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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