{"id":28987,"date":"2015-05-10T20:05:39","date_gmt":"2015-05-10T19:05:39","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=28987"},"modified":"2015-05-10T20:05:39","modified_gmt":"2015-05-10T19:05:39","slug":"myths-vs-evidence-tax-cuts-for-the-10","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2015\/05\/10\/myths-vs-evidence-tax-cuts-for-the-10\/","title":{"rendered":"Myths vs evidence: Tax cuts for the 10%"},"content":{"rendered":"

With the election out of the way it's time to look at research again. This was a highlight of recent publications, coming from Alex Cobham at\u00a0Tax Justice Network<\/a>, with permission:<\/em><\/p>\n

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How do tax cuts targeted at different parts of the income distribution affect job creation? This is the question addressed in a new NBER paper by Owen Zidar, an economist at Chicago (not known historically<\/a> for progressive analysis). But the paper (see the ungated version<\/a>; and slides<\/a>) has had a good deal of US media coverage, largely because of the progressive tax implications. First, some graphs:<\/p>\n

\"Zidar<\/a>

The paper's main innovation is to overcome the scarcity of time series data by exploiting US data on state-level income distributions, to view each state-year response to a national tax policy change as a separate observation.<\/strong><\/span><\/p><\/div>\n

The main result is not, intuitively, surprising: but it is not a question that has been commonly posed, nor this well answered before. The result is that tax cuts are least likely to generate benefits when targeted to the top 10% of households; and most likely to generate benefits when targeted to the bottom 90% - or as in figure 5, the bottom 50%<\/strong>. As Zidar puts it:<\/p>\n

\"Overall, tax cuts for the bottom 90% tend to result in more output, employment, consumption and investment growth than equivalently sized cuts for the top 10% over a business cycle frequency.\"<\/p><\/blockquote>\n

the top 10% drive the economy;Why would we ever cut taxes for the top 10% as a stimulus, I hear you ask? Because they\u2019re in charge, say the cynics. Or perhaps because policymakers and\/or the public have bought a series of economic myths, such as:<\/p>\n