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A new study from the Congressional Research Service - a non-partisan government group that provides analysis to Congress - will likely fuel the already bitter political fight.The report concludes that tax cuts for the rich don't seem to be associated with economic growth and instead are linked to a different outcome: greater income inequality in the U.S.
Here are two graphs of the top 0.1 percent and 0.01 percent. The first shows average tax rates for the highest-income taxpayers since 1945 has been dropping. The second graph shows that during the same period, the richest American families captured a greater and greater share of total income.
The top income tax rates have changed considerably since the end of World War II. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.
The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.
However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.
One of the first things you notice in the chart is that the American economy was not especially healthy even before the financial crisis began in late 2007. By 2007, remarkably, the economy was already on pace for its slowest decade of growth since World War II. The mediocre economic growth, in turn, brought mediocre job and income growth — and the crisis more than erased those gains.
Under the program, the Christie administration has granted more than $900 million in state tax credits over 10 years to 15 companies, including Panasonic, Goya, Prudential and Campbell’s Soup.
Another agreement has also stirred criticism. In February 2011, the state approved a $42 million tax break for Campbell’s Soup to renovate its longtime headquarters in Camden and add new jobs.
Campbell’s then announced in June that it would eliminate 130 jobs in Camden
Do Tax Cuts Lead to Economic Growth?
They are looking at these numbers in a bubble and saying that lower corporate taxes means lower growth. This is a flawed premise.