Congressional Research Service: Tax Cuts For Wealthy Doesn’t Boost Economy
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WASHINGTON (CBSMiami) – Congress’ nonpartisan policy analyst may have just shot a huge hole in the battle over taxes between President Barack Obama and his Republican challenger Mitt Romney.
President Obama and Romney have been fighting over taxes as part of the central economic focus of their campaign. Obama wants to raise taxes on those making more than $200,000 to help bring down the deficit, while Romney wants more tax cuts for everyone, including large tax cuts for the top tax bracket.
The Congressional Research Service weighed in with a new report analyzing tax rates since the end of World War II. The report couldn’t be any worse for Romney and Republicans’ argument for more tax cuts for the top tax brackets.
“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,” the CRS reported. “Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth.”
The CRS continued, “However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”
According to the Congressional Research Service, the share of income controlled by the top 0.1 percent of U.S families income increased from 4.2 percent in 1945 to 12.3 percent by 2007 and then falling to 9.2 percent during the recession.
“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,” the CRS reported.
The CRS said the top marginal tax rate in the late 1940’s and 1950’s was above 90 percent; while today it is roughly 35 percent. The top capital gains tax rate was 25 percent in the 50’s, 35 percent in the 70’s and today is 15 percent. Additionally, the CRS said the average tax rate faced by the top 0.01 percent of taxpayers was above 40 percent until the mid-1980’s to the current average rate of below 25 percent.
The CRS report calls into question the Republican-led House of Representatives’ attempt to extend the Bush-era tax cuts for all income levels and for Romney’s plan to add additional tax cuts on top of extending the Bush tax cuts.
The report’s finding that the lowering of tax rates doesn’t impact growth, but does increase the accumulation of wealth by the richest 0.01 percent of Americans could give a boost to President Obama and Senate Democrats argument to extend middle-class tax cuts but raise rates on the wealthy.
The report’s timing just weeks before the presidential debates, will give plenty of fodder for both candidates to spin and re-spin as they put final touches on their debate preparations.