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Tax cuts for the rich grow income inequality, not the economy

The Oregonian
October 5, 2012

By Chuck Sheketoff

Rich Oregonians got a tax cut at the start of this year, when the top marginal income tax rates set by voter-approved Measure 66 came down. As far as I know, no wealthy beneficiary of this tax cut has claimed that it's helped grow Oregon's economy.

That's not surprising, because reducing the top tax rates has no correlation with economic growth.

Unfortunately, The Oregonian editorial board refuses to look at the mountain of evidence showing that cutting top tax rates has no connection with economic growth. The paper's recent editorial calling for a cut of Oregon's income tax on capital gains adheres to myth, not fact ("Cut Oregon capital gains tax," Oct. 1).

See the original version of Tax cuts for the rich grow income inequality, not the economy on The Oregonian website.

A recent report by the nonpartisan Congressional Research Service, Congress' think tank, analyzed 65 years of data to determine whether there is a correlation between tax rates and economic growth. The conclusion: While there's no evidence that tax cuts for the rich stimulate investment or economic growth, the data indicate that such tax cuts exacerbate income inequality.

To paraphrase venture capitalist Nick Hanauer: If tax cuts for the rich spurred the economy, we'd be swimming in jobs today.

Not only do tax cuts for the rich fail as economic stimulus, but also higher tax rates are no impediment to growth. Oregon's economy grew faster than that of all but a handful of other states in 2010 and 2011, following Measure 66's income tax increase on rich Oregonians. Indeed, over the past decade, Oregon's economy has been a top performer among states, even though our tax code treats income from work and from capital gains the same.

Does Oregon's income tax on capital gains encourage many of the rich to migrate across the Columbia River, as alleged by The Oregonian editorial board?

In 2009, out of nearly 1.8 million total tax returns, 97,000 reported income from capital gains. Of those, only 88 taxpayers with income from capital gains moved to Clark County, Wash.

The Oregonian cites a deeply flawed study claiming that a significant number of wealthy Oregonians were moving to Clark County, where there is no income tax. The Center on Budget and Policy Priorities analyzed the corporate-funded study and found that it "wrongly blames taxes for a set of changes in residency and migration patterns that actually reflect other economic and demographic factors."

There's no evidence, moreover, that the relatively few Oregonians who move to Clark County stopped investing in Oregon. Nor is there any reason to assume that reducing Oregon's income tax on capital gains would cause the rich to invest their windfall in Oregon.

Finally, the editorial understates the nature of cutting the income tax on capital gains. It's not just a tax cut for the "rich." It's mainly a tax giveaway for the richest of the rich.

In 2010, the richest one-tenth of 1 percent of Oregon taxpayers reaped nearly half of all income from capital gains. In total, the top 1 percent garnered more than two-thirds of all capital gains income.

Cutting the income tax on capital gains will exacerbate Oregon's income inequality. It will rob schools, health care and other public structures of badly needed revenue while lining the pockets of the richest of the rich. And giving the rich special treatment on income from capital gains will do nothing to boost Oregon's economy.

Chuck Sheketoff is executive director of the Oregon Center for Public Policy.

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