By Jessica Chau
Just in time for the year-end debate over whether to extend the Bush tax cuts for the richest 2 percent, a new report by the non-partisan Congressional Research Service concludes that tax cuts for the rich don’t drive economic growth, as noted in the three stories below.
Report: Tax Cuts for Wealthy Linked to Income Inequality
Wall Street Journal, Siobhan Hughes, 9/16/2012
The report, from the Congressional Research Service, finds that tax cuts for high earners can be linked to a different outcome: income inequality.
“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,” according to the CRS report, circulated on Friday.
The report appears to give a lift to Democrats’ calls for the Bush-era tax cuts to lapse next year on incomes above $250,000. Democrats say that low taxes on the rich merely exacerbate income inequality.
Tax Cuts Don’t Lead to Economic Growth, a New 65-Year Study Finds
The Atlantic, Derek Thompson, 9/16/2012
In 1990, President George H. W. Bush raised taxes, and GDP growth increased over the next five years. In 1993, President Bill Clinton raised the top marginal tax rate, and GDP growth increased over the next five years. In 2001 and 2003, President Bush cut taxes, and we faced a disappointing expansion followed by a Great Recession.
Does this story prove that raising taxes helps GDP? No. Does it prove that cutting taxes hurts GDP? No. But it does suggest that there is a lot more to an economy than taxes, and that slashing taxes is not a guaranteed way to accelerate economic growth.
That was the conclusion from David Leonhardt’s new column today for The New York Times, and it was precisely the finding of a new study from the Congressional Research Service, “Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945.”
Do Tax Cuts Lead to Economic Growth?
New York Times, David Leonhardt, 9/16/2012
The defining economic policy of the last decade, of course, was the Bush tax cuts. President George W. Bush and Congress, including Mr. Ryan, passed a large tax cut in 2001, sped up its implementation in 2003 and predicted that prosperity would follow.
The economic growth that actually followed — indeed, the whole history of the last 20 years — offers one of the most serious challenges to modern conservatism. Bill Clinton and the elder George Bush both raised taxes in the early 1990s, and conservatives predicted disaster. Instead, the economy boomed, and incomes grew at their fastest pace since the 1960s. Then came the younger Mr. Bush, the tax cuts, the disappointing expansion and the worst downturn since the Depression.
“At the level of taxes we’ve been at the last couple decades and the magnitude of the changes we’ve had, it’s hard to make the argument that tax rates have a big effect on economic growth,” Mr. Marron said. Similarly, a new report from the nonpartisan Congressional Research Service found that, over the past 65 years, changes in the top tax rate “do not appear correlated with economic growth.”