By GREGORY N. HEIRES
As Republican presidential candidate Mitt Romney continues to try to sell his conservative plan to cut taxes to voters, a recent Congressional Research Service study debunks the theory that reducing top tax rates spurs economic growth.
The Sept. 14 report, prepared for the U.S. Congress and certain to be dismissed or ignored by Republicans, also concludes that since 1945, government policies of cutting taxes of the wealthy have aggravated income inequality.
With both conclusions, the report thus shatters the conservative argument that tax cuts benefit society at large because the upward distribution of income and wealth they cause is mitigated by rising productivity.
While failing to be specific, Romney says he will extend the Bush cuts and provide even more tax breaks for the wealthy. The CRS report suggests that the plan would do little, if anything, to help the economy while worsening inequality, now about as bad as during the Great Depression.
President Barack Obama would increase the taxes on individuals with incomes above $200,000 and families earning $250,000.
As the report notes, the top marginal rate throughout the late-1940s and 1960s was 90 percent. Today, the rate is 35 percent. (The marginal rate expresses how much you are taxed for each additional dollar you earn.)
The top capital gains tax rate was 25 percent in the 1950s and 1960s, 35 percent in the 1970s and 15 percent today.
Did these tax cuts result in significant economic growth? No!
Real GNP growth averaged 2.4 percent in the 1950s. By 2000, that rate dropped to 1.7 percent.
What’s worse, while the economy and productivity grew together in the two decades after World War II, they diverged in the early 1970s until today, which meant workers stopped sharing the fruits of the expanding economy (however tepid its growth).
“Analysis of such data suggest the reduction in the top tax rates have had little association with savings, investment, or productivity growth,” the report, “Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945,” says.
But while the reduction in tax rates aren’t correlated with economic growth, the cuts appear to be associated with increasing inequality, according to the report.
The share of income going to the top 0.1 percent of families rose from 4.2 percent in 1945 to 12.3 percent in 2007. It fell to 9.2 percent in the 2007-09 recession, but is on the rise again.
Since 1945, tax cuts have been accompanied by a steady shift of wealth and income to the rich.
Romney likely views this report as a reflection of the “politics of envy,” a resentment on the part of those of us who lack the entrepreneurial spirit of successful business owners and managers.
But the report in reality is an indictment of years of public policies that have fueled a huge shift of our income and wealth to the economic elite.
Will ordinary Americans wake up and try to change the direction of this shifting tide? Or will the country continue to its degeneration into Third World status?
