Fox's Varney Pushes Widely Criticized Claim That “Taxes On The So-Called Rich” Will “Slow The Economy”
Fox Business host Stuart Varney claimed that raising taxes on the rich would slow the economy. However, independent research shows that raising marginal tax rates on the wealthy would have little to no impact on the economy, while lowering taxes on the rich does not contribute to the economy and jobs.
On America Live, Varney defended Republican presidential candidate Mitt Romney's economic plan by claiming that if “you raise taxes on the rich, does that really go to helping the poor?” Varney went on to claim, “If you raise taxes on the so-called rich, you actually slow the economy. You get less growth, so you've got a smaller pie to reshape. That is Romney's argument.”
But independent research shows that raising taxes on the rich does not harm the economy, while cutting them does not spur economic growth.
A recent study by the Congressional Research Service (CRS) found that periods with higher tax rates for the wealthy did not correspond to slower economic growth. The CRS report concluded:
[A]llowing the high-income tax cuts to expire as scheduled could help reduce budget deficits in the short term without stifling the economic recovery. Research has shown that tax cuts directed to high-income taxpayers have a small stimulative effect because they tend to save any additional income. Increasing tax rates for the richest 1% to 3% of taxpayers (by allowing the high-income tax cuts to expire) will likely neither significantly decrease consumer expenditures nor adversely affect short-term job growth. Increasing taxes to reduce long-term budget deficits after the economy has recovered, will likely have little negative impact on long-term economic growth and job creation.
The report also stated that previous economic research “suggests that modest tax rate increases would have little negative impact on long-term economic growth and job creation.”
Economists also agree that lowering taxes for the wealthy does not create jobs. A recent post by Talking Points Memo on the CRS report described the study as finding that “cutting effective tax rates on the rich doesn't boost economic growth, but it does correlate with rising income inequality.”
Howard Gleckman of the Tax Policy Center echoed these findings, writing that “tax cuts for these high-earners will do relatively little to boost the economy in the short run”:
The Treasury Department figures that temporarily extending the 2001 and 2003 tax cuts would reduce federal revenues by roughly $200 billion in Fiscal 2011 and $260 billion in 2012. For technical reasons, those numbers may be off a bit, but you get the drift. Of that, about $75 billion would go to top-bracket taxpayers ($35 billion in 2011 and $40 billion in 2012). We know that higher income households are more likely to bank the cash than spend it. As a result, tax cuts for these high-earners will do relatively little to boost the economy in the short run.
Research also shows that few small businesses would be affected by raising taxes on the wealthy. A Center on Budget and Policy Priorities (CBPP) report found that “only 2.5 percent of small business owners” would face higher rates as a result.