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Leaving the governor’s mansion hasn’t kept Scott Walker out of the spotlight.
Walker drew national attention shortly after leaving office when he squared off with U.S. Rep. Alexandria Ocasio-Cortez, D-New York, over marginal tax rates. Ocasio-Cortez, a self-described democratic socialist, has captured attention for an array of outside-the-box ideas, including those on taxes.
They included this Walker tweet on Jan. 16, 2019:
"During the 3 times the top marginal tax rates were lowered in the 20th century (Harding/Coolidge, JFK/LBJ & Reagan) revenues actually went up while the economy improved in America."
Has lowering the highest tax rates really been such an economic boost? Let’s sort out the facts from the hyperbole.
Let’s learn about tax rates
We’ll start with the basics — what the heck are marginal tax rates?
Not all earnings are taxed the same. For 2019, singles pay a 10 percent federal income tax on the first $9,700 they earn, 12 percent on anything from there to $39,475 and so forth. The highest tax rate is 37 percent, which is for any earnings over $510,300.
Those are called marginal tax rates — rates that apply only within a specific margin of income. Here’s the full list of tax brackets and income cutoffs for 2019, according to the Tax Foundation.
This topic came to the fore when Ocasio-Cortez discussed raising the top marginal tax rate to 70 percent for earnings above $10 million in an appearance on CBS’ 60 Minutes.
That would mean someone with $15 million in taxable earnings would pay the 70 percent rate on $5 million, and lower rates on the rest.
Mark Mazur, director of the Urban Institute-Brookings Institution Tax Policy Center, told PolitiFact National about 16,000 Americans have earnings in that category. Their $244 billion in income above the threshold at a 70 percent rate would bring in an added $72 billion a year.
That brings us to our statement, where Walker argues against raising the marginal tax rate by asserting lower rates previously boosted the economy.
Asked for supporting evidence, Walker spokesman Tom Evenson pointed to increases in tax revenue that followed marginal tax cuts in the 1920s under Warren G. Harding and Calvin Coolidge, the 1960s under John F. Kennedy and Lyndon B. Johnson and the 1980s under Ronald Reagan.
Dissecting tax policy admittedly gets deep into partisanship and competing economic theories, so we turned to a group of experts to assess whether Walker’s argument is reasonable.
They consistently warned against drawing a line between particular policies and outcomes.
"Economies grow and decline for a complex set of reasons," said Andrew Reschovsky, professor emeritus of public affairs and applied economics at the University of Wisconsin. "One must be very careful in attributing any economic change to a specific policy."
William Gale, co-director of the centrist Urban Institute-Brookings Institution Tax Policy Center in Washington, D.C., said the 1960s cuts were a good example of that.
"There was a big boost in domestic spending and a big boost in defense spending … and there were tax cuts," he said. "So it’s very difficult to say one of them mattered and none of the others did, or even that the effect of the tax cuts on revenue was positive, because there were so many other factors raising revenue."
Josh Bivens, director of research at the liberal Economic Policy Institute, said other factors were also in play for the 1986 tax cuts: they were designed to cut the top tax rates while enacting changes elsewhere to remain revenue neutral. In other words, changes were made to increase other revenue to balance out revenue lost by the tax rate reduction.
Bivens also noted the 1960s and 1980s cuts were timed during an economic upswing.
That’s why — according to Bivens and others — it’s critical to discuss the impact tax rates have on revenue using a scale that measures it relative to the economy. Typically this is done by looking at revenue as a share of the nation’s gross domestic product.
Comparing the highest marginal tax rate to changes in income tax revenue as a percentage of GDP since the 1950s doesn’t show any clear connection between the two.
"With respect to growth, it is hard to see a systematic relationship," said Menzie Chinn, a professor of public affairs and economics at UW. "No serious econometric model (which is implicitly based on history because of the use of data) I know shows revenues going up in response to a tax cut except possibly in the very long run."
Even economists deeply involved in the Reagan tax cuts questioned their impact.
Economist Martin Feldstein wrote in a 1989 paper that the 1983-84 economic recovery — coming after changes that included cuts to marginal tax rates — was not "the result of a consumer boom financed by reductions in the personal income tax." Feldstein was chairman of the Council of Economic Advisers and President Reagan's chief economic adviser from 1982 to 1984. He was later appointed to presidential advisory boards by President Bush in 2006 and President Obama in 2009.
Bruce Bartlett, a domestic policy advisor to Ronald Reagan, condemned Walker’s argument.
"That claim is just nonsense," Bartlett said. "He is basically saying that if ever at any point in the future nominal revenues get back to where they were, then the tax cut paid for itself. The honest way to look at it is revenues as a share of GDP."
Finally, linking marginal tax rates to revenue as Walker does would also presume the two have a consistent relationship in both directions. So increases in the marginal tax rate would presumably decrease revenues.
But Reschovsky noted that in the 1990s, an increase in the top marginal rate was part of the Clinton tax bill that preceded a period of rising tax revenue.
Walker claimed that during the three times the top marginal tax rates were lowered in the 20th century, "revenues actually went up while the economy improved in America."
But that’s a largely meaningless statement, since raw revenues have always increased over time due to inflation — regardless of the current tax policy.
Economists say the claimed connection between marginal tax rates and revenue doesn’t acknowledge the many other market factors at play. And the cherry-picked data Walker cites ignores the revenue increases that came after marginal tax rates rose.
We rate Walker’s claim Mostly False.
Email exchange with Andrew Reschovsky, professor emeritus of public affairs and applied economics, University of Wisconsin, Jan. 18-19, 2019
Email exchange with Menzie Chinn, a professor of public affairs and economics at UW, University of Wisconsin, Jan. 21-22, 2019
Email exchange with Josh Bivens, director of research at the Economic Policy Institute, Jan. 18-22, 2019
PolitiFact, Explaining Alexandria Ocasio-Cortez's 70 percent marginal tax rate idea, Jan. 8, 2019
Twitter direct message exchange with Bruce Bartlett, former domestic policy advisor to Ronald Reagan, Jan. 22, 2019
Martin Feldstein and Douglas W. Elmendorf, Budget deficits, tax incentives and inflation: A surprising lesson from the 1983-84 recovery, 1989
Phone interview with William Gale, co-director, Urban Institute-Brookings Institution Tax Policy Center, Jan. 22, 2019
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