Yahoo Finance Obama’s 2013 tax increase on 1 per cent did not ‘hurt’ U.S. economy’s growth
Supporters of U.S. presidential candidate Hillary Clinton’s plan to ramp up taxes the wealthiest American’s received some good news on Monday.
A working paper written by economist and University of California, Berkeley professor Emmanuel Saez and published by the National Bureau of Economic Research says that taxes imposed on the top one per cent of Americans by President Barack Obama were an “efficient way” to raise government revenues and did not “hurt” the country’s overall economic growth.
“The 2013 tax reform successfully raised extra revenue in a progressive fashion, as the tax increases were mostly concentrated among the top one per cent,” wrote Saez.
The changes — which saw the top marginal tax rates on capital gains, such as profit from the sale of a stock or property, jump by about 9.5 points and regular income increase by roughly 6.5 points, were enacted in early January 2013.
These increases, which were part of surtaxes related to Affordable Care Act, or Obamacare, and the expiration of the Bush tax cuts for top earns, outstripped those imposed during former president Bill Clinton’s administration and were “effectively the largest increase in top tax rates since the 1950s.”
To examine the effects of these changes to the tax code, Saez looked at data from the Internal Revenue Service.
First of all, he found that one per cent earners had been anticipating the earnings crackdown and attempted to get avoid facing a bigger bill.
In 2012, the group’s reported incomes were significantly higher than in 2013.
Saez said one per cent earners had two months to “accelerate” their taxable revenue following Obama’s reelection in November 2012 and to avoid the “high tax rates of 2013.”
“We find that reported top one per cent incomes were abnormally high in 2012 and abnormally low in 2013, which is most likely due to retiming of income in order to avoid the high tax rates of 2013,” wrote Saez.
He added that one-percenters shifted about 11 per cent of their 2012 incomes into the previous fiscal year.
This income shifting was also much more common among the top 0.1 per cent, and Saez said it was likely only an option for the “very top earners.”
Next, Saez compared 2011 tax figures to those from last year. 2011 was the last year that unaffected by the changes to the tax code.
And he found that there was only a “small, medium-term” response to the increases.
He estimated that “at most” 20 per cent of projected tax revenue that the government could have collected from the increase was lost.
Clinton backers will also be pleased to see that Saez found that the tax increase on the wealthiest one per cent of Americans did “not seem to have hurt overall economic growth.”
He pointed to the fact that the best growth in income experienced by the other 99 per cent of Americans took place in the mid-to-late 1990s and since 2013, shortly after increases in the top tax rates by Bill Clinton and Obama.
Democratic presidential candidate Hillary Clinton’s economic plan currently proposes tax increases that would fall heavily on the rich and could raise more than $1.4 trillion over 10 years, according to estimates by the Tax Policy Center, a U.S. think tank.
However, Saez’s findings don’t paint an entirely rosy picture of the tax increase.
The paper says that income concentration in the U.S. has been growing “dramatically” over the past 40 years and currently stands at “extremely high levels.”
In fact, one-percenters have seen their share of the entire country’s pre-tax income double from 10 per cent in the late 1970s to 20 per cent in recent years.
And, according to Saez’s data, Obama’s tax increases are not “sufficient” to curb this increasing concentration of wealth.
The study found that between 2011 and 2015 the income share of those in the top one per cent continued to rise at nearly the same rate as they had between 2009 and 2011, during the first two years of the country’s recovery from the Great Recession.
But Saez notes that without the tax hikes the top one per cent income share would have kept growing at the trend seen before the worldwide economic slowdown.
