Archive for September 17th, 2012

How the Pie is Sliced

When Paul Ryan appears in Dover NH tomorrow morning (11 am at the McConnell Center), someone should tell him about a new report from the Congressional Research Service, a non-partisan arm of the Library of Congress, on the impact of tax cuts.

In a report released Friday, September 14, Thomas L. Hungerford analyzed the changes in the top tax rates in relationship to GDP growth. 

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%.

Before you tax-and-spenders out there conclude that high taxes produce faster growth, read on:

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.

So do changes in the tax rates of people at the top of the income ladder make any difference whatsoever?  Well, yes.  Hungerford concludes:

The top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution….    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.

On this anniversary of the beginning of the Occupy Wall Street protests, this report provides more evidence that the government is working well for the 1%.  So if you get a chance to chat with Paul Ryan tomorrow, ask him if he’s had a chance to read the new CRS study and if it changes his views.

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