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.
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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.