Study: Tax Cuts for the Rich Don’t Spur Growth

[Jamie_B]

Posted this in a different thread, but I think it may have gotten missed.

http://www.cnbc.com/id/49059989/Study_Tax_Cuts_for_the_Rich_Don_t_Spur_Growth

[quote][color=#000000][font=Verdana, Arial, Helvetica, sans-serif][size=3]
Cutting taxes for the wealthy does not generate faster economic growth, but may widen the income gap between the rich and the rest, according to a new report.[/size][/font][/color][color=#000000][font=Verdana, Arial, Helvetica, sans-serif][size=3]
A study from the Congressional Research Service — the non-partisan research office for Congress — shows that “there is little evidence over the past 65 years that tax cuts for the highest earners are associated with savings, investment or productivity growth."[/size][/font][/color][color=#000000][font=Verdana, Arial, Helvetica, sans-serif][size=3]
In fact, the study found that higher tax rates for the wealthy are statistically associated with higher levels of growth.[/size][/font][/color]
[color=#000000][font=Verdana, Arial, Helvetica, sans-serif][size=3]
The finding is likely to fuel to the already bitter political fight over taxing the rich, with President Obama and the Democrats calling for higher taxes on the wealthy to reduce the deficit and fund spending. Mitt Romney and the GOP advocate lower marginal tax rates for top earners, saying they fuel investment and job creation. (Read more: [url="http://www.cnbc.com/id/49031991/"][b]Who Does QE Help Most?[/b][/url])[/size][/font][/color][color=#000000][font=Verdana, Arial, Helvetica, sans-serif][size=3]
The CRS study looked at tax rates and economic growth since 1945. The top tax rate in 1945 was above 90 percent, and fell to 70 percent in the 1960s and to a low of 28 percent in 1986.[/size][/font][/color][color=#000000][font=Verdana, Arial, Helvetica, sans-serif][size=3]
The top current rate is 35 percent. The tax rate for capital gains was 25 percent in the 1940s and 1950s, then went up to 35 percent in the 1970s, before coming down to 15 percent today — the lowest rate in more than 65 years.[/size][/font][/color]


Lowering these rates for the wealthy, the study found, isn't aligned with significant improvement in any of the areas it examined. Pushing tax rates down had a "negligible effect" on private saving, and while it does note a relationship between investing and capital gains rates, the correlations “are not statistically significant,” the study says.
“Top tax rates,” it concludes, “do not necessarily have a demonstrably significant relationship with investment.”
The study said that lower marginal rates have a “slight positive effect” on productivity while lower capital gains rates have a “slight negative association” with productivity. But, again, neither effect was considered statistically significant.


Do higher taxes on the rich lead to faster economic growth? Not necessarily. The paper says that while growth accelerated with higher taxes on the rich, the relationship is “not strong” and may be “coincidental,” since broader economic factors may be responsible for that growth.
There is one part of the economy, however, that is changed by tax cuts for the rich: inequality. The study says that the biggest change in the distribution of U.S. income has been with the top 0.1 percent of earners — not the one percent. (Read more: [b][b][url="http://www.cnbc.com/id/49019203/"]Salaries of Top Earners Tumbling[/url][/b][/b])
The share of total income going to the top 0.1 percent hovered around 4 percent during the 1950s, 1960s and 1970s, then rose to 12 percent by the mid-2000s. During this period, the average tax rate paid by the 0.1 percent fell from more than 40 percent to below 25 percent.
The study said that “as top tax rates are reduced, the share of income accruing to the top of the income distribution increases” and that “these relationships are statistically significant.”
In other words, cutting taxes on the rich may not grow the economic pie. But the study found that those cuts can affect “how that economic pie is sliced.”


[/quote]

[|Bengal Migration|]

duh.

[Jamie_B]

[quote name='Bengal Migration' timestamp='1352818686' post='1180467']
duh.
[/quote]

Yes I know, but I've seen the lie being repeated here by folks.

[bengalrick]

I see the stats. I don't completely buy them b/c I know more goes into it than that. For one thing, growth doesn't happen over night. It takes years before they go into full effect...

But please explain to me why giving our employers (small, medium and large business owners) less money equals more growth.

[Jamie_B]

You don't buy it because it does't fit with your political beliefs, but we've had how many years of the Bush tax cuts? You'd think we'd be swimming in jobs by now.

Because more of the money is in the pockets of the employees, which gives them more purchasing power.

Watch ...

http://www.youtube.com/watch?v=CKCvf8E7V1g

[bengalrick]

We will have more money in our pockets when our employers start firing and cutting hours b/c they have less money in theirs? I don't have time to watch or listen to videos at work. Explain it to me.

[Jamie_B]

[quote name='bengalrick' timestamp='1352823553' post='1180507']
We will have more money in our pockets when our employers start firing and cutting hours b/c they have less money in theirs? I don't have time to watch or listen to videos at work. Explain it to me.
[/quote]

They are keeping a larger slice of their proffits than they used to Rick, I posted research findings on why this is a problem for the economy on a whole [url="http://forum.go-bengals.com/index.php?showtopic=66087&st=75#entry1180372"]here[/url], did you read it?

[bengalrick]

[quote name='Jamie_B' timestamp='1352823823' post='1180510']
They are keeping a larger slice of their proffits than they used to Rick, I posted research findings on why this is a problem for the economy on a whole [url="http://forum.go-bengals.com/index.php?showtopic=66087&st=75#entry1180372"]here[/url], did you read it?
[/quote]

But part of the studys that i've read point toward when our rates were at 85% for the wealthy after WWII. Who would ever believe that taxing the rich 85% of their money would spur growth? Look at it in reality. The rates now are say 25% (making up a number there... I don't feel like looking it up). If we raise that to say 35%, why would that spur growth? These businesses are going to have to look for 10% worth of cuts and its going to either come from firing people, cutting hours, or raising prices. Yes they will also look for ways to be more efficient but in the long run, most businesses do one or all of the 3.

So using that example, why would raising the rates 10% higher on the rich (mainly small and medium size businesses; large businesses/coorporations have more ways to cut inefficiency and can't afford the bad PR of firing people) spur growth? Maybe I'm missing something here, but why will that happen? I am not completely against raising taxes mind you. It will have to be done after our economy gets on our feet. But your making the case that we should raise taxes so that we can spur growth and that makes no sense to me.

[Vol_Bengal]

[quote name='Jamie_B' timestamp='1352763273' post='1180341']
[color=#000000][font=Verdana, Arial, Helvetica, sans-serif][size=3]Cutting taxes for the wealthy does not generate faster economic growth[/size][/font][/color]

Do higher taxes on the rich lead to faster economic growth? Not necessarily.
[/quote]

Ummm... those are the first sentence of the piece and the first sentence of the last paragraph of the piece...

What is the point of the article again? Appears to me to be non-committal either way.

[Squirrlnutz]

[quote name='Vol_Bengal' timestamp='1352898034' post='1180665']
Ummm... those are the first sentence of the piece and the first sentence of the last paragraph of the piece...

What is the point of the article again? Appears to me to be non-committal either way.
[/quote]

It claims that it proves cutting taxes [i]does not[/i] generate faster growth but clarifies that this does not automatically mean the opposite (raising taxes leads to faster growth) is true.

Therefore; We can stop the nonsense talk about needing to continue tax breaks for millionaires because it does not lead to faster growth and we can return to pre-2001 levels because the country needs the tax revenue more...but if we find ourselves stuck in an economic rut down the road we shouldn't "just raise taxes because they do lead to faster growth."

[gatorclaws]

[quote name='bengalrick' timestamp='1352823553' post='1180507']
We will have more money in our pockets when our employers start firing and cutting hours b/c they have less money in theirs? I don't have time to watch or listen to videos at work. Explain it to me.
[/quote]

assuming flat spending, if you're taxing the rich more then you need to tax the poor less, which put more money in their pocket.

i can get behind the idea of spending less which would reduce the need to raise tax on the wealthy, but I can't get behind any idea that lowering taxes on the wealthy is going to create growth.

[Orange 'n Black]

[quote name='gatorclaws' timestamp='1352914226' post='1180717']
assuming flat spending, if you're taxing the rich more then you need to tax the poor less, which put more money in their pocket.

i can get behind the idea of spending less which would reduce the need to raise tax on the wealthy, but I can't get behind any idea that lowering taxes on the wealthy is going to create growth.
[/quote]

If you're talking straight up income tax, that has basically nothing to do with growth. Low capital gains and dividends taxes encourage investment, with does produce growth. You could postulate that higher income tax rates on the top bracket actually encourage growth, since that would incentivize the top bracket payers to shift their earnings to investment sources.

Low capital gains and dividends taxes do disproportionately favor the wealthy, since the super-rich tend to draw their earnings primarily from investments. In this case it's not really a bad thing, since investment seeds growth.

[Jamie_B]

[quote name='bengalrick' timestamp='1352897889' post='1180664']
But part of the studys that i've read point toward when our rates were at 85% for the wealthy after WWII. Who would ever believe that taxing the rich 85% of their money would spur growth? Look at it in reality. The rates now are say 25% (making up a number there... I don't feel like looking it up). If we raise that to say 35%, why would that spur growth? These businesses are going to have to look for 10% worth of cuts and its going to either come from firing people, cutting hours, or raising prices. Yes they will also look for ways to be more efficient but in the long run, most businesses do one or all of the 3.

So using that example, why would raising the rates 10% higher on the rich (mainly small and medium size businesses; large businesses/coorporations have more ways to cut inefficiency and can't afford the bad PR of firing people) spur growth? Maybe I'm missing something here, but why will that happen? I am not completely against raising taxes mind you. It will have to be done after our economy gets on our feet. But your making the case that we should raise taxes so that we can spur growth and that makes no sense to me.
[/quote]

Very simple answer, if your private sector isnt spending and creating demand your public sector must, which means you either A. have to go into a deficit or B. raise taxes to offset the nessasary spending increases

Lowering the rates doesnt guarntee the private sector will go out and spend, they could just pocket their savings which wont create demand, thus wont create jobs. Public sector spending will create jobs when the private sector isnt spending (or if they are saving)

[Jamie_B]

[quote name='Orange 'n Black' timestamp='1352915277' post='1180724']
If you're talking straight up income tax, that has basically nothing to do with growth. Low capital gains and dividends taxes encourage investment, with does produce growth. You could postulate that higher income tax rates on the top bracket actually encourage growth, since that would incentivize the top bracket payers to shift their earnings to investment sources.

Low capital gains and dividends taxes do disproportionately favor the wealthy, since the super-rich tend to draw their earnings primarily from investments. In this case it's not really a bad thing, since investment seeds growth.
[/quote]

The motivation for investment only comes when the investor believes he has something he can sell and a market to sell it to, if more and more wealth is concentrated at the top the only investment that comes is for products and services that cator to the top. However there are only so many customers they would be able to sell to. Having wealth spread down to the middle class where the largest population resides means that you have more customers and more opportunites to invest. Absolutly no good comes from the plutocracy we find ourselves in right now.

[|RayDoggBengal|]

[quote name='Jamie_B' timestamp='1352916429' post='1180730']
Lowering the rates doesnt guarntee the private sector will go out and spend, they could just pocket their savings which wont create demand, thus wont create jobs. Public sector spending will create jobs when the private sector isnt spending (or if they are saving)
[/quote] X2 I don't understand why people can't seem to get their head around that.

[bengalrick]

Because your talking billionaire people and I'm talking small and medium businesses. If we can start the tax hikes around 1 million dollars, then we can ensure we aren't taxing smaller businesses where my point is being made. The highest tax rate right now stops at $388,000. Raising taxes on someone around that mark or up to around a million dollars (I could argue even higher) will cut jobs.

Sometimes we all just need to stop and realize what each other are saying. I am not saying I am great at that either, but I realize that if Bill Gates gets a tax cut, he isn't going to use that money to buy a bunch of iPads (even Bill Gates has to have one, right?) or Ford pick up trucks.. He will save it. I am talking about businesses that are making 400,000 - 1,000,000... And they would get lumped into any tax hike, unless we redo the entire tax code. Simply saying "tax the greedy rich!!!" is as stupid as saying "all tax cuts are great!!!"

[Orange 'n Black]

Two points here - those who have the means to invest will always invest, because it offers greater growth potential. A competently managed stock portfolio will return at least 5-6%, as opposed to <1% for stashing it all in a bank or 0% for piling it up in a Batcave under your mansion (really negative, accounting for inflation). This is the basic assumption of economics, that is, an entity will always make the choice that presents the greatest economic benefit.

The only way to disincentivize investment is to increase risk. Two primary ways of doing that: economic recession and increase in taxation. We are not currently in recession, so investment will continue unless taxes rise to the point where the risk of investment is no longer outweighed by the economic benefit. If capital gains taxes rocketed up to, say, 39.6%, all but the least risky investment would immediately be terminated.

Not saying here that the current 15% rate is the correct one; I haven't read any studies that say where its optimal level lies. But significantly high capital gains taxes are an impediment to economic growth, and the inverse is also true.

[|Montana Bengal|]

[quote name='bengalrick' timestamp='1352948277' post='1180845']
Because your talking billionaire people and I'm talking small and medium businesses. If we can start the tax hikes around 1 million dollars, then we can ensure we aren't taxing smaller businesses where my point is being made. The highest tax rate right now stops at $388,000. Raising taxes on someone around that mark or up to around a million dollars (I could argue even higher) will cut jobs.

Sometimes we all just need to stop and realize what each other are saying. I am not saying I am great at that either, but I realize that if Bill Gates gets a tax cut, he isn't going to use that money to buy a bunch of iPads (even Bill Gates has to have one, right?) or Ford pick up trucks.. He will save it. I am talking about businesses that are making 400,000 - 1,000,000... And they would get lumped into any tax hike, unless we redo the entire tax code. Simply saying "tax the greedy rich!!!" is as stupid as saying "all tax cuts are great!!!"
[/quote]

FYI - I think Gates is giving away a bunch of his money.

[Jamie_B]

[quote name='Orange 'n Black' timestamp='1352950218' post='1180853']
Two points here - those who have the means to invest will always invest, because it offers greater growth potential. A competently managed stock portfolio will return at least 5-6%, as opposed to <1% for stashing it all in a bank or 0% for piling it up in a Batcave under your mansion (really negative, accounting for inflation). This is the basic assumption of economics, that is, an entity will always make the choice that presents the greatest economic benefit.

The only way to disincentivize investment is to increase risk. Two primary ways of doing that: economic recession and increase in taxation. We are not currently in recession, so investment will continue unless taxes rise to the point where the risk of investment is no longer outweighed by the economic benefit. If capital gains taxes rocketed up to, say, 39.6%, all but the least risky investment would immediately be terminated.

Not saying here that the current 15% rate is the correct one; I haven't read any studies that say where its optimal level lies. But significantly high capital gains taxes are an impediment to economic growth, and the inverse is also true.
[/quote]

Invest in what?

I pose to you that we are in a liquidity trap

[bengalrick]

[quote name='Montana Bengal' timestamp='1352951798' post='1180854']
FYI - I think Gates is giving away a bunch of his money.
[/quote]

Is that really the point here? Thanks for pointing out that I made a poor judgement on which person to joke about... BTW on Bill Gates, what he is doing is freaking awesome. Don't mistake what my point and me brushing off your point. If more would do as he is, we wouldn't have any many issues as we do. He is vowing to give away half of his wealth. He is worth roughly 66,000,000,000 btw, if anyone cares to know.

Nonetheless, what are your thoughts about the substance of my post here? Why is someone (or business) that makes 500,000 at the same tax rate as someone that makes 500,000,000,000?

Shouldn't we raise what is considered 'rich'?

[sois]

[quote name='bengalrick' timestamp='1353011694' post='1180975']
Shouldn't we raise what is considered 'rich'?
[/quote]

Absolutely.

Should be at least $5 million or something reasonable. $250k is not rich.

[bengalrick]

[quote name='sois' timestamp='1353011843' post='1180977']
Absolutely.

Should be at least $5 million or something reasonable. $250k is not rich.
[/quote]

If this was raised, I would see others point on this. I really would. I know that billionaires don't blow their money when they save on taxes. I am worried about small businesses on this and 388,000 is not rich at all and especially for businesses.

[Jamie_B]

The tax code needs to be reformed so that these guys stop using small business to hide behind that 250K number.

Let me ask you think if you guys were making 250K of personal income would you be happy?

I'm pretty sure I know the answer to that.

[bengalrick]

[quote name='Jamie_B' timestamp='1353012711' post='1180984']
The tax code needs to be reformed so that these guys stop using small business to hide behind that 250K number.

Let me ask you think if you guys were making 250K of personal income would you be happy?

I'm pretty sure I know the answer to that.
[/quote]

Yes. Although if I had a business that had 250,000 profit a year I wouldn't feel great about it.

[|Montana Bengal|]

[quote name='bengalrick' timestamp='1353011694' post='1180975']
Is that really the point here? Thanks for pointing out that I made a poor judgement on which person to joke about... BTW on Bill Gates, what he is doing is freaking awesome. Don't mistake what my point and me brushing off your point. If more would do as he is, we wouldn't have any many issues as we do. He is vowing to give away half of his wealth. He is worth roughly 66,000,000,000 btw, if anyone cares to know.

Nonetheless, what are your thoughts about the substance of my post here? Why is someone (or business) that makes 500,000 at the same tax rate as someone that makes 500,000,000,000?

Shouldn't we raise what is considered 'rich'?
[/quote]

I really don't have a comment on your post and I think you are reading too much into what I said.