What do you do when the Congressional Research Service, the completely non-partisan arm of the Library of Congress that has been advising Congress—and only Congress—on matters of policy and law for nearly a century, produces a research study that finds absolutely no correlation between the top tax rates and economic growth, thereby destroying a key tenet of conservative economic theory?
If you are a Republican member of the United States Senate, you do everything in your power to suppress that report—particularly when it comes less than two months before a national election where your candidate is selling this very economic theory as the basis for his candidacy....
This paragraph from the report says it all—
“The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”Forbes | Opinion
Non-Partisan Congressional Tax Report Debunks Core Conservative Economic Theory-GOP Suppresses Study
Rick Ungar | Contributor
(h/t MoveThroughIt in the comments)
Marginal tax rates are misleading. What is important are the EFFECTIVE tax rates, which are paid after deductions and loopholes have been made.
ReplyDeletePicketty and Saez (2007) have found that the effective income tax by 1960:
"...reached an average rate of 31 percent at the very top, only slightly above the 25 percent average rate at the very top in 2004. Within the 1960 version of the individual income tax, lower rates on realized capital gains, as well as deductions for interest payments and charitable contributions, reduced dramatically what otherwise looked like an extremely progressive tax schedule, with a top marginal tax rate on individual income of 91 percent."
And what of the Reagan and Bush tax cuts?
"The reduction in top marginal individual income tax rates has contributed only marginally to the decline of progressivity of the federal tax system, because with various deductions and exemptions, along with favored treatment for capital gains, the average tax rate paid by those with very high income levels has changed much less over time than the top marginal rates."
Any study, paper, or economic report author that argues high tax rates don't impact economic growth and standard of living, should ask themselves this: If it doesn't impact growth, then raising taxes to 50%, 75%, 99%, even 100% won't impact growth. This is obviously wrong.
What the "non-partisan" study (note: being "non-partisan" does not ensure factual correctness) has ACTUALLY found, inadvertantly or not, is that up until now, changes to marginal tax rates, because they have not appreciably changed the effective taxes paid, have not impacted economic growth and standard of living.
This report should NOT be understood as showing the notion that effective taxes going from say 25% to say 91% somehow won't impact economic growth if it were done now. That would be horribly wrong.