Thursday, May 18, 2017

CRS Says Tax Cuts For Rich Will Not Grow The Economy

Donald Trump has said he will spur enormous growth of the U.S. economy (GDP) and create a massive number of new jobs. Sadly though, his plan to do that will NOT accomplish that goal. His plan is to give the rich (and the corporations) a massive tax cut.

As I have said many times on this blog, tax cuts for the rich do not produce economic growth. In fact, the size of the top tax rate has nothing to do with GDP growth. The only thing a tax cut for the rich will do is to significantly increase the wealth/income gap between the rich and the rest of America (which is already at a pre-Depression 1920's level) -- and that's not good.

I'm not alone in this belief. The nonpartisan Congressional Research Service (CRS) has done a study on taxes and economic growth -- and they concluded that the two are not related. Here is the conclusion from the CRS report:

The top income tax rates have changed considerably since the end of World War II. 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 average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and 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. 

If Trump was serious about spurring economic growth and creating jobs, there is a much simpler solution that would accomplish that -- raise the minimum wage to a livable level. That would not only raise the wages of more than 20% of workers, but would put upward pressure on all worker wages. It would result in a massive amount of new spending, which would grow the economy (GDP) and create many new jobs.

Of course the Republicans won't do that. Trump and the congressional Republicans believe wages are too high. They want to leave the minimum wage at its current inadequate level, or abolish it entirely. They are not serious about creating jobs. They just want to give the rich tax breaks -- and their lie about it producing jobs is an effort to fool the public and allow them to cut taxes for the rich.

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