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1 Stephen J. Entin, CRS Study on Tax Rates and Growth Still Flunks the Test 1 (2013)

handle is hein.taxfoundation/ffdfaxz0001 and id is 1 raw text is: FUDTOFiscal Fact January 8 2013 No. 350 CRS Study on Tax Rates and Growth Still Flunks the Test By Stephen J Entin Studies issued by the Congressional Research Service are intended to inform the Congress as it develops public policy and enacts legislation. A recent CRS publication on the effect of the top statutory tax rates on economic activity may have influenced the debate over taxing the rich during the election and may have influenced the tax changes just enacted in the fiscal cliff legislation.1 It is critical that such studies reflect the best guidance that the economics and tax professions can provide. The CRS study on the top tax rates did not meet that high standard. Its original release in the fall was met with widespread and justified disbelief, and it was withdrawn for review and examination of its methodology. It has now been reissued in an updated form. However, the re-issued CRS study does not contain any changes of note that would redeem the original report. The paper purports to determine the link (or lack thereof) between changes in the top marginal tax rates on income and capital gains and the growth rate of the economy. Unfortunately, the method used to determine the relationship depends mainly on timing, looking to see if a change in the growth rate of the economy coincides with or follows soon after a rise or fall in the tax rates. The study makes no effort to determine the channels through which the tax changes ought to work to affect the economy, looks at the wrong measure of progress over the wrong time frame, and takes inadequate account of what other tax or economic events are occurring at the same time that might mask the results.2 Looking at only part of the picture Other factors can either hide the effect or exaggerate the effect of tax rate changes. Very few taxpayers have incomes that reach the top tax rates, and while these people earn a great deal of money, and contribute a ' Thomas Hungerford, Taxes and the Economy: An Economic Analysis ofthe Top Tax Rates Since 1945 (Updated), CRS Report for Congress R42729 (Dec. 12, 2012). 2 For a broad review of the literature on the subject of the impact of taxes oi economic growth, see William McBride, What is the Evidence on Taxes and Growth?, TAX FOUNDATION SPECIAL REPORT No. 207 (Dec. 18, 2012), h tp:ix rdai ion .orglar iclelwha -evidence--i axes- an d-grow-th.

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