Cutting top tax rates doesn’t boost economy, study says

It’s back.

A report showing that cutting top tax rates does not stimulate the economy -- a cornerstone of the tax philosophy of many Republicans -- was reissued this week after being pulled in early November amid complaints from Senate Republicans. An analysis of 65 years of data showed no relationship between cutting upper-income taxes and savings, investment or productivity growth.

“It is reasonable to assume that a tax-rate change limited to a small group of taxpayers at the top of the income distribution would have a negligible effect on economic growth,” the report from the Congressional Research Service, a nonpartisan organization that serves lawmakers and their offices, concluded.

Democratic lawmakers were quick to hold up the finding as evidence that Republican resistance to letting upper-income tax rates rise was unfounded.

“This is a very important report that again drives a stake in the heart of the Republican fiction on this important issue,” Rep. Chris Van Hollen, D-Md., the top Democrat on the House Budget Committee said at a news conference on Thursday.

Van Hollen and several fellow Democratic lawmakers praised CRS for standing by and reissuing its updated finding. The report also concluded that cuts to top tax rates over the past 65 years appear to be connected to the growing concentration of wealth among the richest Americans.

President Obama has long encouraged lawmakers to let upper-income tax cuts expire at the end of the year in order to raise revenue to pay down the nation’s ballooning debt. A combined $500 billion in tax hikes and spending cuts--which comprise the so-called fiscal cliff--are set to take effect at the end of the year if no action is taken to avert them. Economists warn that the impact could throw the economy into recession.

Some Republicans argue that hiking taxes on the wealthy discourages economic activity and that tax cuts actually do more to generate revenue.

"I would argue, and history would prove, that tax cuts actually generate the revenue for economic growth to get you to a balanced budget,” Rep. Steve Scalise, R-La., said at an event hosted by the conservative American Enterprise Institute on Tuesday. Scalise is the incoming head of the Republican Study Committee, a standard-bearer of conservative thought in Congress. “That's really the problem. Should we focus on fixing the problem or just appeasing the president's pound of flesh that he wants to get.”
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