Cutting Through The Crap

Tuesday, September 18, 2012

Amazing Discovery!

A study by the Congressional Research Service, a nonpartisan analytical operation empowered by our legislators to enlighten them about stuff, has looked into the relationship between tax rates and economic growth. Surprisingly to those who still hadn't figured it out, there's no evidence that lowering taxes spurs growth. From the summary:

Income tax rates have been at the center of recent policy debates over taxes...


Advocates of lower tax rates argue that reduced rates would increase economic growth, increase saving and investment, and boost productivity (increase the economic pie). Proponents of higher tax rates argue that higher tax revenues are necessary for debt reduction... This report attempts to clarify whether or not there is an association between the tax rates of the highest income taxpayers and economic growth. ...

Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. ... Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced.

Seems to me even a cursory look at the years from Eisenhower to now, by any sentient being at all (since that doesn't appear to include teabaggers, we might need to use fingerpaint to help them) leads to the same conclusions. I've said it before: 100% is too high. 0% is too low. We can argue about the right numbers in between; but for a point of reference it seems reasonable to look at what we know, from recent experience, has worked (Clinton rates) and what hasn't (Bush rates).

So why all the arguing???

Oh, and as long as we're talking about rediscovering what's already known about Teabagganomics, there's this, hot off the presses, only the latest of many studies showing that if implemented, Romney's plan would explode the debt and the deficit. Here it is, in graphic form:

1 comment:

Kevin Laverty said...

Read the same CRS story you've cited here, Sid. The real question for Romney is how will he get the other 47% off their subsidies including lower marginal tax rates?