Congressional report finds higher tax rates don't hurt growth, so Republican party has it pulled

"Changes in the top marginal tax rate do not appear correlated with growth."

A new report from the US's Congressional Research Service has been suppressed by Republicans after it concluded that tax rates are uncorrelated with economic growth or saving, investment, and productivity growth – but do affect the extent of income inequality in the nation.

The report concludes:

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.

The report is particularly important for its treatment of capital gains tax as well as just income tax. The former is significantly lower than the latter, and has been for all but three years of the US's post-WWII history. As a result, it is a significant avenue for tax avoidance.

The argument for keeping capital gains tax low is that it stimulates investment, by encouraging people to invest rather than spend income. If, as the report concludes, it is in fact unconnected with investment rates, then that method of tax-dodging could be closed without harming the economy much, if at all.

The report, which was written by a neutral government body, was not welcomed by the Republican party, which is opposed to much taxation. The New York Times' Jonathan Weisman writes:

Senate Republican aides said they had protested both the tone of the report and its findings. Aides to Mr. McConnell presented a bill of particulars to the research service that included objections to the use of the term “Bush tax cuts” and the report’s reference to “tax cuts for the rich,” which Republicans contended was politically freighted.

They also protested on economic grounds, saying that the author, Thomas L. Hungerford, was looking for a macroeconomic response to tax cuts within the first year of the policy change without sufficiently taking into account the time lag of economic policies. Further, they complained that his analysis had not taken into account other policies affecting growth, such as the Federal Reserve’s decisions on interest rates.

“There were a lot of problems with the report from a real, legitimate economic analysis perspective,” said Antonia Ferrier, a spokeswoman for the Senate Finance Committee’s Republicans. “We relayed them to C.R.S. It was a good discussion. We have a good, constructive relationship with them. Then it was pulled.”

The Republican congressional leadership. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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"Labour are as pro-Brexit as the Tories": what do Sinn Fein's MPs really want from Westminster?

Its seven MPs are much less sympathetic to Corbyn's party than popularly imagined, and won't ever take their seats.

Should the Conservative minority government fall, what is Jeremy Corbyn’s route to power? The counterfactual as popularly understood goes like this: Corbyn would pick up the phone to his old pal Gerry Adams and convince Sinn Fein’s seven MPs to abandon the habit of a century and take their seats.

There are countless reasons why this would never happen, most of them obvious. One is more surprising. Despite Corbyn’s longstanding links with the republican cause, the Labour party is not all that popular among a new intake, which is preoccupied with one thing above all else: Brexit.

No wonder. Sinn Fein’s long game is an all-Ireland one, and the party believe the UK’s departure from the EU will hasten reunification. In the meantime, however, its priority is a Brexit deal that gives Northern Ireland – where 56 per cent of voters backed remain – designated status within the EU.

Pioneered by the moderate nationalist Social Democratic and Labour Party as an antidote to Brexit, designated status would allow the six counties in the North to continue to enjoy the EU’s four freedoms. But the idea is anathema to unionists and the UK government, and Sinn Fein sees little evidence that the Westminster establishment will make it work – not even Labour.

“They are as pro-Brexit as the Conservatives are,” says Mid Ulster MP Francie Molloy. “We’re anti-Brexit. We want to see the right of the people in the North who voted to remain in Europe respected.”

Simmering resentment over what the party perceives to have been broken promises on Tony Blair’s part – especially over legal protection for the Irish language, a key stumbling block obstructing the resumption of power-sharing – makes the already implausible deal even less likely.

“The Irish language act was something that Blair agreed to,” says Molloy. “So when people talk about us taking our seats, they don’t realise we would be backing a Labour government that wouldn’t be living up to its commitments either, and would be just as pro-Brexit as the Conservatives are."

That criticism may well surprise a lay audience whose working assumption is that Adams and Corbyn work hand in glove. But it is perhaps the best illustration of Sinn Fein’s parliamentary priorities: its seven MPs will not in any circumstances take their seats but use their Westminster presence to lobby ministers and MPs of all stripes while running constituency offices at home (they are unsalaried, but claim expenses).

Crucially, its MPs believe abstentionism strengthens, rather than weakens their negotiating hand: by their logic other parties need not and do not fear them given the fact they do not have voting power.

They will use their leverage to agitate for special status above all else. “Special status is the biggest issue that we are lobbying for,” says Molloy. “We feel that is the best way of securing and retaining EU membership. But if we get a referendum on Irish unity and the people vote for that, then the North will automatically join the EU.”

But that wasn’t always the received wisdom. That assurance was in fact secured by Mark Durkan, the former deputy first minister and SDLP MP beaten by Sinn Fein last week, after an exchange with Brexit secretary David Davis at the leaving the EU select committee. The defeat of the three SDLP MPs – two of them by Sinn Fein – means there will be no Irish nationalist voice in the commons while Brexit is negotiated.

Surely that’s bad news for Northern Irish voters? “I don’t think it is,” says Molloy. “The fact we took two seats off the SDLP this time proves abstentionism works. It shows they didn’t deliver by attending. We have a mandate for abstentionism. The people have now rejected attendance at Westminster, and rejected Westminster itself. We’ve never been tempted to take our seats at all. It is very important we live by our mandate.”

If they did, however, they would cut the Conservatives’ and Democratic Unionist Party’s working majority from 13 to a much more precarious six. But Molloy believes any alliance will be a fundamentally weak one and that all his party need do is wait. “I think it’ll be short-lived,” he says. “Every past arrangement between the British government and unionist parties has always ended in tears.”

But if the DUP get its way – the party has signed a confidence and supply deal which delivers extra cash for Northern Ireland – then it need not. Arlene Foster has spoken of her party’s desire to secure a good deal for the entire country. Unsurprisingly, however, Sinn Fein does not buy the conciliatory rhetoric.

“They’ve never really tried to get a good deal for everybody,” says Michelle Gildernew, who won the hyper-marginal of Fermanagh and South Tyrone back from the Ulster Unionists last week. “The assembly and executive [which Sinn Fein and the DUP ran together] weren’t working for a lot of groups – whether that was the LGBT community, the Irish language community, or women...they might say they’re going to work for everybody, but we’ll judge them by their actions, not their words.”

Molloy agrees, and expresses concern that local politicians won’t be able to scrutinise new spending. “The executive needs to be up and running to implement that, and to ensure a fair distribution. If there’s new money coming into the North, we welcome that, but it has to be done through the executive.”

On current evidence, the call for local ministers to scrutinise the Conservatives’ deal with the DUP is wishful thinking – Northern Ireland has been without an executive since February, when the late Martin McGuinness resigned as deputy first minister and triggered a snap election.

The talks since have been defined by intransigence and sluggishness. James Brokenshire, the Northern Ireland secretary, has had to postpone the talks deadline on four separate occasions, and has been criticised by nationalists for his perceived closeness to the DUP.

The final deadline for the restoration of an executive is 29 June 2017. Sinn Fein has called for Brokenshire to recuse himself in favour of a neutral chair. “His hands are tied now, completely,” says Molloy. “The Conservative party were always questionable on where they stood – they’ve always been unionists. The issue now is whether they can act neutrally as a guarantor to the Good Friday Agreement.”

He believes that question is already settled. “Legally, they have to act to ensure that nothing happens to damage that agreement – but we’ve already breached it through Brexit. There was no consultation. The people of the North voted to remain and it hasn’t been recognised. It totally undermines the consent principle.”

Just how they and Brokenshire interpret that principle – the part of the Good Friday Agreement that specifies the constitutional status of the North can only change by consent of its people – will be key to whether they can achieve their ultimate goal: Irish unity.

Molloy and Gildernew say the fact that 11 of Northern Ireland’s 18 constituencies voted to remain in the EU is enough for Brokenshire to call one within the next five years (though polling consistently shows that a clear majority of the province’s electorate, including a substantial minority of nationalists, would vote to stay in the UK). They are confident they can win, though, failing that, Molloy envisages it as the first in several referenda on unification.

But beneath the optimism lies the knowledge that the British government are unlikely to heed their calls. And, willingly absent from the Westminster chamber, they say the UK government’s discussions about Brexit are illegitimate. They see their real powerbase as elsewhere: in Dublin’s Dail Eireann, where Sinn Fein is the third largest party, and the chancelleries of Europe.

“That’s where most of the negotiation will actually happen,” says Molloy. “The EU27 will make the decisions. They won’t be made in Westminster, because the British have already set out what they’re doing: they’re leaving.”

But with seven MPs already lobbying ministers and a united Ireland unlikely to happen in the immediate future, Sinn Fein itself won’t be disappearing anytime soon.

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.

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