than not a "Rich" person employes people, they make things and purchase goods and services to do it. I would rather have 15% of 4 billion dollars than 30% of zero because that is what you'll get when the "Rich" person leaves this country and sets up shop elsewhere. I don't need a study to tell me thats not the case.
Who is John Gault?
Posted by: SvenThompson | September 18, 2012 11:09 AM
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I think that many high income taxpayers would not be opposed to higher rates, IF spending was brought under control. Congress, which consists of both Democrats and Republicans, have not been good stewards of what they do receive. So why should we send them more?
Posted by: sschonert | September 18, 2012 9:58 AM
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In my experience, when you give a rich person a massive tax break, they go buy another yacht in the Caiman Islands. The US doesn't even get the sales tax.
Kate Harner, EA
Posted by: KATEHARNER | September 18, 2012 2:52 AM
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