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Popping the bubble: more data that bursts commonly-held GOP tax beliefs

We’ve talked about this on more than one occasion, but the data shows that many conservative/Republican talking points on tax policy just don’t reflect reality.  Let’s look at some (relatively) new data on this subject that continues the trend.

A recent study by the Congressional Research Service (CRS) looked at the effects of the top marginal individual income on various measure of economic growth.  As the study itself concluded:

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.

Here are two graphs from the study that give a little more color on that conclusion.

This graph plots GDP growth against the top marginal and capital gains tax rate going back to 1945.  Note that the trendline on both graphs is essentially flat. That represents the fact that as the tax rate increases, GDP growth is unaffected.  In fact, the right graph (which looks at the capital gains tax rate) shows that higher capital gains taxes correlate to higher GDP growth.

This graph shows how the lower top marginal tax rates work to change the distribution of income — favoring the most wealthy in society.  Each graph shows that lower tax rates result in higher concentrations of income at the top of the income scale.

What happened when the CRS tried to release this study?  Senate Republicans had it killed.  After all, if their narrative is found to be untrue, it pretty much undercuts their entire reason for existence at this point.

Well, that, and the unending Republican desire for cutting taxes on corporations. Well, a Congressional Budget Office study from earlier in the year shed some light on that situation.  In 2011, corporate taxes as a percentage of profits hit a 40-year low.

Some of this drop in recent years can be attributed to temporary measures (such as a change in depreciation rules) that were part of the stimulus package, but overall, the tax environment for business has been getting more friendly over recent decades — not less.

Republicans and Democrats should work together to find solutions that will make our tax code simpler and fairer — and I believe there are significant areas of agreement to be found there.  But if we’re going to have solutions that really work for all Americans, we need to start with a real understanding of the facts and not persist with myths, talking points, and empty rhetoric.

This post was written by Sean Olsen and originally published on Brick City Blog. Follow Sean on Twitter: @sean_olsen

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Comments (5)

  1. Submitted by Ray Schoch on 11/15/2012 - 07:32 am.

    Persistent bubble

    Nicely done. I’ve come across the same or similar data elsewhere, but it’s a pleasure to see it on MinnPost. Unfortunately, “De Nile ain’t just a river in Egypt,” and there are bound to be local Republicans who will insist that higher taxes on the wealthy do TOO negatively effect the national economy, mostly because that’s all they’ve heard in their echo chamber for a generation. It’s a persistent bubble, and more than one needle will probably be required to pop it.

  2. Submitted by Greg Kapphahn on 11/15/2012 - 01:53 pm.

    It’s Not MY Fault!

    There are an entire class of “conservative” individuals,…

    for whom “small government” and “low taxes” are a constant mantra and emotional shield,

    who hold those views because they have been programmed by those who surrounded them as they grew up, to react to the inevitable reversals they face in their lives, never to look in the mirror for the source of their difficulties.

    The “conservative” movement which they have created to meet their own needs, serves the purpose of providing them with a stead supply of scapegoats upon whom they can blame their own failures (which are usually many).

    Because they can’t examine, evaluate, and change their own behavior these “conservative” folks are almost completely unable to learn from their mistakes, nor can they bear to take direction from those in positions of authority (bosses, teachers, government, etc.).

    They are, thus, driven to be the bosses of their own enterprises (or to rise to the very top of the enterprises in which they work), i.e. to become “successful” as we currently define success in America…

    but their motivation in doing so, always involves shaping that enterprise and the people around them to meet their OWN needs, evaluating those around them based on whether or not those people seem to agree with them and demonstrate sufficient fealty to them, i.e. work only to make the boss feel “successful,”…

    rather than whether or not those people are creative, responsible, and willing to work together to allow the enterprise, itself, to be successful.

    The enterprises led by such “conservatives” tend to be doomed to failure because, when change is needed, the person or people in charge, being unable to learn from their mistakes, tend to demote or fire anyone who tries to tell them that change is needed.

    But, again, being unable to evaluate and change their own behavior and outlook, our “conservative” friends can’t learn from their mistakes when their enterprises fail (even as we see in the Republican response to their recent election defeat).

    Thus they welcome the scapegoats the “conservative” movement supplies: high taxes, government regulation, big government, etc.

    The reality is, however, that even if there were NO taxes and NO government regulation, those who blame such things for their business and personal failings would STILL fail, because their failure lies in their own shortcomings and their own ability to learn from failure.

    I am massively relieved that the majority of the citizens of the state of Minnesota and the US have proven in last week’s election that they recognize, at some level, that our state and nation are not adequately served by those who are unable to change and can do nothing in the face of problems but blame others for what they themselves are so clearly responsible for.

    Now I can only hope the politicians who have been elected and re-elected as the result of the awakening of the public to a clearer sense of reality than that which “conservatives” have been seeking to indoctrinate and propagandize them into since the days of Ronnie Raygun,…

    will bravely reflect the public’s new sense of reality even as their “conservative” enemies grow increasingly strident in their insistence that it is only they, themselves, who ever were, or ever could be, absolutely correct in every thought word and deed (while trying to blind the public to the massive evidence to the contrary that they have provided in the last few decades).

    Of course that will require our more moderate friends to overcome their own aversion to conflict and interpersonal discomfort, and their tendency “to go along to get along,”

    and to develop a clearer awareness of the reality that there really are “good fights” that are worth fighting, even when you come to feel embattled in the midst of them.

    Are our moderate friends willing and able to decisively fight those good fights? I hope so and they’d better be, or their lack of results will make our “conservative” friends’ simplistic propaganda and easy (but always incorrect) answers seem more and more attractive as the months (and it will only take months) go by.

    No matter what, my Democratic friends, you won’t be able to escape what’s coming. The “conservatives” are going to excoriate you for doing anything, everything, or nothing. You might as well dive right in and do something you really believe in while you have the opportunity. At least you’ll have something worth fighting for and defending when the next election rolls around.

  3. Submitted by Karen Sandness on 11/15/2012 - 11:36 am.

    As a self-employed person, I’ve learned a few things

    that many people who work for others don’t know:

    1. Although tax-reduction fanatics claim that taxes stifle job growth and innovation, they conveniently fail to mention that employee wages and benefits are subtracted from a company’s taxable income, as are R&D expenses, upgrades of equipment and facilities, and countless other costs of doing business.

    In other words, hiring people, developing products, publicizing them, and buying and building new facilities–all activities that create jobs–actually reduce a company’s taxes.

    The chief beneficiaries of lower taxes are the shareholders, and while they deserve some return on their investment, they don’t by any measure deserve ever higher returns. Investment is a gamble with no guarantees, something that the tax crybabies have forgotten.

    Along similar lines, some business owners say that they can’t hire because the Obama administration creates “uncertainty.” I’m trying to recall a time when running a business didn’t involve a lot of uncertainty. Good customers can appear, disappear, and reappear for reasons that are out of your control. Someone in the same line of work as I recently had a major customer die suddenly.

    2. The one thing that really, often fatally, damages businesses is lack of customers. If a business is so far down in the dumps that its revenue doesn’t match expenses, then it pays no income taxes. (However, large corporations with clever teams of accountants can make it LOOK as if they’re barely squeaking by, thus reducing their taxes to ridiculously low levels or even to zero.)

    3. The wealthy hire no one except household help or personal assistants with their individual incomes. Lowering their personal taxes does not create jobs, because if they invest the extra income, there is no guarantee that they will invest it in ventures that create jobs in the U.S.

    We’ve had 30 years of tax cuts and deregulation (no one who tells me that Obama is killing jobs with “onerous regulations” has been able name one of those regulations), and we haven’t seen this kind of long-term unemployment since the 1930s.

  4. Submitted by Connie Sullivan on 11/15/2012 - 01:26 pm.

    Keep bringing out analyses like this! It’s so important to break through the rhetorical repetitions of untruths, to reveal who has reported the truth, who has tried to hide those truths from us, and why they want those truths hidden.

  5. Submitted by Lance Groth on 11/15/2012 - 05:38 pm.

    Tell Chip

    Someone send a copy of this article to Chip Cravaack – he said he wanted data.

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