A new study by the Congressional Research Service, the nonpartisan research arm of Congress, appears to debunk a long-held economic theory claiming there is no evidence that tax cuts for high-income earners spur economic growth.
The study, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, examined changes in the top marginal tax rate to determine how it impacted savings, investing and productivity.
The researcher, Thomas Hungerford, found that there is no evidence that lowering the top marginal rate from 90 percent in the late 1940s and 1950s to 35 percent today and dropping the capital gains tax rate from 25 percent in the the 1950s and ‘60s to the current 15 percent had an impact on economic growth.
There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth,” Hungerford wrote. “Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.
According to the study, the real Gross Domestic Product growth rate averaged 4.2 percent and real per capita GDP increased annually by 2.4 percent in the 1950s. The average growth rate fell to 1.7 percent and real per capita GDP increased annually by less than 1 percent in the 2000s.
Additionally, the report said, the top 0.1 percent of U.S. families saw their share of income go from 4.2 percent in 1945 to 12.3 percent in 2007. The recession cut that share to 9.2 percent, the report said.
The full report can be read below.