Tax rates and economic growth

Discussion in 'Clean Debate Zone' started by oldfart, Dec 13, 2012.

  1. oldfart
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    oldfart Older than dirt

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    [quote="Congressional Research Service, "Taxes and the Economy: An Economic
    Analysis of the Top Tax Rates Since 1945", Thomas L. Hungerford, Specialist in Public Finance, September 14, 2012]

    The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate nd 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. [/quote]

    So it seems that a review of the literature and research indicates that "job creators" do not create jobs in response to tax cuts, that there is no correlation between the top tax rates and economic growth, and the only discernible effect of lowering the top marginal tax rates is to distribute more income to the already wealthy.

    Since the results are based on a 65-year time series of over a dozen economic variables, using a non-linear econometric regression model with the variances for each published in the appendix, I suggest that anyone who wants to debate the methodology brush up on their statistics and read all of the footnotes.
     
  2. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    So it seems that a review of the literature and research indicates that "job creators" do not create jobs in response to tax cuts, that there is no correlation between the top tax rates and economic growth, and the only discernible effect of lowering the top marginal tax rates is to distribute more income to the already wealthy.

    Since the results are based on a 65-year time series of over a dozen economic variables, using a non-linear econometric regression model with the variances for each published in the appendix, I suggest that anyone who wants to debate the methodology brush up on their statistics and read all of the footnotes.[/QUOTE]


    First of all, this particular study was put out by a liberal democratic supporter a couple of months before the election. One might serious question his motives and his professionalism, as well as the truth and accuracy of this study. Note that the CRS pulled it from their website.

    snippet:

    An analyst’s personal politics might also undermine his work on a controversial topic. In Hungerford’s case, it doesn’t help that he served in the Office of Management and Budget and the Social Security Administration in the final years of Bill Clinton’s presidency and that he has contributed more than $7,000 to Democratic campaigns since 2008.

    At Congressional Research Service, A Long History of Pointed Questions : Roll Call News

    And:

    A recent Congressional Research Service report to Congress purported to show no link between the top income tax rates and economic growth. The report, written by CRS staffer Thomas L. Hungerford, was titled "Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945", CRS 7-5700, R42729, September 14, 2012. The report's methods were so seriously flawed that the study could not possibly pick up any relationship between taxes and growth, making its results, or lack of them, meaningless. The report has since been withdrawn from the CRS web site.

    Retracted CRS Report on Taxes and Growth Flawed, But Still Cited | Tax Foundation

    The Tax Foundation link talks in more detail about the flaws of the report.


    Personally, I think that the effect of tax rate changes on economic growth depend on numerous factors and the current state of the economy. Clinton raised taxes in the 90s when the economy was strong, and investors didn't really care. Bush lowered taxes when the economy was struggling after 9/11, and the economy did very well up until the Great Recession hit, which had nothing to do with the tax rates BTW.

    There is one thing however, I know of no situation where a poor economy dug itself out of a hole by raising taxes. Most of the austerity measures that were put in place in Europe over the past few years have been weighted more to increasing taxes rather than spending cuts. It hasn't worked for them, they are looking at a long term recession and high unemployment over there. And we're about to try the same damn thing.
     

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