On September 14th, the Congressional Research Service published their long anticipated study on the correlation between the tax rates and economic growth from 1945 to today. If you go to their website today, however, the report is mysteriously missing.
In the opening paragraph, the report put it plainly:
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.
In other words, tax cuts don’t grow the economy, they just make the rich, richer.
Now, compare to the percentage of income for the top income:
And now, compare these tax rates to GDP growth:
The difference between the highest rate, and lowest, for GDP growth is statistically negligible. In fact, the only change is that high capital gains rates cause GDP growth a slight uptake.
With this report released, John Boehner’s congress promptly… erased it. Attempted to wipe it out, removed it from the CRS website and pretended it never existed. After all, it undermines their entire argument to expand tax cuts for the rich. The report going missing was not missed by Senator Chuck Schumer of New York. In a speech on tax policy to the National Press Club, he referenced the removal of the report by saying:
“This has hues of a banana republic. They didn’t like a report, and instead of rebutting it, they had them take it down.”
When asked about it, Senate Minority Leader Mitch McConnell waved off the criticism, claiming that the report was pulled due to “concerns about the methodology and other flaws.” He failed to name any such examples, however.
Jared Bernstein, Vice President Joe Biden’s former economist, also voiced concern at the removal, stating:
“This sounds to me like a complete political hit job and another example of people who don’t like the results and try to use backdoor ways to suppress them. I’ve never seen anything like this, and frankly, it makes me worried.”
For years, whenever a conservative finds that the facts don’t agree with their interpretation, they set out to attack it. Their answer to any economic problem is always the same, a tax cut. And they refuse to listen when the evidence in hand tells them they are wrong.
The president himself put is very eloquently in this speech (see video):
The report’s conclusion, however, speaks for itself:
The top income tax rates have changed considerably since the end of World War II. 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 average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.
The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.
However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, 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. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.