Study Disproves GOP’s Only Economic Plan

Study Disproves GOP’s Only Economic Plan

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The Congressional Research Service has released a study of tax rates, economic growth and income inequality from 1945 to the present day. Unsurprisingly, the study finds that the only economic plan the Republican party ever has — cutting income taxes for the wealthy — does not spur economic growth, but does shift the tax burden to everyone else (and drops federal revenue, thus creating far more debt). The study’s conclusion:

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The top income tax rates have changed considerably since the end of World War II. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

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There are so many other factors that are far more important when it comes to economic growth — currency values, booms or busts in other countries that help or hurt the export sector, interest rates (though here again, they’re already so low that they are essentially meaningless now as an input to growth), the amount of money in circulation, technological innovations, productivity growth, and a dozen other things.

But what it does show is that raising or lowering the marginal tax rates has little to do with growth in GDP or employment because those other factors dwarf their influence over demand and spending. And that’s exactly why it’s absurd that cutting marginal tax rates is the only economic plan the Republicans have, or have had, for decades now. It’s like the owner of a sports team saying that the key to getting attendance up at their stadium is the brand of mustard they use on their hot dogs — there are a hundred factors far more important than that, all of which they are ignoring.

Another one bites the dust. Most everyone other than Republicans know the austerity plan is completely bogus, but I didn't quite know the origins of it and why it was adhered to so religiously. Well, apparently the austerity economic strategy is based on a Microsoft Excel coding error in a economic paper. No, this is not a joke:

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In 2010, economists Carmen Reinhart and Kenneth Rogoff released a paper, "Growth in a Time of Debt." Their "main result is that...median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower." Countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate, in fact.

This has been one of the most cited stats in the public debate during the Great Recession. Paul Ryan's Path to Prosperity budget states their study "found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth." The Washington Post editorial board takes it as an economic consensus view, stating that "debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth."

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In a new paper, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst successfully replicate the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff and they were willing to share their data spreadhseet. This allowed Herndon et al. to see how how Reinhart and Rogoff's data was constructed.

They find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don't get their controversial result.

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Coding Error. As Herndon-Ash-Pollin puts it: "A coding error in the RR working spreadsheet entirely excludes five countries, Australia, Austria, Belgium, Canada, and Denmark, from the analysis. [Reinhart-Rogoff] averaged cells in lines 30 to 44 instead of lines 30 to 49...This spreadsheet error...is responsible for a -0.3 percentage-point error in RR's published average real GDP growth in the highest public debt/GDP category." Belgium, in particular, has 26 years with debt-to-GDP above 90 percent, with an average growth rate of 2.6 percent (though this is only counted as one total point due to the weighting above).

Peer review at its finest. This is how science works, and it's why things are usually peer-reviewed prior to publication. And definitely before some asshole politician latches onto it like it was handed down by Jebus himself.

This is a demonstrably bad policy based on demonstrably bogus data. No Republican/conservative can, in good conscience, support it. So I'd like to say this would change the discussion some, but these are the same idiots who think global warming and evolution aren't real, and the media is coming for their guns. Evidence was never part of the equation to begin with, which is terribly sad, and absolutely terrible for the future of our country.

Colbert's take is, as usual, hilarious:




Herndon points out the very obvious: laying people off reduces spending power. Less taxes collected, less money in the economy. How the fuck is the economy going to recover if an already strapped middle class loses even more spending power? What business is going to open or expand if there's no fucking customers? Just none of it made any sense whatsoever.

Krugman's take:

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The intellectual edifice of austerity economics rests largely on two academic papers that were seized on by policy makers, without ever having been properly vetted, because they said what the Very Serious People wanted to hear. One was Alesina/Ardagna on the macroeconomic effects of austerity, which immediately became exhibit A for those who wanted to believe in expansionary austerity. Unfortunately, even aside from the paper’s failure to distinguish between episodes in which monetary policy was available and those in which it wasn’t, it turned out that their approach to measuring austerity was all wrong; when the IMF used a measure that tracked actual policy, it turned out that contractionary policy was contractionary.

The other paper, which has had immense influence — largely because in the VSP world it is taken to have established a definitive result — was Reinhart/Rogoff on the negative effects of debt on growth. Very quickly, everyone “knew” that terrible things happen when debt passes 90 percent of GDP.

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According to the review paper, R-R mysteriously excluded data on some high-debt countries with decent growth immediately after World War II, which would have greatly weakened their result; they used an eccentric weighting scheme in which a single year of bad growth in one high-debt country counts as much as multiple years of good growth in another high-debt country; and they dropped a whole bunch of additional data through a simple coding error.

Fix all that, say Herndon et al., and the result apparently melts away.

If true, this is embarrassing and worse for R-R. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear.

The results are in – Keynes was right, contractionary economics was wrong, but the damage is done (Evan Soltas)

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A piece by Evan Soltas in Bloomberg News is titled "After Austerity". . . .

it does capture the dawning realization, glimmerings of which are now beginning to emerge as a nascent consensus in pundit-land, that the advocates of using neo-Keynesian counter-cyclical policies to respond to the Great Recession have been proved right, and the contractionary economic policies pushed by Republicans and right-wing economic pundits in the US, along with an astonishing range of experts as well as politicians in Europe, have turned out to be disastrously wrong (as predicted).

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In the US, of course, most proponents of debt hysteria and urgent deficit-cutting also favor cutting taxes. The basic error, shared by US Republicans and British Conservatives (among others), is the failure to recognize that when the economy is still recovering from a major recession, the national government should be running a deficit (except when very special circumstances make that impossible).

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Part of the change comes from the implosion of a central claim in an academic paper by Harvard economists Carmen Reinhart and Kenneth Rogoff. They found that nations stop growing when their ratio of public debt to gross domestic product passes a threshold of 90 percent. Their findings were exhibit A for advocates of austerity.

Their claim has now been debunked by new analyses finding calculation errors, data omissions, questionable methods and inconclusive evidence of causality. Other high-profile arguments for austerity -- such as recent papers by Alberto Alesina and Silvia Ardagna,, and by David Greenlaw and three others -- have also been criticized.

But while the Reinhart/Rogoff debacle is the kind of attention-getting incident that makes news, its significance shouldn't be over-hyped. It's really of secondary importance.

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The case for austerity is coming apart for another and more important reason: The results are in, and they're terrible [my bolding], especially where central banks have failed to offset the fiscal cuts with monetary easing. The International Monetary Fund called for less austerity in a meeting last week. Among the Group of 20 nations, many governments have eased their targets for debt reduction and called for new efforts to boost growth. [....]

Unfortunately, it's not at all clear whether, how soon, or to what extent this dawning realization will actually help generate less destructive policies.

Republican voters really need to start holding their elected officials accountable. This is the same kind of science/evidence denial we've come to know and loathe from those retarded creationists, but unlike the evolution debate, this is having an immediate and measurable impact on our economy. It is far more dangerous.

And another bites the dust:

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A new study finds that corporations who paid higher taxes created far more jobs over the last few years than those who paid none.

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Paying high tax rates doesn’t stifle job creation at the country’s biggest, most profitable companies and low tax rates seem to be more correlated with job losses, according to a new report from the Center for Effective Government.

The 30 Fortune 500 companies that paid the highest tax rates from 2008 to 2010 created about 200,000 jobs from 2008 to 2012, the researchers found. By contrast, the 30 companies with the lowest actual tax rates in that time frame shed a collective 51,289 jobs.

The report compared tax data compiled by Citizens for Tax Justice with employment data from corporate filings with the Securities and Exchange Commission. The tax data include only companies that turned a profit in each of the three years in question. The 30 high-tax companies each paid at least a 33 percent tax rate over the time frame in question, and only eight of them saw a net decrease in employees. In the low-tax grouping, just two of the 30 profitable companies paid any federal taxes, and a full 15 of them cut their payrolls.

This is correlation, not causation, of course. But it fits very well with the long-range data as well, which shows that lowering taxes on the wealthy and on business does not unleash some economic boom. You need only look at the last few years when the stock market has boomed, the wealth of the rich has increased at an astonishing rate, corporate taxes are at their lowest ever and job growth has still been sluggish. It’s time to bury this myth once and for all.