Today, Republicans extol the virtues of lowering marginal tax rates, citing as their model the Tax Reform Act of 1986, which lowered the top individual income tax rate to just 28 percent from 50 percent, and the corporate tax rate to 34 percent from 46 percent. What follows, they say, would be an economic boon. Indeed, textbook tax theory says that lowering marginal tax rates while holding revenue constant unambiguously raises growth.
But there is no evidence showing a boost in growth from the 1986 act. The economy remained on the same track, with huge stock market crashes — 1987’s “Black Monday,” 1989’s Friday the 13th “mini-crash” and a recession beginning in 1990. Real wages fell.
The tax cuts for the wealthy frequently advocated by Republican politicians are viewed unfavorably by many voters, polls show. The Public Religion Research Institute, a nonpartisan group that conducts public-opinion surveys, found that 57 percent of Americans nationally, including over a third of Republicans, support increasing taxes on those earning at least $250,000 a year. By contrast, Brownback’s policies reduced them drastically.
Yet Dan Cox, the institute’s research director, said that Brownback’s defeat did not augur more victories for Republicans pursuing more moderate economic policies. He said Republican policymakers and their advisers around the country are likely to view the example of Kansas as a failure of implementation, rather than one of principle, and they will argue that Kansas’s experiment would have succeeded had the legislature reduced spending even more.
As the saying goes, conservatism never fails, it is only failed.
Think about what tax breaks are being targeted here. These are all refundable credits, which, with the exception of the college credit, overwhelmingly help low-income and working-class people. H&R Block is not pushing to make the mortgage interest deduction more complicated, or to make the charitable deduction more confusing. Tax breaks that mostly help rich people go untouched.
Only 6 percent of businesses are traditional corporations subject to the corporate income tax, according to the Congressional Research Service.
And for those traditional corporations that are subject to the United States corporate tax rate, which at 35 percent is the highest in the world, there are myriad ways to avoid paying anything close to that. By taking advantage of a warren of credits, deductions and exemptions, corporations pay an average effective rate of just 12.6 percent, according to the Government Accountability Office.
Sure, corporate whining about taxes seems ridiculous if you look at the facts. But if you ignore them, American corporations really have it tough.
So the richest quintile receives 33 times more federal money for their retirement accounts than the poorest quintile.
But Dean P. Lacy, a professor of political science at Dartmouth College, has identified a twist on that theme in American politics over the last generation. Support for Republican candidates, who generally promise to cut government spending, has increased since 1980 in states where the federal government spends more than it collects. The greater the dependence, the greater the support for Republican candidates.
Conversely, states that pay more in taxes than they receive in benefits tend to support Democratic candidates. And Professor Lacy found that the pattern could not be explained by demographics or social issues.
Funny how that works.