A new study by the non-partisan Congressional Research Service, which reviewed nearly 65 years of US tax policy and its impact on the overall economy, has found that though cutting the effective tax rate for the nation’s wealthiest is a great way to increase undesireable economic inequality, it does not—as Republican rhetoric so frequently claims—do anything to boost employment or fuel economic growth.
The report, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, found that “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.”
As TalkingPointsMemo‘s Sahil Kapur reports, the study’s findings “are pertinent to a central debate in the presidential election, wherein President Obama is pushing to end the Bush-era tax cuts on high incomes, while his Republican challenger Mitt Romney insists on cutting rates across the board 20 percent below current policy.”
“Democrats contrast the tax hikes of the 1990s and ensuing economic growth with the tax cuts of the 2000s and relatively meager gains that followed,” writes Kapur, while GOP operatives “argue that the recovery is weak because the economy remains shackled by regulatory and tax burdens.”
Pat Garofalo, at Think Progress, adds:
[The CRS report] jibes with other recent studies that show little relationship between the top tax rate and economic growth. A new analysis by Owen M. Zidar, a former staff economist on President Obama’s Council of Economic Advisers and a graduate student at California-Berkeley, found that “a one percent of GDP tax cut for the bottom 90% results in 2.7 percentage points of GDP growth over a two-year period. The corresponding estimate for the top 10% is 0.13 percentage points and is insignificant statistically.” GDP growth, business investment, and a host of other economic indicators were all stronger during the 1990s, after taxes were raised on the rich, than during the supply-side eras of Presidents George W. Bush and Reagan.