The US Congressional Research Service is normally about as exciting as it sounds: Academics churning out reports for the edification of American legislators. But a recent CRS publication so offended Senate conservatives that they had it pulled from public circulation. The report has been reposted elsewhere, though, so that all may read its shocking finding: contrary to Republican tenets, lowering the tax rates for high earners does not make the economy grow faster.
Coming on the eve of the presidential election, the report’s suppression raised a predictable fuss. But while press coverage has wondered whether attempts to quash it might backfire and draw more attention (well, they did), the findings themselves aren’t even unusual. Yes, the connection between tax rates and economic performance is complex; yes, the Republican leadership complained about the report’s rigor—it doesn’t take policy lag or Federal Reserve action into account—and its language (it referred to “the Bush tax cuts” and “tax cuts for the rich.”); and yes, the idea that higher taxes lead to less work can seem intuitive. Yet the CRS report isn’t the first to show little connection between tax rates and economic expansion. Consider:
“[T]he bottom line is that rich countries have all grown at roughly the same rate over the past 30 years—in spite of huge variations in tax policies. Using our model and mid-range parameter values where the response of top earners to top tax rate cuts is due in part to increased rent-seeking behaviour and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83%—as opposed to 57% in the pure supply-side model.”
Of course, tax policy can’t be totally disconnected from growth, and it’s not: Loopholes and tax breaks can distort business decisions and shape the economy with unexpected consequences, and tax differences across borders can have significant affects on international capital flows. Changes in how much revenue is taken from citizens affects consumer spending and saving. If the government can’t fund its spending, public debt has consequences of its own. But there’s no hiding the reality that when it comes to growth, the marginal tax rates paid by the highest earners aren’t the high road to expansion.