Tax Cuts for rich lead to income inequality

A new report in the Wall Street Journal shows that tax cuts for the wealthy do in fact lead to income inequality.

“The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced,” according to the CRS report, circulated on Friday.

The report appears to give a lift to Democrats’ calls for the Bush-era tax cuts to lapse next year on incomes above $250,000. Democrats say that low taxes on the rich merely exacerbate income inequality. Republicans say that higher taxes on big incomes would hurt the economy by damping the after-tax income of small-business owners who pay taxes through their individual returns.

The top individual tax rate for high earners has generally declined since World War II, and is at 35% currently, down from 94% in 1945, the report noted. Although capital gains tax rates have been more variable, the current 15% rate is the lowest in more than 65 years. The capital gains rate was 25% before 1965.

The government researchers found that “the top tax rates do not necessarily have a demonstrably significant relationship with investment.” The researchers also said that the correlation between economic growth and the top tax rates “is not strong,” and that any links “could be coincidental or spurious because of changes to the U.S. economy over the past 65 years.”

 This report shows why Congressman John Yarmuth supports "a fair, responsible tax system that works for everyone and helps ensure a strong middle class."

In Mitt Romney news, he's favoring fundraisers over rallying voters.