Posted on 09/17/2012 1:37:17 PM PDT by justlurking
Income tax rates have been at the center of recent policy debates over taxes. Some policymakers have argued that raising tax rates, especially on higher income taxpayers, to increase tax revenues is part of the solution for long-term debt reduction. For example, the Senate recently passed the Middle Class Tax Cut (S. 3412), which would allow the 2001 and 2003 Bush tax cuts to expire for taxpayers with income over $250,000 ($200,000 for single taxpayers). The Senate recently considered legislation, the Paying a Fair Share Act of 2012 (S. 2230), that would implement the “Buffett rule” by raising the tax rate on millionaires.
(Excerpt) Read more at graphics8.nytimes.com ...
Advocates of lower tax rates argue that reduced rates would increase economic growth, increase saving and investment, and boost productivity (increase the economic pie). Proponents of higher tax rates argue that higher tax revenues are necessary for debt reduction, that tax rates on the rich are too low (i.e., they violate the Buffett rule), and that higher tax rates on the rich would moderate increasing income inequality (change how the economic pie is distributed). This report attempts to clarify whether or not there is an association between the tax rates of the highest income taxpayers and economic growth. Data is analyzed to illustrate the association between the tax rates of the highest income taxpayers and measures of economic growth. For an overview of the broader issues of these relationships see CRS Report R42111, Tax Rates and Economic Growth, by Jane G. Gravelle and Donald J. Marples.
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 real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. 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. 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.
Just so it is clear: the link is to a PDF from the Congressional Research Service. The file just happens to be hosted by the NY Times. :-)
Taxing those over 250,000 will cost us jobs, and will likely be revenue neutral. It may even cost us revenue.
That’s not what this paper says. This document states that because we’ve cut the taxes, the wealthy are more wealthy and there isn’t a substantial change in savings/investment.
That is what it claims, but the methodology is effectively the same as the "proof" for global warming: the marginal tax rate went down, but income inequality went up.
Both changed over time: one generally declined, while the other generally increased. But, does that prove that one caused the other?
This ought to be a good read. Right off the bat, what you highlight them purporting makes no sense. If there’s no substantial change in savings or investment, then they’re really not wealthier, are they?
” This document states that because we’ve cut the taxes, the wealthy are more wealthy and there isn’t a substantial change in savings/investment.”
Nobody ever paid 90% in taxes. Back then, you could deduct almost everything as an “expense”....right down to your clothing as a “uniform expense”.
Just one example. The rest makes no sense whatsoever.
Keep reading -- they do make the distinction between marginal tax rates and average tax rates.
I think there are other flaws, but they at least got that one right.
Looks like the only ones who benefit from cutting the taxes on the richest Americans are the richest Americans.
That's what they want you to think. But, I finally figured out what I think is wrong with this "study".
They plot per-capita GDP against the tax rates. Not just GDP, but GDP divided by the population.
In order for per-capita GDP to remain constant, it has to increase with every person that is born (or enters the workforce, depending on the population metric used).
If GDP remains stagnant, per-capita GDP will decline. So, it has to grow. It doesn't grow on its own: it requires investment to create new jobs.
For per-capita GDP to increase, productivity has to increase. That doesn't happen on its own, either.
I haven't figured out all the ramifications of this rather glaring error in the methodology. But, I suspect you will see rebuttals that understand this better than I do.
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