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Do Tax Cuts for Wealthy Grow the Economy?

Study: Tax Cuts for the Rich Don’t Spur Economic Growth

Another day, another tax study.

Tax rates are always a hot topic in Washington, D.C., with one side of the political spectrum consistently promoting the idea that tax cuts for the wealthy create economic growth due to investment in job-creating enterprises.

But another study, this one by the research arm for Congress, seems to challenge that notion. The Congressional Research Service said that over the past six decades there wasn’t a link between tax cuts for the rich and increased savings, productivity, or investment.

With more ammunition on his side, expect President Barack Obama to continue his argument to increase the top tax rate from 35 to 39 percent. While 39 percent may seem like a high rate, millionaires used to pay a 90 percent rate in 1945, which then fell to 70 percent in the 1960s, the study showed.

But it wasn’t just the top income tax rate that fell. The tax rate for capital gains fell as well. It was as high as 35 percent in the 1970s, and now stands at 15 percent.

The verdict for lowering top tax rates: negligible growth for private saving, and a statistically insignificant relationship between lower capital gains tax rates and investment. But give it some time and another group or government agency may very well come to a different conclusion.

While another study makes another claim about taxes, the IRS continues its efforts to get people to pay their back taxes. By tacking penalties and interest on top of the owed principal, an IRS agent can make a small problem turn into a larger one.

But working with a tax professional can help get a messy financial situation back on track by potentially avoiding the penalties and interest that gets added on to one’s back taxes. That’s a study you’ll be happy to agree with.

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