TAILIEUCHUNG - Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945 (Updated)

The recession was intertwined with a major financial crisis that exacerbated the negative effects on the economy. Falling stock and house prices led to a large decline in household wealth (net worth), which plummeted by over $16 trillion or about 24% during 2008 and 2009. In addition, the financial panic led to an explosion of risk premiums (., compensation to investors for accepting extra risk over relatively risk-free investments such as . Treasury securities) that froze the flow of credit to the economy, crimping credit supported spending by consumers such as for automobiles, as well as business spending on new. | Taxes and the Economy An Economic Analysis of the Top Tax Rates Since 1945 Updated Thomas L. Hungerford Specialist in Public Finance December 12 2012 Congressional Research Service 7-5700 R42729 CRS Report for Congress------------- Prepared for Members and Committees of Congress Taxes and the Economy An Economic Analysis of the Top Tax Rates Since 1945 Summary Income tax rates are at the center of many recent policy debates over taxes. Some policymakers argue that raising tax rates especially on higher income taxpayers to increase tax revenues is part of the solution for long-term debt reduction. For example in the 112th Congress the Senate passed the Middle Class Tax Cut S. 3412 which would allow the 2001 and 2003 Bush-era tax cuts to expire for taxpayers with income over 250 000 200 000 for single taxpayers . Other policymakers argue that maintaining low tax rates is necessary to foster economic growth. For example the House passed the Job Protection and Recession Prevention Act of 2012 . 8 which would extend the 2001 and 2003 Bush-era tax cuts for one year. The Senate also considered legislation the Paying a Fair Share Act of 2012 S. 2230 that would implement the so-called Buffett rule by raising the tax rate on high-income taxpayers. Advocates of lower tax rates argue that reduced rates would increase economic growth increase saving and investment and boost productivity increase the size of the economic pie . Skeptics of this view argue that higher tax revenues are necessary for debt reduction that tax rates on high-income taxpayers are too low . they violate the Buffett rule and that higher tax rates on high-income taxpayers would moderate increasing income inequality change how the economic pie is distributed across families . This report attempts to explore whether or not there is any evidence of an association between the tax rates of the highest income taxpayers and economic growth. The analysis in this report does not provide a .

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