At 17:03 14/11/2012, Michael Gurstein wrote:
Keith, without seeing the study, I'm assuming
that it was an econometric analysis i.e. where
they looked at broad correlations between tax
behaviours and overall economic indicatorsÂ… the
relationship between those types of analyses and
the micro- (or behavioural) economic analyses
that you are pointing to is a continuing source
of dispute in the Ecoonomics worldÂ… In this case
I would put my bets on the macro and anticipate
that whatever effects your analyses might turn
up would be too small to register at the macro
level (which I think was the point of their argumentsÂ…
(KH) When half of income earners (in America) pay
no income tax and 5% of the highest earners pay
half of the total then it makes no sense to say
that even marginal changes in the tax rates of
the rich make little difference to GDP. If there
is little correlation between the spending of
discretionary income on investment or status
goods as between the very rich and those we would
normally call rich, then we can put it down to
the fact that there are now many more rich per
capita today than there ever has been in history,
more investment opportunities and, of course,
immensely more status goods than ever.
Keith
M
From: Keith Hudson [mailto:[email protected]]
Sent: Wednesday, November 14, 2012 1:43 AM
To: RE-DESIGNING WORK, INCOME DISTRIBUTION,
EDUCATION; Futurework; michael gurstein
Subject: Re: [Futurework] FW: [SPAM] Research?
We Don't Need No Stinking Research
One must be very suspicious of any research
study, such as the one below, which seeks to
show that decreasing the tax of high earners has
no overall economic effect -- positive or
otherwise. This immediately reduces the study to
a statement of irrationality. Unless the rebate
is incinerated or placed in a deep hole in the
ground it has got to have an effect.
It is either invested, in which case jobs will
ensue, or it is spent on some status good such
as a luxury yacht or a 2nd (or 3rd or 4th) home,
which will also create more jobs, If one truly
wants to reduce income inequality then the only
way to do so is to tax spending because all of
us, including the very rich, tend to spend to
the limit when it comes to the bulk of our spending on status goods.
Keith
At 21:20 13/11/2012, michael gurstein wrote:
-----Original Message-----
From: Portside Moderator [ mailto:[email protected]]
Sent: Sunday, November 04, 2012 6:29 PM
To: <mailto:[email protected]>[email protected]
Subject: [SPAM] Research? We Don't Need No Stinking Research
GOP Senators to Congressional Research Service:
Research? We Don't Need No Stinking Research Josh Bivens and Andrew
Fieldhouse Economic Policy Institute November 2, 2012
<http://www.epi.org/blog/gop-senators-congressional-research-service-tax-rate>http://www.epi.org/blog/gop-senators-congressional-research-service-tax-rate
s/
[moderator: please use the above link to view the referenced table]
The New York Times has reported that the nonpartisan Congressional Research
Service (CRS) has withdrawn a September report (though it can be found on
the Senate Democratic Policy Committee site) that examined the relationship
between top tax rates and economic outcomes. CRS made the decision in
response to objections raised by Senate Minority Leader Mitch McConnell
(R-Ky.) and other GOP senators about the reports "tone and . its findings."
We'll leave arguments about tone aside for a moment and focus on the
research quality of the report and whether or not the GOP objections have
any basis. Spoiler alert:
they don't. The report mostly just confirms what a rich economic literature
already has shown: Raising marginal tax rates on the highest incomes just
doesn't have much impact at all on aggregate economic indicators, though it
does have considerable impact on inequality.
This is shown in the report through a wide range of descriptive data and
scatter plots that show very little obvious relationship between top tax
rates and aggregate economic indicators, but which show striking
relationships between falling top tax rates in recent decades and the share
of overall income accruing to the top 1 percent of households. It then tests
to see if these simple two-way relationships hold in a multivariate
regression. They do.
So what are the allegedly substantive objections raised by GOP senators to
this report? The Times reports:
"They also protested on economic grounds, saying
that the author, Thomas L. Hungerford, was looking
for a macroeconomic response to tax cuts within the
first year of the policy change without sufficiently
taking into account the time lag of economic
policies. Further, they complained that his analysis
had not taken into account other policies affecting
growth, such as the Federal Reserve's decisions on
interest rates."
The second criticism-that the report does not control for policies other
than tax rates that could affect growth-is just flat incorrect. Table A-1
from the report is reproduced below, showing the other controls the report
uses (and even the specific control noted in the Times piece-the effect of
Federal Reserve decisions on interest rates-would be accounted for through
the inclusion of the AAA bond rate).
The first criticism-that the report does not allow for effects that happen
with long lags-has some merit, as explicit regressions with the longer lags
are not displayed. However, in a later story, the report's author notes that
he examined lags of three and five years, and the results did not change.
One imagines he'd be happy to append these results to the study if it would
allow it to be re-released.
Overall, the findings of the report indicate that high- income tax cuts
don't lead to better aggregate economic performance, but they do change the
distribution of gains from growth, and exacerbate income inequality.
It's important to note that these results largely just confirm what
state-of-the-art public finance research has found. For example, in a review
of literature on the responsiveness of reported income to top tax rates,
Saez, Slemrod, and Giertz (2012) find relatively little responsiveness in
productive economic activity to changes in the top tax rate, while finding a
large response in the form of tax shifting and avoidance.
Similarly, Piketty, Saez, and Stantcheva (2011) find a strong correlation
between the income share of the top 1 percent and changes in the top tax
rate, both in U.S.
time series data and in cross-country comparisons. And Tyson and Zidar
(2012) have shown that top tax rate reductions have had no statistically
significant correlation with job creation, as recently summarized on the
Times' Economix blog.
In short, the CRS report is just another in a long line of credible research
showing that cutting tax rates on high incomes does not spur growth but does
spur rising inequality.
As for McConnell's authority to pronounce on public finance research, it
should be noted that he recently claimed that, "There's no evidence
whatsoever that the Bush tax cuts actually diminished revenue. They
increased revenue, because of the vibrancy of these tax cuts in the
economy." This statement has the dual honor of being empirically false (as
asserted by Bush's own economic advisors, among everybody else, including
conservative public finance experts) while also using the phrase "Bush tax
cuts," which, remember, was on the bill of complaints leveled against the
CRS report by .
McConnell's office.
It doesn't take a leap of the imagination to see how these results threaten
the GOP's decades-long policy agenda of lowering top marginal tax rates,
especially with inequality finally landing on the political radar.
So, while neither Hungerford's results nor the GOP's efforts to squash them
are particularly surprising (though still depressing), what is surprising
and damaging is the decision of CRS to buckle to this pressure. This bodes
poorly for CRS, economic research (to which CRS makes great contributions),
and informed policymaking in the future.
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