Tax cuts for the rich don't spur growth

esh_gaSeptember 17, 2012

Ok, tell me what's wrong with this study (as in, why should I not believe it)?:

Cutting taxes for the wealthy does not generate faster economic growth, according to a new report. But those cuts may widen the income gap between the rich and the rest, according to a new report.

A study from the Congressional Research Service -- the non-partisan research office for Congress -- shows that "there is little evidence over the past 65 years that tax cuts for the highest earners are associated with savings, investment or productivity growth."

In fact, the study found that higher tax rates for the wealthy are statistically associated with higher levels of growth.

The finding is likely to fuel to the already bitter political fight over taxing the rich, with President Obama and the Democrats calling for higher taxes on the wealthy to reduce the deficit and fund spending. Mitt Romney and the GOP advocate lower marginal tax rates for top earners, saying they fuel investment and job creation.

The CRS study looked at tax rates and economic growth since 1945. The top tax rate in 1945 was above 90 percent, and fell to 70 percent in the 1960s and to a low of 28 percent in 1986.

The top current rate is 35 percent. The tax rate for capital gains was 25 percent in the 1940s and 1950s, then went up to 35 percent in the 1970s, before coming down to 15 percent today - the lowest rate in more than 65 years.

Lowering these rates for the wealthy, the study found, isn't aligned with significant improvement in any of the areas it examined. Pushing tax rates down had a "negligible effect" on private saving, and while it does note a relationship between investing and capital gains rates, the correlations "are not statistically significant," the study says.

"Top tax rates," it concludes, "do not necessarily have a demonstrably significant relationship with investment."

There is one part of the economy, however, that is changed by tax cuts for the rich: inequality. The study says that the biggest change in the distribution of U.S. income has been with the top 0.1 percent of earners - not the one percent.

The share of total income going to the top 0.1 percent hovered around 4 percent during the 1950s, 1960s and 1970s, then rose to 12 percent by the mid-2000s. During this period, the average tax rate paid by the 0.1 percent fell from more than 40 percent to below 25 percent.

The study said that "as top tax rates are reduced, the share of income accruing to the top of the income distribution increases" and that "these relationships are statistically significant."

In other words, cutting taxes on the rich may not grow the economic pie. But the study found that those cuts can effect "how that economic pie is sliced."

Was the group studying this REALLY non-partisan? Was the DATA they used really factual?

If yes to both, then this is important news. What do you think?

Here is a link that might be useful: source

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vgkg(Z-7)

Why would sitting on a huge pile of money spur growth? They get lazy up there. Take it away from them (to pay the nation's bills) and they'll suddenly wake up, panic, and then invest to make up for what they lost. It's called motivation and it worked quite well during the 1950's when taxes were through the roof...yes, return to the good ol' daze like they claim they want.

Mitt Romney/Paul Ryan 2012
Indeed, Take Our Country Back!
(from the rich)

    Bookmark   September 17, 2012 at 5:30PM
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dublinbay z6 (KS)

Congressional Research Service -- the non-partisan research office for Congress

I have always understood that claim to be correct. Here is what wikipedia says about the Congressional Research Service:

Mission
CRS offers Congress research and analysis on all current and emerging issues of national policy.[3] CRS offers timely and confidential assistance to all Members and committees that request it, limited only by CRS�s resources and the requirements for balance, nonpartisanship and accuracy.[3]
CRS makes no legislative or other policy recommendations to Congress; its responsibility is to ensure that Members of the House and Senate have available the best possible information and analysis on which to base the policy decisions the American people have elected them to make.[3] In all its work, CRS analysts are governed by requirements for
1.confidentiality,
2.timeliness,
3.accuracy,
4.objectivity,
5.balance,
6.nonpartisanship.

That jibes with what I have always heard.

I think all we really need to do is check out the Geo. Jr. years which put the cut taxes for the rich idea into practice. How well were we doing after 8 years of it under Geo. Jr.?

Kate

Here is a link that might be useful: Congressional Research Service Definition

    Bookmark   September 17, 2012 at 6:14PM
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jodik_gw

What Vgkg said.

    Bookmark   September 17, 2012 at 6:50PM
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lionheart_gw

Tax cuts are Keynesian, and they do have a stimulative effect under some circumstances. In a "standard issue" recession, a tax cut could lubricate the gears somewhat. But this is not your run-of-the-mill recession.

"Why would sitting on a huge pile of money spur growth?"

It won't. The government and the fed are trying to get money to move, but no one is in a mood to move it. Money that just sits around is not taxable unless it's earning income, so eyeing it enviously is not going to be productive because it's not up for grabs until it somehow earns money. In other words, when it moves. That money has already been taxed; it's not going to be taxed again. Only the growth portion, assuming there's growth and not loss, is taxable.

And what do you think Bernanke's latest move amounts to, in regards to quantitative easing every month? Another version of trickle down.

As previously, this is targeted to lending institutions, in the hopes that it will clear out any remaining toxic assets, increase confidence, and thus get money going out and coming in. Theoretically, by keeping it open-ended, it is supposed to inspire a sense of security so that no one has to wonder when the rug is going to be pulled out from under them.

I'm not sure that whatever toxic assets remain are the primary problem. Bernanke's gifts to lenders doesn't make anyone else except lenders feel secure. I'm not convinced it will accomplish much of anything. It's far too targeted.

Since printing all this new money could significantly cheapen the dollar, you might end up with some unwanted inflation. This economy is so anemic that I doubt it will be quick inflation, like we had in the miserable 70s; rather it will probably be slower and more gradual.

The only thing we have going for us is that other large economies are in even worse shape than ours, so it may not weaken the dollar so much that it is crippling to the consumer.

This recession is still pretty intractable and I'm concerned that letting the tax cuts expire could trigger another recession in 2013 as people pull futher into their bunkers.

    Bookmark   September 17, 2012 at 8:32PM
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jodik_gw

A nation cannot be run without BOTH adequate revenue and proper spending. Why is it that expiring tax cuts to a small percentage of upper echelon, and going back to what was the norm, always causes such panic?

I think you'd see more investment, not more pulling back. And if a few want to pull back, let 'em. What a greedy, unfeeling nation we've become.

    Bookmark   September 18, 2012 at 6:40AM
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