When we listen to political debates about which public policies will strengthen the economy, it is easy to get lost in a statistical maze. Each side presents economic data in a way that supports their own theory of the case.
The Congressional Research Service (CRS) is a branch of the Library of Congress that can help us make our own assessments regarding public policy. According to the CRS website, its purpose is to provide “authoritative, confidential, objective and nonpartisan” analyses to members of Congress.
The relationship between tax rates and the economy is an issue in the current campaign. Thinking about this issue, the CRS looks at empirical data that may or may not confirm theoretical models or ideological assumptions. Thus, like the early TV detective Joe Friday, they want “just the facts ma’am,” and then they try to reach conclusion from these facts.
In a report—“Tax Rates and Economic Growth” published December 5, 2011—the CRS provides information about whether it is wise to extend the 2001-2003 tax cuts, increase taxes to reduce the national debt, and/or reform the tax code. The report says:
“Some arguments have been made that raising top rates may especially harm small businesses who create most of the jobs. . . . an examination of the evidence suggests that small businesses do not create a disproportionate share of jobs, that only a small fraction of unincorporated businesses would be affected by changes in the two top rates (around 2 percent to 3 percent) and that 80 percent of the reduced taxes are likely to accrue to non-business income and almost 90% to either non-business income or businesses without employees” (8).
In other words, increased taxes on the rich will not hurt job creation. In fact, according to this study, “most evidence suggests that high tax rates encourage self-employment” (8). According to another study referenced in the footnotes, this is because when people are self employed, they can more easily find ways to avoid taxes, and there is more variance in earnings for self-employed people.
Another CRS study—“Taxes and the Economy: An Economic Analysis of the Top Tax Rates since 1945” published on Sept. 14 —shows that when tax rates were higher on high-income people, real gross domestic product (GDP) growth rates, and the real per capital GDP were higher. It says in its conclusion:
“The results of the analysis suggest that changes over the past 65 years in the top marginal tax rates and the top capital gains tax rates do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth” (16).
According to the CRS tax cuts to the very top increases income inequality. The report says: “lower top tax rates may be associated with greater income disparities.” So, when top tax rates are cut, it does not necessarily mean that people will invest that money. What it does mean is that people whose taxes are cut will have more money. They do not need to spend the money to meet day to day expenses. The economic pie does not get larger, and the rich just get to keep a larger slice.
The Bible teaches that to whom much is given much is required. If we apply this logic to taxes, it would suggest that the biblical teaching is also good economics because higher taxes on the rich allow the economic pie to grow for the good of everyone in the society.
Just the facts.
Dr. Valerie Elverton Dixon is an independent scholar who publishes lectures and essays at JustPeaceTheory.com. She received her Ph.D. in religion and society from Temple University and taught Christian ethics at United Theological Seminary and Andover Newton Theological School.
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