Menus Subscribe Search

Follow us


Fiscal Cliff: Congressional Research Study Had This All Figured Out Weeks Ago

• January 02, 2013 • 9:40 AM

imagesAmid holiday clamor over the politics of the so-called “fiscal cliff,” Thomas L. Hungerford must be off somewhere shaking his head. Hungerford, whose byline identifies him as a specialist in public finance, authored a Congressional Research Service report on taxes that came out in mid-December, just a few weeks before the “cliff” kerfuffle started. Taxes and the Economy: an Analysis of the Top Tax Rates Since 1945 (Updated) is, perhaps, not a title that makes one want to dive right in. But the obscurity of Hungerford’s text is telling, insofar as his conclusions don’t seem likely to land the report on John Boehner’s nightstand.

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 real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%.

This analysis finds no conclusive evidence, however, to substantiate a clear relationship between the 65-year reduction in the top statutory tax rates and economic growth. Analysis of such data conducted for this report suggests the reduction in the top tax rates has had little association with saving, investment, or productivity growth.

It is reasonable to assume that a tax rate change limited to a small group of taxpayers at the top of the income distribution would have a negligible effect on economic growth. For instance, the tax revenue projected from allowing the top tax rates to rise to their pre-2001 levels is $49 billion for 2013 or 0.3% of projected 2013 gross domestic product.

The top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. 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% during to the 2007-2009 recession. During a portion of that time period, however, the share of the tax burden borne by top taxpayers increased. For instance, the top 0.1% of taxpayers paid 9.4% of all income taxes in 1996 and 11.8%.

Adjusting for the CRS’ respectable concern for non-partisan language, that’s pretty close to a government economist saying eat the rich. Amid a debate over whether $250,000 or $400,000 a year counts as such, it’s notable that the legislature’s own findings aren’t being thrown around Washington as lustily as the trash talk has been this week.

 

Marc Herman
Marc Herman is a writer in Barcelona. He is the author of The Shores of Tripoli.

More From Marc Herman

Tags: , , ,

If you would like to comment on this post, or anything else on Pacific Standard, visit our Facebook or Google+ page, or send us a message on Twitter. You can also follow our regular updates and other stories on both LinkedIn and Tumblr.

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Follow us


Subscribe Now

Quick Studies

Hunger and Low Blood Sugar Can Spur Domestic Quarrels

In an experiment, scientists found a correlation between low blood glucose and higher levels of spousal frustration.

Your Brain Starts Faltering After You Reach Age … 24

Sorry to break it to you, TSwift. At least in terms of cognitive functioning while playing StarCraft 2, you're finished.

Cavemen Were Awesome Parents

Toy hand axes, rock bashing, and special burials indicate that Neanderthals were cooler parents than previously thought, according to a new theory.

Bringing a Therapy Dog Into a Children’s Hospital Might Be a Terrible Idea

Despite the popularity of animal therapy in American pediatric hospitals, a new research review reveals that there's little support for its health benefits.

You Feel Closer to Your Destination Even When You’re Not

Simply moving toward or away from something alters the way you think about it, according to a new study.

The Big One

One state—Pennsylvania—logs 52 percent of all sales, shipments, and receipts for the chocolate manufacturing industry. March/April 2014