While common sense dictates that cutting the nominal wages of everyone making $110,000 a year and under would have a direct impact on the economy , new research confirms that raising taxes on the top 2% would not.
Jared Bernstein summarizes the new literature on this subject, which comes in two separate studies that reach the same conclusions.
The first one is by economist Owen Zidar, a careful econometric study of the impact throughout history of tax changes on jobs and growth. What’s unique and particularly relevant about this study is that it breaks up the tax cuts into the parts that go to the bottom 90% of taxpayers and those that go to the top 10%.
And in numerous different statistical tests and models, Zidar consistently finds no significant impacts of tax cuts to the high income group [...]
He does, however, find consistently strong multiplier effects for tax cuts targeted at the bottom 90%. EG, “a one percent GDP tax cut for the bottom 90% results in 2.7 percentage points of GDP growth over a two year period. The corresponding estimate for the top 10% is 0.2 percentage points and is insignificant statistically.” The comparable result for employment growth is 1.9% for the bottom 90% and an insignificant 0.4% for the top group.
This is critical. It’s not just that Zidar sees tax cuts for the rich as insignificant – it’s that he sees tax cuts for the broad middle as several orders of magnitude more significant. I don’t know if Zidar extends this study to the effect of federal spending on job creation programs like infrastructure or transfer programs like food stamps and unemployment insurance, but whenever CBO tests this, they find that these programs have even higher economic multipliers than