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Aaron Regunberg: Tax Cuts for Wealthy Don’t Spur Growth

Saturday, November 17, 2012

 

Tax cuts for the rich have been dealt a series of political blows recently. President Obama made the repeal of the Bush tax cuts for the wealthy a cornerstone of his campaign for reelection, and his handy win a week and a half ago gives him a powerful mandate to make these campaign promises a reality. The President has been strengthened in this fight by his party’s unexpected success in the Senate, where Democrats actually increased their majority, largely by electing and reelecting a number of progressive champions who, like Obama, explicitly ran on a pledge to repeal tax giveaways to the wealthy and level the playing field for working families. And while some conservatives argue that Democrats have no such mandate because the GOP retained control of the House, they should probably mention that Democratic House candidates actually received more votes than Republicans, who kept their House majority largely because of ridiculous gerrymanders. In short, on November 6th the American people sent a message loud and clear that they want our political leaders to reject the voodoo economic policies of the recent past.

But tax cuts for the rich faced another major blow even before the election—a blow to their credibility. It did not get a lot of attention here in Rhode Island, but back in September the Congressional Research Service issued a report which found there to be no evidence of a relationship between lower tax rates for the wealthy and economic growth. Let me repeat that—the Congressional Research Service found there to be no evidence of a relationship between lower tax rates on the wealthy and economic growth.

Well (I can hear conservatives sputtering), of course the Congressional Research Service would say that. They’re probably some pinko-commie America-hating outfit whose data can’t be trusted, right?

Wrong. The Congressional Research Service (CRS) is an arm of the Library of Congress. It’s the nonpartisan legislative service that members of Congress from both parties go to for policy analyses. In fact, it was Republican Congressional leaders who requested that the CRS produce this report in the first place. Unfortunately for them, they did not get the results they had been hoping for.

The study looks at top marginal tax rates as well as average tax rates for the highest earners since 1945. To give you a sense of how these rates have changed over time, the report summarizes:

“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 report attempts to determine the relationship between these changes in upper-income tax rates and three economic indicators—savings and investment, productivity growth, and real per capita GDP growth. So what did it find?

First, it found that “the top tax rates do not necessarily have a demonstrably significant relationship with investment.”

Second, it found that “the top tax rates are not necessarily associated with productivity growth.”

And finally, it found that the “top tax rate [does not have] a statistically significant association with the real GDP growth rate.”

So then, what are lower taxes on the wealthy associated with? According to the study, the answer is higher economic inequality. “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.”

This study is a big problem for conservative ideologues. The biggest—really, the only—argument that conservatives have to justify cutting taxes on the wealthy (thereby guaranteeing cuts in vital social services and/or tax hikes on working families), is that these tax cuts grow the economic pie for us all. So a nonpartisan, highly respected report saying that tax cuts for the rich do nothing to grow the economic pie for all, but simply apportion a larger slice of the pie to the top 1%, sends a strong message about the rationale for these rightwing policies.

And it’s a message that is being heard. More and more pundits, politicians, and community leaders are calling for an end to tax cuts on the wealthy. Even some high-profile conservatives are getting on board—Bill Kristol, editor of the Weekly Standard and one of the grandfathers of the modern conservative movement, recently said, “It won’t kill the country if we raise taxes a little bit on millionaires. It really won’t.”

The question, in my opinion, is whether this message will be heard here in Rhode Island. During his recent campaign, during which he ran as an outspoken liberal champion, Speaker of the House Gordon Fox repeatedly promised that progressive income tax reform would be on the table this legislative session. I pray that he follows through on this commitment (and doesn’t, alternatively, prove that he’s actually less progressive than Bill Kristol).

The evidence is clear. Public opinion is clear. It’s time to end tax cuts for the wealthy, both at the national and the state level. And now that the election is over, it’s on us to make sure our legislative leaders get the memo. 

 

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Comments:

the less taxes on everybody, the better will be!

Comment #1 by anthony sionni on 2012 11 17

Aaron, What would you like the tax rates for families earning over $250,000 set at?

Comment #2 by george pratt on 2012 11 17

They can raise taxes all they want. This will only ensure that govt will spend more.

You want this economy to get better? Stop the spending. Stop the free giveaways. Stop extending unemployment benefits. Stop allowing people to LIVE on welfare, instead of it being a bridgegap. Make these people get to work, earn a living, stop sponging off the govt, start contributing by paying their own taxes. Romney had it right. Get more people involved in the workforce and paying taxes, and you won't have to raise them.

This country is sooo doomed. We haven't even begun to see the type of recession we're headed for. We've never seen anything like what's coming our way.

Comment #3 by pearl fanch on 2012 11 17

Tax cuts for the wealthy don't spur growth...except for every time it has been tried (Kennedy, Reagan, Bush 2). Nice try, Mr. Regunberg.

Comment #4 by Drew M on 2012 11 17

Good point, Drew. Plenty of studies tell a different tale. So we're forced to look at actual results.

I'm beginning to think that Travis Rowley is the only person who knows what he's talking about at GoLocalProv.

Comment #5 by Jeremy Soninjer on 2012 11 17

Capital gains and dividend taxes are going up 3.8% on high wage earners. When your property tax goes up 4% does that feel insignificant to you? The high wage earners already pay the majority of the taxes in this country, but thats not enough for progressives. People may not be willing to "Go Gault" out of the country in big numbers, but they certainly do to lower tax states.

Comment #6 by george pratt on 2012 11 17

Apparently, trillion dollar Stimulus Programs don't spur growth either. Funny, though, when Reagan took over from the hapless Carter, and when Bush took over from the ethically-challenged Clinton, the Country was in a recession both times. The Republican Presidents cut taxes FOR EVERYBODY, and the economy took off. I don't see how this meets your deinition of not working.

Comment #7 by Michael Trenn on 2012 11 17

Jeremy, This morning on 'A Lively Experiment" Tom Sgouros blamed the people of Barrington for the fact that Central Falls had to close its library. When Jim Hummel pointed out that CF doesn't have a library because it can't afford it, Sgouros just about jumps over the table, and says that people like Hummel are whats wrong with RI. Classic!

Comment #8 by george pratt on 2012 11 17

I usually watch the program on sundays. I'll make sure to catch it.

Comment #9 by Jeremy Soninjer on 2012 11 17

Sgouros is what is wrong with this state.I don't know why he keeps getting invited on TV shows and being shopped here as a "mindsetter"whatever that made up word means.He is like a parrot-"more taxes-caw-more taxes-caw-more spending-caw-more spending-caw-well,I guess I exaggerated to make a point-5 yard penalty.

Comment #10 by Joseph Bernstein on 2012 11 17

"Good point, Drew. Plenty of studies tell a different tale. So we're forced to look at actual results."

Plenty of studies from explicitly conservative-leaning think tanks have shown that tax cuts on the rich do all sorts of great things, yes. But to every single one of you commenters, can you find me one single neutral policy organization on par with the Congressional Research Service who has ever found anything in support of this?

I've said it before and I'll say it again--there are real facts, real knowable facts in the world, and the right really, really, really needs to get that.

Comment #11 by Aaron Regunberg on 2012 11 17

Aaron,

Heres a chancde to educate yourself on who's paying there fair share. After watching it Mitt Romney's 13% may not look too bad.

http://yourmoney.blogs.cnn.com/2012/11/16/hey-middle-class-pay-up/

Comment #12 by george pratt on 2012 11 17

What gets lost in the shuffle is the fact that anyone that thinks more taxes are the savior, can ALWAYS pay more. The government will cash the check.

Comment #13 by David Beagle on 2012 11 18

did anyone see Regunberg deny the economic growth that occurred each time Kennedy, Reagan, and Bush II tried it?

"there are real facts, real knowable facts in the world, and the right really, really, really needs to get that." ... A. Regunberg

Comment #14 by Drew M on 2012 11 18

Thanks for this article, Aaron. I'm amazed at the comments - it must be discouraging, but I'm guessing that it's not a representative sample of the population. Judging by the election, I it's certain that these commenters are not a representative sample.

Seriously...someone would use the Bush II years as an example of good economic policy and health to dispute these findings? Geez...

Comment #15 by Warwick Resident on 2012 11 19

You gotta lotta evidence, huh? Gimme a break, pal. In 1990, ol' George Bush agreed to a tax on 'luxury yachts' on false premise the 'rich' would pay it. They didn't.

Overnight, the boating industry - that means your kayak, too, pal - collapsed. Go ask anyone around Bristol. They'll tell ya.

Jealousy is a powerful thing. Jealousy begets genocide. Playing the Klass Envy & Hatred Game might be fun for you in its early or even prodromal stages, but rest assured, you won't like the end results.

Jealousy begets genocide.

Neighborhood agitators who play klass envy games to not have your interests at heart, Aaron, no matter how many sweet nothings they burp out from their every-open pie-holes.

Jealousy begets genocide. Plan accordingly.

Comment #16 by paul zecchino on 2012 11 19

Yeah, we want to tax the hell out of the rich. I want to see those super-rich USSenators vote for that kind of tax. Obama has said that he wants to pay more taxes! Like I am going to believe him, yeah right.

You want to raise taxes on rich business people, they will move their assets off-shore. The jobs have already left so they will leave also. The government won't get enough from the rich with the current tax proposal to deal with the national debt. It is too great and Obama has even acknowledged it. There will be cuts needed but more importantly, you need JOBS to get people to pay taxes. That is where the bulk of the revenue will come from. Relax the regulations on business to spur growth and this debt issue will be addressed.

Comment #17 by Gov- stench on 2012 11 19

Gov-stench -

Agree. The inane Bush I tax hikes aggravated the '90 recession and raised little new revenue. Same old story. If BigGov wants money, best way to do it is to cut taxes.

Simple arithmetic demonstrates if BigGov can only get money from thriving businesses and citizens, then it must create conditions for them to thrive. Cutting taxes does that. Raising them does the opposite: it destroys businesses and harms citizens. I know I'm preaching to the choir, given learned posts from Joe Bernstein, George Pratt, Jeremy Soninjer and Michael Trenn but it can't be said enough.

Jealousy is a powerful weapon. It can destroy nations. This lie about 'taxing the rich' is commie-rat code for 'destroy the middle class'. Don't take my word for it. lenin said the trick was to misrepresent efforts to destroy the middle class - always the first target of communist rats - as 'making the rich pay their fair share'. Where have we heard that before?

The rich are leaving the country. They're sheltering assets. Good for them. That leaves as targets the middle class: you, me, that fat guy behind the tree.

It's disheartening that thirty years after President Reagan's tax cuts literally changed the way the world looks, we're returning to the old tax & spend idiocy of FDR and his communist 'braintrust'.

Look at any photo from the 70s, compare it with photos of the same areas or things from the 80s forward. The world began to prosper because Reagan cut America's taxes after years of confiscatory rates.

The left knows this: If America totters, the world crumbles. That's why the left is in such a frenzy to jack taxes on the middle class.

The super rich like David Geffen are dining out fat, not worried at all about 'taxes on the rich'. They're laughing up their crusted sleeves as their errand boy demolishes the country that foolishly made them rich.

Comment #18 by paul zecchino on 2012 11 19




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