CRS Says Marginal Tax Rates Don't Matter...Again
The Congressional Research Service (CRS) is supposed to be a non-ideological, fact-based research crack staff for House and Senate offices. Besides being completely non-transparent with the public who pays taxes for them, however, CRS has started to show a decided liberal bias in the area of tax policy.
Back in September 2012 (you know, right before an election of some importance), CRS issued a study in which they maintained that raising or lowering marginal income tax rates had no effect on economic performance. The Heritage Foundation's Curtis Dubay had this to say at the time:
The CRS report presents a slew of periods between 1945 and 2010 comparing the top marginal income tax rates and capital gains rates with economic growth rates. From these correlations the author concludes that lower rates do not correlate with stronger economic growth.
In fact, these stylistic correlations prove nothing. In short, the economy is more complicated than this simplistic approach can acknowledge. For the analysis to prove anything, it needed to account for countless other economic and policy factors, many specific to a given period, and determine how those factors influenced economic growth in the period in question. With this as background, the analysis would then have to isolate the effect lower rates had on growth.
CRS, and many others that argue against lower tax rates, mislead when they make such flimsy correlations because they fail to disclose that no two time periods are the same. Comparing 1950 to 2010 just on tax rates is ludicrous. The world and tax policy are entirely different in those timeframes. If CRS tried to account for all the differences, and then determine how tax rates influenced growth, it would find a different and more accurate answer: that lower rates encourage growth.
Well, apparently CRS is at it again. They have re-released the report, and those who have read it tell me it makes the same points using the same methodological flaws. I can't read it because it's firewalled, but there's a Tax Analysts writeup here (subscription required).
Curtis made another good point in his 2012 analysis which bears repeating here: marginal income tax rate change is one of the few areas in which the Left thinks taxes don't influence behavior. The same people who think raising and lowering the capital gains tax rate has no impact on stock prices are the ones who tout the incentive-altering effects of carbon taxes, Tobin taxes, cigarette taxes, soda taxes, plastic bag taxes, etc.
So which is it? Do taxes change behavior, or do they not?