December 18, 2012 / 12:16 PM / 5 years ago

The Unequal State of America: The economics paper that rattled Washington

WASHINGTON, D.C. (Reuters) - The work of government economists is often so dry that the public never hears of it. And then there’s the work of Thomas Hungerford.

An employee of the Congressional Research Service, Hungerford in 2011 published a paper that found that after-tax income inequality rose 11.2 percent between 1996 and 2006. Rising capital gains and dividends among the wealthy were the main driver of the widening gap, he concluded, accounting for 72 percent of the increase. Tax cuts, he found, accounted for the rest. The cuts had an especially big impact because income from capital gains surpassed salaries for the top 1 percent of earners over that period.

This September, the CRS followed up with a 65-year retrospective by Hungerford on whether tax cuts for the rich help the economy. “Analysis of such data suggests the reduction in the top tax rates (has) had little association with saving, investment, or productivity growth,” he wrote. “However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”

Landing in the last weeks of a tight presidential race in which tax cuts were a big issue, the report caused a stir in Washington.

Senate Republicans pressed the CRS to retract the document. They also objected to a 2011 report by two other CRS economists that reached similar conclusions about the impact of tax cuts on the economy. The analyses overlooked contrary evidence and were being misused by partisans, Senate staff told a top CRS official.

Over the objections of Hungerford’s superiors, the service temporarily withdrew his September paper. “I stand by my report,” Hungerford told Reuters.

Last week, the service re-issued the report with the same conclusions as the old, but adding new mention of a study with contrary views.

Reporting By Deborah Nelson; Edited by Michael Williams

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