The Congressional Research Service (CRS) stirred controversy last year when it released a study claiming that tax rates do not influence economic growth. Predictably, those who favor higher taxes used the flimsy report to bolster their backward argument that raising tax rates, as Congress and President Obama did with the fiscal cliff deal, would not further slow our economy.
The CRS report was not based on robust statistical analysis, but on simple correlations that reveal little about the impact of tax rates on the economy. The weakness of the CRS report brought well-deserved criticism.
CRS pulled the report after the controversy but subsequently re-released it with minor changes.
In December, in response to the controversy regarding the CRS report, William McBride of the Tax Foundation published a review of the scholarly literature on taxation and economic growth. McBride reported that the empirical work of economists agrees overwhelmingly that higher tax rates slow economic growth and he concludes that “the U.S. tax system is a drag on the economy.”