In politics, ideas are repeated so often that they become familiar and get treated if they were facts. One of the most durable nuggets is the argument that tax cuts for the wealthy lead to economic growth.

But do they, really? A study by the nonpartisan Congressional Research Service says that hasn’t been true — at least not for the last 67 years.

Tracking historical data from 1945, when the top marginal tax rate was 90 percent, to the present, when it is 35 percent, shows no correlation between dropping tax rates and growth in Gross Domestic Product.

In fact, the data show a dramatic upswing in GDP in the 1990s, after presidents George H.W. Bush and Bill Clinton increased top tax rates. The tax cuts a few years later championed by President George W. Bush were followed by a period of slow growth and a financial collapse.

Obviously, other factors were at play beside tax rates. The 1990s economy was fueled by a tech boom and the collapse of the Soviet Union. The 2000s were affected by the tech bubble’s collapse and 9/11.

But if the study does not refute the idea that lower taxes lead to economic growth, it doesn’t provide any evidence to support it.

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Instead, it challenges the supply-side orthodoxy, which has preached that cutting tax rates on the wealthy (or not increasing them) would free up money for investment, spurring growth.

A correlation the study does find, however, is the one between lowering top tax rates and income inequality.

“The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced,” said the study’s main author, Thomas L. Hungerford, a specialist in public finance.

As tax rates go down, wealth concentrates at the top of the income scale, and rather than dispersing wealth though the economy it leaves less available to those in the middle and bottom.

This does not translate into increased demand for goods and services, which is essential for economic growth.

The timing of this study, as the presidential and congressional races reach their final stage, should force candidates to challenge the arguments made in the past.

The idea that the economy as a whole can be spurred into growth by cutting taxes on the wealthy is not borne out by history.

If candidates claim that they can use the reduction of top tax rates as an economic stimulus, they should explain why this time will be different from all the others.

 


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