Don't you just love science? Especially when it slaps down Republican bull crap masquerading as "governing philosophy"? In some ways whats really astonishing is that a world view which starts out with such wrong-headed beliefs—notions rooted in fear and selfishness instead of in courage and cooperation—could capture enough of the American people to be any sort of political force at all. But it seems that many people are fearful and selfish, so they feel comfortable with the GOP "philosophy."
We, the courageous and cooperative, however, have science on our side, and it just keeps calling BS on the ridiculous chimeras of so-called Conservatism. Science has shown that conservatives are wrong about global warming, wrong about liberal "bias" in the media, wrong about immigration, wrong about polling, wrong—well the list is too long to even hit the highlights.
Recently, yet another economist has verified something that is obvious to anyone who lives outside the Republican bubble: that low tax rates do not correlate with economic growth. That is, the Grover-Norquist-backed GOP article of faith "Thou shalt not raise taxes" is—of course—wrong.
Let's hop the orange curls for a little chat about the science on this one point of what one might laughably call Republican "economics."
In late October, Ethan Kaplan, an economist at the University of Maryland at College Park, published a blog post that examined the most straightforward kind of correlation between high tax rates and economic growth. Now we all know that "conservatives" swear by their belief that high tax rates kill growth and low tax rates explode growth, despite the most recent experience of the Bush tax cuts on the wealthy, which resulted in negative growth even before the Great Recession at the end of the Cheney-Bush years. Would it surprise you to know that Kaplan found the opposite to be true? I didn't think so. He writes:
Unfortunately, it is quite difficult to figure out the impact of taxation on growth. Changes to the tax codes usually pass Congress when other things are happening to the economy. For example, the 1982 tax cuts, which dropped the top marginal tax rate from 69% to 50%, were passed towards the end of a large recession. Moreover, the impact of taxes on growth can change over time as the economy changes.In other words, GOP wrong again.
Nevertheless, looking at the raw correlation between top marginal tax rates and growth can be helpful for getting a rough sense of the likely impacts of higher taxation on growth. One recent paper by Pikkety, Saez, and Stantcheva looks at the correlation between top marginal tax rates and growth and finds the growth is higher when top marginal tax rates are higher. I restrict myself to the historical experience of the United States and go back to 1930. In particular, I took real chained per capita GDP growth from 1930 to the present from the Bureau of Economic Analysis' (BEA) website. The correlation over this period between the top marginal tax rate and output growth is strong and positive . . .
A rise in the top marginal tax rate from 0 to 100 percent is correlated with a rise in per capita growth of 5.85 percentage points per year. One reason that this simple correlation might overstate the impact of the marginal tax rate on growth is that the top growth years were in the early 40s when the government was spending heavily and when the country was finally recovering from the Great Depression. If we look only at the post war period (after 1946), a rise from 0 to 100 percent in the top marginal tax rate is associated with an increase of only 2.69 percentage points of growth. Moreover, the statistical significance of the relationship becomes marginal, as the p-value rises from 0.017 to 0.122. On the other hand, if we look at the time period encompassing 1960 to the present, a rise in the top rate from 0 to 100 percent is correlated with a rise in per capita growth of 3.03 percentage points of growth per year, and the relationship becomes more statistically significant (with a p-value of 0.064 percent). Finally, if we look only at the years since 1980, a rise from 0 to 100 percent in the top marginal tax rate is associated with an increase in growth of 3.87 percentage points. In this case, the relationship is statistically insignificant (with a p-value of 0.392 percent), in part because the sample size is small.
While we cannot say that there is a robust significant positive relationship between tax rates and growth, it is still interesting that regardless of when we start the sample, higher top marginal tax rates are associated with higher not lower growth. Moreover, a narrative reading of postwar US economic history leads to the same conclusion. The period of highest growth in the United States was in the post-war era when top marginal tax rates were 94% (under President Truman) and 91% (through 1963). As top marginal rates dropped, so did growth. Moreover, except for 1984, a recovery year, the highest per capita growth rates since 1980 were all in the late 1990s, after the top marginal tax rate had been increased from 28% under President Reagan to 31% under the first President Bush and then 39.6% under President Clinton.
And for good measure, they are also wrong about capital gains tax rates being the magical spur of economic growth, as Len Burman of Syracuse University shows here:
Cutting capital gains taxes will not turbocharge the economy and raising them would not usher in a depression.And even the Congressional Research Service, prompted by Republicans to study the question of tax rates and growth, returned a negative result:
Low capital gains tax rates do accomplish one thing: they create lots of work for lawyers, accountants, and financial geniuses because there is a huge reward to making ordinary income (taxed at rates up to 35%) look like capital gains (top rate of 15%). The tax shelters that these geniuses invent are economically inefficient, and the geniuses themselves might do productive work were the tax shelter racket not so profitable. And the revenue lost to the capital gains tax loophole adds to the deficit, which also hurts the economy.
Thus, it’s no surprise that there’s no obvious relationship between capital gains tax rates and economic growth. Indeed, the low rates on gains might do more harm than good.
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%. 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. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, 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% due to the 2007-2009 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.And so what do the Republican majority in the House do when they get this report that puts the lie to their article of faith? Why, deep-six it, of course, as the New York Times reported on November 1:
The Congressional Research Service has withdrawn an economic report that found no correlation between top tax rates and economic growth, a central tenet of conservative economic theory, after Senate Republicans raised concerns about the paper’s findings and wording.So, all in all, with science on our side, with demographics on our side, and with the Republicans itself on our side as the fall all over themselves to try to find new lies to tell the American people about their fearful and selfish "philosophy," I like our chances for progress in the years ahead. I'm just sorry we've had to live through the past thirty years of miserable "conservative" "policy" to get here.
The decision, made in late September against the advice of the agency’s economic team leadership, drew almost no notice at the time. Senator Charles E. Schumer, Democrat of New York, cited the study a week and a half after it was withdrawn in a speech on tax policy at the National Press Club