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09-18-2012, 11:17 AM   #1
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Do Tax Cuts Lead to Economic Growth?

I know we've beat this topic to death... but still, new research and all...

Tax Cuts Don't Lead to Economic Growth, a New 65-Year Study Finds - Derek Thompson - The Atlantic





QuoteQuote:
Here's a brief economic history of the last quarter-century in taxes and growth.


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."

Analysis of six decades of data found that top tax rates "have had little association with saving, investment, or productivity growth." However, the study found that reductions of capital gains taxes and top marginal rate taxes have led to greater income inequality. Past studies cited in the report have suggested that a broad-based tax rate reduction can have "a small to modest, positive effect on economic growth" or "no effect on economic growth."

Well into the 1950s, the top marginal tax rate was above 90%. Today it's 35%. But both real GDP and real per capita GDP were growing more than twice as fast in the 1950s as in the 2000s. At the same time, the average tax rate paid by the top tenth of a percent fell from about 50% to 25% in the last 60 years, while their share of income increased from 4.2% in 1945 to 12.3% before the recession.

Here are two graphs of the top 0.1% and 0.01%. The first shows average tax rates since 1945 -- down, down, down. The second shows share of total income since 1945 -- up, up, up.

In short, the study found that top tax rates don't appear to determine the size of the economic pie but they can affect how the pie is sliced, especially for the richest households.

The paper is a good reminder to be humble about taxes as a tool for growing the economy. They remain, above all, a tool for collecting revenue and tweaking incentives for specific economic behavior. Congress has cut tax rates repeatedly over the last 60 years, while the country and the global economy have undergone considerable changes that probably had a greater effect on growth. For years after World War II, the U.S. was a singular economic powerhouse with an enormous manufacturing base that employed nearly 40% of the economy. For the last decade-plus, the economy has grown at a considerably slower pace and the gains have accrued to a smaller and more elite share of the economy.
The NYT column mentioned above:
http://www.nytimes.com/2012/09/16/opinion/sunday/do-tax-cuts-lead-to-economic-growth.html?_r=2

09-18-2012, 12:31 PM   #2
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shhh.. THAT is just "economics".. I think you need a "morality axis".......................
09-19-2012, 06:22 PM   #3
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Obviously, no.


Somehow the GOP thinks starving poor people 'incentivizes' them to get blood from a stone, but rich people not getting a bigger cut every year for doing *less* somehow will 'trickle down' and make them 'job creators'... Which of course they never ever do.... Ever.....
09-19-2012, 07:54 PM   #4
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Even less so today, when the wealthy or even the upper middle class have no hesitation about putting money in other countries. It isn't just Mitt's money in the Caymans or Zurich. I've had money in international funds, and I'll bet most of us who have a 401k have put money into funds which have an international component. There just isn't any guarantee that tax cuts for people who invest will put money in the domestic economy.

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