November 1, 2012
CRS Economic Report A Bit Too Touchy For Senate Republicans
It’s a pity that Don LaFontaine has passed on. You may not have known his name, but you certainly have heard his voice. He provided the dramatic narrative to countless numbers of movie trailers, commercials, and other promotional material. If he were alive today he could speak words such as “In a world where politics define reality rather than the other way around….” Those words could easily apply to a news story in today’s New York Times. It describes successful efforts by Senate Republicans to have the CRS report titled Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945 (copy available courtesy of the NY Times) removed from circulation.
I wrote a brief post about the report last September. Its thesis is that tax cuts do not lead to economic growth. This conclusion came after studying 65 years’ worth of policy. I’ll repeat the report’s abstract from the earlier post:
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, that tax rates on the rich are too low (i.e., they violate the Buffett rule), and that higher tax rates on the rich would moderate increasing income inequality (change how the economic pie is distributed). This report attempts to clarify whether or not there is an association between the tax rates of the highest income taxpayers and economic growth. Data is analyzed to illustrate the association between the tax rates of the highest income taxpayers and measures of economic growth. For an overview of the broader issues of these relationships see CRS Report R42111, Tax Rates and Economic Growth, by Jane G. Gravelle and Donald J. Marples.
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%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. 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.
I guess the nonpartisan conclusions of the CRS seem to run counter to economic reality policy of one major political party. I guess that’s close to blasphemy in an election year. Why not rebut it rather than supress it. Too hard? [MG]