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Posted by on Jan 31, 2015 in At TMV | 0 comments

Pro-Growth Policies

Dana Milbank and Larry Kudlow offer contrasting takes on curing what ails us economically.[icopyright one button toolbar]

There’s widespread agreement about the problem – that inequality is as bad as it has been in America since the crash of ’29. Even Republican leaders are talking about it (their solution, alas, is a tax system with even more breaks for the wealthy.) But there’s no sign yet of the mass anger that could turn into a political movement.


This is the week we would have seen it. As my colleague Matea Gold reported, the Koch brothers and their fundraising network plan to spend $889 million on the 2016 race. That sort of brazen bid to buy an election should come with naming rights – perhaps the Charles G. and David H. Koch White House, to match the Charles G. and David H. Koch United States Senate they financed in 2014. A half-dozen of those whose new Senate seats were acquired with Koch money attended a Koch confab in Palm Springs over the weekend to thank their patrons.

As if on cue, Kudlow responds:

If the economy were unshackled of rising taxes and regulations, and if there was a new long-run commitment to sound money and free trade, we could unleash a new American prosperity. Negativism would turn into optimism, and America’s global leadership position would be restored.

So Milbank agrees with Sanders that government policies favoring corporations and the wealthy have resulted in historic income inequality while Kudlow predictably advocates more of those same policies (tax cuts and deregulation) as “pro-growth.”

The problem with Kudlow’s supply-side argument is that economic data do not support it. A 2013 study of multiple western economies over multiple decades found that tax cuts and deregulation were correlated with sharp rises in income for the top 1% but had no relationship to economic growth.

If we look at the aggregate outcomes, we find no apparent correlation between cuts in the top tax rates and growth rates in real per capita GDP (Piketty, Saez, and Stantcheva, 2011). Countries that made large cuts in top tax rates such as the United Kingdom or the United States have not grown significantly faster than countries that did not, such as Germany or Denmark…By and large, the bottom line is that rich countries have all grown at roughly the same rate over the past 40 years–in spite of huge variations in tax policies.

A 2012 Congressional Research Service study found similar results.

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.

Senate Republicans had a predictable response.

These three sentences do nothing less than blow apart the central tenet of modern conservative economic theory, confirming that lowering tax rates on the wealthy does nothing to grow the economy while doing a great deal to concentrate more wealth in the pockets of those at the very top of the income chain.


Not surprisingly, the results of the study caught the attention of a great many conservatives—so much so that, according to a New York Times piece, Republican’s in the United States Senate successfully pressured the Congressional Research Service to withdraw the report shortly after it was released. The withdrawal came over the objection of the CRS economic team and the author of the study.

Cross-posted from The Sensible Center