The Economic Growth Myth of Tax Cuts for the Wealthy

The Republicans are working hard to continue embedding the economic myth that lowering taxes on the already affluent results in economic growth. It is indeed a myth. And while we need to be cautious about correlation, and there are many other factors intervening in macro-economic growth, it is still relevant to review the evidence from the recent past decades of tax decreases and tax increases. Here it is:

  • George W. Bush came into office in 2001 and proceeded to put forth tax cuts largely benefiting the affluent, especially those who didn’t work for wages, but enjoyed dividends and capital gains. The resulting drops in revenue helped to drive the federal budget into a deficit within a year of Bush taking office. In 2008, his last full year as President, the federal deficit was almost $500 million. All through his presidency, the economy was sluggish. The main factor pushing the economy along was the increasing housing bubble, by which families were accumulating their own unsustainable debt, and which ended in the 2008 dive into the Great Recession.

But we don’t have to look to ancient history for further proof of the correlation of raising taxes on the wealthy and economic growth. That’s because in 2012 President Obama and the Republican(!) Congress and Senate raised taxes on the most affluent, increasing the top marginal tax rate from 35% to 39.6% for households with income above a $450,000 threshold. This kicked in for income in 2013.

The taxes to finance the Affordable Care Act also began in 2013: 0.9% FICA tax on households with income in excess of $250,000, and 3.8% tax on net investment income for these same households.

Combined these three taxes could add up to an increase of 9% on income in excess of $500,000 for affluent households. What happened?

  • Median compensation - that is, compensation for the worker in the very middle of compensation for all workers - increased by over $2,400, or 9% between 2012 and 2015.

Don’t be fooled by the myths promoted by the billionaires and millionaires now hovering around the White House, the Congress, the Senate, and the legion of corporate lobbyists. The wealthy have too much money, the vast majority of Americans have too much insecurity. It will only get worse as the President-elect cuts taxes, not for us, but for the uber-wealthy!