Tax Cuts That Work

The Congressional Budget Office and Mark Zandi, Moody’s chief economist, find that tax cuts for lower-income recipients generate larger increases in employment per dollar cost to the federal budget than comparable tax cuts for high-income taxpayers in the short run.  What about the long run? A recent report by the Congressional Research Service found no clear relationship between cuts in marginal tax rates that primarily benefit high-income taxpayers and economic growth and job creation. A recent review by three distinguished academic economists also found no convincing evidence that real economic activity responds materially to tax-rate changes on top income earners, although such rate changes do affect their tax-avoidance behavior.

Cross-country comparisons also do not show a close link between top marginal rates and growth. Nevertheless, if the priority is to create a substantial number of jobs over the next presidential term, evidence from the last half-century strongly suggests that tax cuts for the top 5 percent won’t work. Tax cuts for working families, tax cuts directly aimed at expanded hiring or increases in infrastructure investment would have much more bang for the buck and would cost much less in terms of forgone revenue and deficit reduction in the future. While Republicans will try to dispute these findings, it appears that in recent times, Republicans have had a great deal of trouble accepting facts that do not agree with their assumptions.  Perhaps this should be called a WMD syndrome...even though they cannot be found, I know they were there according to Dick Cheney.