Would Taxing the Rich Really Hurt Economic Growth?
If Congress and the White House can’t agree on a compromise to keep the Bush-era tax cuts in effect, the result would not harm economic growth, according to a controversial report from the nonpartisan Congressional Research Service (CRS).
Senate Republicans recently took exception to a CRS report, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, that found no connection between higher taxes for the wealthy and a decline in economic growth. The report essentially undercut the GOP’s argument for extending the current tax rates for the rich, and Republicans pressured CRS, which works for Congress, to withdraw the report from circulation.
CRS analyst Thomas L. Hungerford looked at 65 years of data and couldn’t determine how changes in the top marginal tax rate and the top capital gains tax correlated with economic growth. He did find, however, a connection between reductions in tax rates for wealthy Americans and growing concentrations of income for top earners.
A 2010 CRS report, Small Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues by Jane G. Gravelle, concluded that, contrary to the arguments of House Speaker John Boehner (R-Ohio) and other Republicans, “lowering the top tax rates benefits only a small share (3% or so) of businesses, and 80% or more of the tax cut's benefits do not accrue to business.”
Another, more recent report by Gravelle, The “Fiscal Cliff”: Macroeconomic Consequences of Tax Increases and Spending Cuts, suggests that ending the Bush tax cuts for those making under $250,000 a year and allowing the automatic spending cuts mandated by the so-called “fiscal cliff” in January are the policies most likely to lead to a contraction of the national economy, while allowing a temporary waiver or “patch” of the alternative minimum tax and allowing the Bush tax cuts for wealthy to expire are the policies least likely to cause an economic contraction.
-David Wallechinsky, Noel Brinkerhoff
To Learn More:
Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945 (by Thomas L. Hungerford, Congressional Research Service) (pdf)
House GOP Blocks Nonpartisan Report that Debunks Tax Cut Mythology (by Matt Bewig, AllGov)
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