U.S. Representative Kevin Brady (R-TX), Vice Chairman of the Joint Economic Committee, released the attached Republican Staff Analysis examining a recent report from the Congressional Research Service (CRS) that claimed there was no statistical relationship between the top statutory tax rate and economic growth.
“The Congressional Research Service report that top tax rates don’t matter to the economy has two glaring flaws that lead to the wrong conclusion,” says Brady. “ The report ignores the total tax burden imposed by federal, state, and local governments on job creators and high income earners, and fails to recognize that top rates today capture a dramatically larger share of income than in the past, including roughly half of all net business income taxed at the individual level.”
“The top rate is only one feature of our tax system and by itself tells us nothing about the overall tax burden. And since more and more businesses now file as individual tax payers, the impact on the economy is significantly larger.”
Brady says Congress and the White House should focus instead on the effective marginal tax rates on labor and capital because “they have the greatest effect on after-tax income which, in turn, affects the incentive to work, save, and invest.”
According to this JEC Republican Staff Analysis, from 1945 to 1963 when the top statutory tax rate was 90 percent, only 1 percent of total Adjusted Gross Income (AGI) was affected. Over time the top statutory tax rate has decreased, but the share of total AGI reported by taxpayers subject to the top rate has increased. In 2007, taxpayers subject to the top rate reported 18 percent of total AGI.
“The economic effects of the exorbitant top rates in the past are not comparable with the effects of an increase in today’s top rate.” Brady concluded, “Before Congress decides it can raise the top statutory tax rate without adverse effects, Congress needs to get the relevant facts about how taxes really affect the economy.”