Romney
and the Republicans argue that the best road to economic prosperity for the
nation is one built on low tax rates, particularly for the super rich. They say we need to cut taxes for the rich even
though the average tax rate paid by the richest Americans is at the LOWEST
level since World War II. So, do tax
cuts for the rich lead to economic growth?
Nope. That’s the conclusion of a
study of 65 years of tax policy conducted by the non-partisan Congressional
Research Service (CRS). The authors of
the CRS study conclude that there is no correlation between the top marginal
rate and capital gains rate and economic growth. However, there is a definite correlation
between lower top tax rates and the concentration of income at the top. The researchers write this summarizing their
findings.
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.
Read the study here:
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