New Study: No Evidence That High-End Tax Cuts Help the Economy

New Study: No Evidence That High-End Tax Cuts Help the Economy

September 19, 2012 at 4:20 pm

Many policymakers cite as fact that cuts in the top income and capital gains tax rates spur much greater economic growth and that increases in those tax rates significantly hurt growth.  A new Congressional Research Service (CRS) report suggests, however, that such easy assumptions are highly problematic.
The report found no statistically significant correlation, all the way back to 1945, between the top capital gains or top marginal income tax rates and:  (1) economic growth (in real per capita GDP); (2) private saving; (3) investment; or (4) growth in labor productivity.
CRS did, however, find a correlation between reductions in these tax rates and greater income inequality.
That’s not surprising:  as tax policy expert Leonard Burman and my colleague Jared Bernstein have noted, there is no clear link between the top capital gains rate and investment or GDP growth.  As Burman has explained, “Many other things have changed at the same time as [capital] gains rates and many other factors affect economic growth.  But the [evidence] should dispel the silver bullet theory of capital gains taxes.  Cutting capital gains taxes will not turbocharge the economy and raising them would not usher in a depression.”http://www.offthechartsblog.org/new-study-no-evidence-that-high-end-tax-cuts-help-the-economy/