Tax Cuts for the Rich Do Not Spur Economic Growth
There is no clear correlation between tax cuts for high earners and economic growth, according to a new study by the Congressional Research Service. The findings are pertinent to a central debate in the presidential election, wherein President Obama is pushing to end the Bush-era tax cuts on high incomes, while his Republican challenger Mitt Romney insists on cutting rates across the board 20% below current policy. Democrats contrast the tax hikes of the 1990s and ensuing economic growth with the tax cuts of the 2000s and relatively meager gains that followed. Republicans, meanwhile, argue that the recovery is weak because the economy remains shackled by regulatory and tax burdens.
The study delves into the last 65 years of U.S. tax policy pertaining to high earning Americans — including top marginal rates on income and capital gains taxes — and how it impacts their decision-making. The conclusion: cutting effective taxes on the rich doesn’t boost economic growth, but it does correlate with rising income inequality.