Republicans Ignore the Evidence About Higher Taxes on the Wealthy
Republicans Ignore the Evidence About Higher Taxes on the Wealthy
Multiple reports now prove that increasing taxes on the wealthiest Americans wouldn’t stymie economic growth—it would actually create jobs and boost the economy.
Part of a Series
Shortly before Election Day in November, The New York Times published a report about a Congressional Research Service study that had been withdrawn after publication due to demands by Senate Minority Leader Mitch McConnell (R-KY). The economic report, “Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945,” “found no correlation between top tax rates and economic growth.” This means that increasing taxes on the wealthiest Americans would not actually harm the economy in the way congressional Republicans have been asserting.
The study in question did not receive much attention before it was censored. Sen. Charles E. Schumer (D-NY) mentioned it in a speech at the National Press Club, but only after it was pulled. Speaking to The Times, Sen. Schumer objected to what he termed the “banana republic” aspects of the Republicans’ actions, referring to the idea of a ruling plutocracy making the politically important decisions for the entire nation: “They didn’t like a report, and instead of rebutting it, they had them take it down.”
The study’s findings then began to receive widespread media coverage. Among them:
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.
You can read the entire report, authored by Thomas L. Hungerford, a specialist in public finance with a doctorate in economics from the University of Michigan, here.
The Congressional Research Service is a nonpartisan research and analysis arm of the Library of Congress. Owing to their fear of nonpartisan and nonideological forms of empirical knowledge, Republicans in Congress have sought to undermine not only the service but also the Bureau of Labor Statistics and the American Community Survey—which, as Catherine Rampell of The New York Times Economix blog explained, “tells Americans how poor we are, how rich we are, who is suffering, who is thriving, where people work, what kind of training people need to get jobs, what languages people speak, who uses food stamps, who has access to health care, and so on.”
So far, efforts to thwart these entities have been met with only limited success, but Republicans did defund the Office of Technology Assessment, whose purpose from 1972 to 1995 was to provide Congress with objective analyses of complex scientific and technical issues. The Republican threats against these organizations are certainly not empty ones, and they could very well force them to toe the line—or else.
Nevertheless, the most recent attempt to censor the Congressional Research Service backfired. The report, which demonstrated that lower taxes on the wealthy do not, in fact, lead to more economic growth, would likely have been ignored had congressional Republicans not tried to quash it.
Now the Social Science Research Network, a website devoted to the rapid dissemination of scholarly social science and humanities research, has posted a new report, also penned by Hungerford, which, if properly understood, would discredit such evidence-starved right-wing assertions even further. It’s called “Changes in Income Inequality Among U.S. Tax Filers between 1991 and 2006: The Role of Wages, Capital Income, and Taxes,” and, unfortunately, congressional Republicans will not be able to quash it. In it, Hungerford examines changes in after-tax income inequality among tax filers between 1991 and 2006. He focuses on the manner in which changes in wages, capital income, and tax policy each helped contribute to the explosion of inequality in American income. The report found that, “By far, the largest contributor to this increase was changes in income from capital gains and dividends.” Under the Clinton administration’s tax code changes, which raised rates on top income earners, some of the inequality in the United States was equalized. But the benefits from these changes were reversed following the 2001 and 2003 Bush-era tax cuts.
Taken together, these two reports undermine the central tenets of conservative economic philosophy. The right’s argument has always been a simple one: Tax rates on the wealthy must be kept low in order to inspire investment and promote economic growth. Whether this leads to greater inequality is not relevant, as inequality per se is not a problem in the conservative mind—it is merely a fair and accurate reflection of talent and initiative. And in the context of the debate, this argument has always been taken as a matter of faith. As Senate Minority Leader Mitch McConnell (R-KY) told one reporter in July 2010, “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue because of the vibrancy of these tax cuts in the economy.”
It has always been difficult to find a genuine economist, even a conservative economist, who would buy into the theory that reducing taxes on the wealthy actually increases revenue. Because it is merely a theory, though, it was difficult to disprove—until now. The evidence doesn’t support it—and all the legislation that has been passed on the basis of this argument has been mistaken. Mistaken too is the right-wing refusal to agree to almost any form of revenue increase in order to avoid the catastrophic coming of the automatic across-the-board spending cuts known as the sequester.
Then again, it is at least possible that the theory was less of a mistake than a smokescreen. For if the Republicans were genuinely interested in the goals they profess to be pursuing—that is, greater economic growth for all—it’s unlikely that they would be so eager to quash the evidence when it fails to support their initial assumptions, instead seeking to alter their theory to get to their end goal.
But do you remember former Vice President Dick Cheney’s explanation to then-Commerce Secretary Paul O’Neill as to why the Bush administration was pursuing its tax cuts for the wealthy despite the dangers these cuts posed to America’s fiscal health? “We won the midterms. This is our due.”
The rest, as the great first-century B.C.E Rabbi Hillel the Elder would say, “is commentary.”
Eric Alterman is a Senior Fellow at the Center for American Progress and a CUNY distinguished professor of English and journalism at Brooklyn College. He is also “The Liberal Media” columnist for The Nation. His most recent book is The Cause: The Fight for American Liberalism from Franklin Roosevelt to Barack Obama.
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