3 Nov 2012 7:09 pm
GOP Muzzled The Library of Congress's Research Agency Report That Showed That 'Trickle-Down' Economics Doesn't WorkThe New York Times reports that on September 28 the Library of Congress's nonpartisan Congressional Research Service withdrew, under pressure from Senate Minority Leader Mitch McConnell, R.-Ky., and other Senate Republicans, a widely-circulated study concluding that since 1945 tax cuts have had no measurable impact on economic growth. I have cited the study repeatedly since its September 14 release, and so have many other journalists and academics within what Karl Rove once scornfully called the reality-based community. The withdrawal wont have any impact on the reports availability, except perhaps that more people will read it now. That's because CRS reports are never released to the public anyway. Theyre released to members of Congress. Then the interesting ones trickle out onto nongovernmental Web sites or those of individual senators or representatives. McConnell can tell the New York Times all he wants to take down its copy of the report, but he probably won't bother, because its public information and it has no conceivable relevance to national security.The withdrawal is, nonetheless, outrageous. McConnell spokesman Don Stewart told the Times that the CRS report wasnt just criticized by Republican senators; it was also criticized by what the Times (in a paraphrase) calls people outside of Congress. I wish the Times had taken the opportunity to say who these people outside of Congress are. You can probably guess. Theres the conservative Heritage Foundation. And theres the Tax Foundation, a conservative nonprofit (not to be confused with the Tax Policy Center, which is non-ideological and nonpartisan but has nonetheless been vilified by the right for pointing out that Mitt Romneys proposed tax cut benefited the rich at the expense of the middle class). The author of the CRS study, Thomas Hungerford, has written many excellent studies on themes directly or indirectly related to income distribution, and thats made him a conservative target for some time.What's Senate Republicans Don't Want You to Find OutThere is a lot of buzz now about the fact, discovered over a month after it happened, that the Congressional Research Service (CRS) had withdrawn one of its research reports due to pressure from Republican Senators. Probably the most commonly used adjectives used to describe the CRS are "respected" and "non-partisan," so what is going on here? The simple answer is that the Republicans didn't like the study's conclusions and complained vociferously to CRS. Why did the CRS give in? No one knows yet, although the New York Times reported: A person with knowledge of the deliberations, who requested anonymity, said the Sept. 28 decision to withdraw the report was made against the advice of the research services economics division, and that Mr. Hungerford [the study's author] stood by its findings. What was in the report that terrified Republican Senators so much? In fact, a lot more than reported in the media: "Tax Cuts for the Rich Do Not Spur Economic Growth," Talking Points Memo, September 17; "Tax Cuts for the Rich Cause Income Inequality, Not Economic Growth," Think Progress, September 17; for example.One major finding is contained in a plot of the top personal income tax rate and real economic growth rates for every year from 1945 to 2010. Contrary to conservative arguments, when the top tax rate was from 70-90+ percent, the country had growth rates averaging 4.2% in the 1950s, but only 1.7% in the 2000s, when the top rate was 35%. Overall, according to Figure 5 of the report, there appears to be no relationship at all between the top tax rate and growth.It's important to remember, though, that a simple comparison of two variables tells us nothing by itself. It's only when we control for other potential causal factors that we can say whether a relationship does or does not exist between two variables like tax rates and growth. In the report's appendix, the author carries out such a regression analysis, as it's called, and still finds that there is no relationship between the top tax rate and real GDP growth rates. Moreover, the study takes a look at the ways that lower tax rates are supposed to improve the economy, i.e., by increasing private savings, private investment, and labor productivity growth. In no case does the bivariate analysis (some of which shows higher taxes increasing private savings) or the regression analysis show either the top personal tax rate or the capital gains tax rate having an effect on these intervening drivers of economic growth. This completely undermines the economic arguments for tax cuts as the recipe for a better economy.But wait, there's more! The diagram (scatterplot) showing the relationship between the top tax rate and the private savings rate shows that the highest private savings rates since 1945 were achieved when the top marginal rate was 70% (see top left of Figure 3), which comports well with recent calculations of the top optimal tax rate (70% or higher). In fact, when the top bracket was 90%, the rate of private savings as a percentage of potential GDP exceeded the rate when it was 40% or below in every year but one!The other discomfiting finding for the Republican Senators is that lower top tax rates and lower capital gains tax rates increase income inequality. Not only is this obvious in the scatterplots for the top 0.1% and top 0.01%, it remains true in the regression analyses after controlling for other potential causes of the high income shares of the rich.Tax cuts, then, don't increase economic growth (the ultimate zombie idea, as Paul Krugman says) but do worsen economic inequality. It may even be the case that high top marginal tax rates increase private savings, with the country's historical postwar maximum savings rates coming at a rate of 70%.So tax cuts for the rich don't translate into economic growth but they do translate into greater income inequality?I didn't need a study to tell me that.From Forbes:Non-Partisan Congressional Tax Report Debunks Core Conservative Economic Theory-GOP Suppresses StudyWhat do you do when the Congressional Research Service, the completely non-partisan arm of the Library of Congress that has been advising Congressand only Congresson matters of policy and law for nearly a century, produces a research study that finds absolutely no correlation between the top tax rates and economic growth, thereby destroying a key tenet of conservative economic theory?If you are a Republican member of the United States Senate, you do everything in your power to suppress that reportparticularly when it comes less than two months before a national election where your candidate is selling this very economic theory as the basis for his candidacy.The New York Times posted a link to the report. Edited by MistyBlue, 03 November 2012 - 07:16 PM.