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CBO Joins CRS in Finding Almost No Economic Impact From Letting High-End Bush-Era Tax Rates Expire

You may remember that, last week, Republicans forced the Congressional Research Service (basically Congress’ think tank) to take down a study that analyzed 65 years of individual tax rates and found no correlation between lower taxes on the rich and economic growth. This just did not compute with the GOP, so they had to suppress the facts.

Now the Congressional Budget Office has come out with an analysis of the fiscal slope measures, and guess what? They found the exact same thing.

You have to dig into the data a bit to find it, but basically, CBO measured the impact of a series of the expiring tax and spending measures on economic growth and jobs in 2013. That chart is above. The key portion of it is in the middle. CBO estimates that extending all the expiring tax provisions and patching the alternative minimum tax would boost real GDP by around 1.4%. But, right below it, they estimate extending all those provisions EXCEPT the tax rates over $250,000 of income, to boost GDP by roughly 1.3%. In other words, the difference between extending the tax rates and not is a big fat 0.1% of GDP. That’s a rounding error.

Overall, CBO still shows that going down the slope and staying there would cost 2.9% of GDP and 3.4 million jobs. Just letting the payroll tax cut expire, which Congress and the White House seem OK with, would cost 0.7% of GDP and 800,000 jobs. That’s about 1/4 of the total impact, and almost twice as much as the sequester cuts.

But the big news here is the CBO showing that tax cuts for the rich do not correlate at all with economic growth. There is no compelling economic reason to extend those tax cuts. As CBO says in proper budget-ese, “the extension of lower tax rates on higher incomes would have a relatively small effect on output per dollar of budgetary cost.”

And it’s worth pointing out that the Republicans, in defending their position of extending those high-end tax cuts, are pointing to a study from Ernst & Young that actually is methodologically flawed enough to raise the suspicions of any independent analyst. Meanwhile, the study Republicans tried to sink represents the consensus opinion of virtually every unbiased analyst who studies the matter. And that includes George W. Bush’s own Treasury Department.

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David Dayen

David Dayen