Saturday, November 3, 2012

"An Inconvenient Truth"?


       Earlier this September, Republicans in Congress convinced the Congressional Research Service (CRS), a non-partisan branch of the Library of Congress, to take down a report finding little to no correlation between lowering tax rates for top tier Americans and economic growth. Republicans immediately found fault in the report as it contradicts a mainstay of conservative thought, mainly the theory of trickle-down economics and the belief of how tax cuts will lead to economic growth for all. Although the author of the report, Thomas Hungerford has donated to the Democrats during this election cycle, he claims to have no bias to either party in his report. Democrats have recently brought attention back to the report and published it online. The report covers mainly tax policy and trends of economic growth since 1945, with the conclusion reading:
"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. 
However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, 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. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities."
Thus asserting the finding that not only have income tax rates been lowered for top tier Americans for the last 65 years, but may also correlate to higher "income disparities" between economic classes. The full report as published by the CRS can be found here

4 comments:

Unknown said...
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Unknown said...

"A Convenient Democrat's Truth?"
This is an interesting idea that lowing taxes on the wealthy has no correlation with economic growth, but we should be wise to consider other factors. Considering that Thomas Hungerford donated to the Democrats, I seriously doubt his claim that he is not biased, but everyone possesses bias, whether they admit to it or not. Looking over the data since 1945, I wonder what the data looked like before the FDR era. It seems contradictory that the report says that tax cuts has no economic effect yet the finding also says that it creates "income disparities." This should be cleared up to prevent misunderstandings.

From my research, I feel that it is not genuine, as many Americans would agree, to say that lowing taxes on the wealthy will have absolutely no effect on the economy. That is just not true. Many businesses have been started up or helped by the donations and contributions of wealthy individuals. I am skeptical of whether the income disparities Alvin mentioned will truly go away if the wealthy find no incentive to invest. Like them or not, America needs the wealthy to invest in businesses so the economy does not just dunk itself.

The US economy faces serious competition from other countries which are doing their best to match our economic growth with their own industrial revolutions (cough China cough). This world is becoming increasingly competitive and the US is losing ground as the main superpower in the world after WW2 and the Cold War eras. Regardless, it is hard to deny that the USA is still, going by data, doing better than Germany, Britain, or France.

While the New York Times writer David Leondhardt might think that tax cuts will not help the economy, he is quick to ignore the other aspects of the economy. Currently, we are in a world where tax cuts and tax reliefs will not be the sole basis of economic recovery. The defense budget, health care budget, etc. all have a role in the economy. It would be disingenuous to disregard the economic growth that occurred in the 1980s after tax cuts were utilized following the Carter administration.

In conclusion, I hope the average voter will be wise to look at all sources before coming to a conclusion on this issue. The economy is a very complex and important topic that requires more than a single report to discern the truth. But know this: Republicans will try to make Democrats look bad and Democrats will try to make Republicans look bad unless either side absolutely has no choice. The author of Alvin's report shows a preference for liberal policies and I would require a truly nonpartisan report before I make the final judgment.

As John F. Kennedy once said: "The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital... the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."

Oh, and read this, I found it an interesting article.

Unknown said...

Whether the report is biased or not, the library shouldn't listen to people who tell it to take down reports that contradict their viewpoint unless there's a better reason. Then practically the entire library would be gone. I imagine the report is probably biased to some degree, since, as Matthew says, everyone has a little bias. Psychology says that bias affects what people see even if they try not to be biased. But that doesn't make the guy's research bogus. If he says there's no correlation between the tax cuts and economic growth, then there's probably only a little bit of correlation. I'm inclined to believe him because thinking logically, paying some more tax isn't going to stop billionaires from buying nice food or clothes that they would have bought anyways. And they don't spend money from their own income on building their corporations. So taxing their incomes doesn't really affect how much they spend but it does give the government more money to spend. But I could be totally wrong because I haven't actually researched it.

Unknown said...

Although it does seem a little fishy that a report that completely debunks Republican economic theory is being written up by someone who supposedly supports the Democratic party, I agree with what Tina said. I don't think that a personal bias means that his research and study are completely biased.
I think that rather than forcing congress to get rid of the study, Republicans should do research on their own to disprove the findings of Hungerford. Forcing congress to throw out a study from the Library of Congress makes Republicans look like they're trying to hide something. If they truly believe in their theory of trickle down economics they shouldn't feel so threatened by this study and should be able to do their own study contradicting Hungerford's findings.