Oh, my! Melfamy and the Left-o-sphere has found us out!
Not really – and here’s why.
I don’t dispute this CRS report (as far as it goes) although I can understand why it was blocked – I would have blocked it as well because it is incomplete. It only attempts to correlate two factors, top tax rates and economic growth and purports to show no correlation. I agree that there is no correlation using their math but I would also point out that:
- The CRS failed to take into account the myriad of other factors that have impact on economic growth, investment, savings and productivity. This report is based on too few inputs to show any statistical validity because it ignores that the economy is a multivariate system that includes more than just tax policy.
- As Thomas Sowell noted, when top tax rates are excessively high, nobody pays them. People shift their assets to avoid as much tax as possible and most of the time; it takes capital out of the game. When economic activity goes down, taxable income follows. We noted that here in real time where a substantial tax increase in the UK actually lowered government revenues.
- They reach the shocking conclusion that if you lower someone’s tax rate, they keep more of their own money and they come up with this nugget of truth: “Since the U.S. individual income tax is a progressive tax system, after-tax incomes tend to be more equally distributed than before-tax income.” The liberal wealth redistribution mechanism is working, in other words. There is no better example of Marxism than this statement from the report.
- The study also ignores the Laffer Curve, proven by the Reagan years and something that we discussed here almost 2 years ago in response to similar lunacy.
The Heritage Foundation finds similar issues:
The Congressional Research Service (CRS) set out to make a convincing case that lower income tax rates do not strengthen the economy. It failed, but in so doing, it called into question the quality of CRS analysis and the institution’s credibility as non-partisan.
The CRS is supposed to provide expert, objective, non-partisan research analysis to Congress. Most of the time, the CRS performs this function admirably and diligently; the longstanding episodic exception has been in tax policy. The most recent example of this partisan divergence is a report setting out to do the impossible: use historical data to argue that lower rates do not encourage stronger economic growth and, by implication, that higher marginal tax rates such as those espoused by President Obama do not discourage economic growth.
The CRS report presents a slew of periods between 1945 and 2010 comparing the top marginal income tax rates and capital gains rates with economic growth rates. From these correlations the author concludes that lower rates do not correlate with stronger economic growth.
In fact, these stylistic correlations prove nothing. In short, the economy is more complicated than this simplistic approach can acknowledge. For the analysis to prove anything, it needed to account for countless other economic and policy factors, many specific to a given period, and determine how those factors influenced economic growth in the period in question. With this as background, the analysis would then have to isolate the effect lower rates had on growth.
CRS, and many others that argue against lower tax rates, mislead when they make such flimsy correlations because they fail to disclose that no two time periods are the same. Comparing 1950 to 2010 just on tax rates is ludicrous. The world and tax policy are entirely different in those timeframes. If CRS tried to account for all the differences, and then determine how tax rates influenced growth, it would find a different and more accurate answer: that lower rates encourage growth.
What is funny are the conclusions that the liberals draw from this flawed report. “Republicans are wrong!”, “Income inequality is increased by lower taxes on the rich!” and yet they overlook this little nugget in the conclusion:
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.
They, like our friend melfamy, seize on the first two sentences when the last sentence negates the entire premise of the report. Let’s repeat it:
The top tax rates appear to have little or no relation to the size of the economic pie.
The gist of this flawed report is that while they claim that reducing the top rate doesn’t impact economic growth, they also stumble on the truth that “soaking the rich” through increasing the rates on top earners– the heart’s desire of liberals – changes nothing from an economic perspective.
What it does do is to capture a larger share of the economy in taxes for the government.
I hope the GOP releases this. I want to thank the left for bringing this to our attention for the simple reason that. in an attempt to use this to prove that we should “soak the rich” to cure income inequality, they actually disprove their own premise and show that they are only interested in more tax money poured into the government coffers to pay for their adventures in Marxism.