PBS Newshour Visits Roosevelt Island To Consider Whether Higher Or Lower Historical Federal Tax Rates Impact Economic Growth

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The PBS Newshour program recently visited Roosevelt Island to illustrate a segment on whether federal tax rates have historically impacted economic growth. While traveling to Roosevelt Island on the Tram to a spot in Southtown right across from the FDR Drive, the Newshour  reporter Paul Solomon interviewed Columbia Law School Tax Professor Alex Raskolnikov about President Franklin D. Roosevelt's tax policy during the Great Depression. Here's an excerpt of the conversation that took place on Roosevelt Island.

...ALEX RASKOLNIKOV: There were many factors going into Depression. Tax policy was only one of them, so it's hard to know.

PAUL SOLMAN: Many factors, the vexing problem with trying to pin economic growth on tax rates, as the raised rates of President Roosevelt make clear. We airlifted to an island named after him across New York's East River.

So, next stop, Roosevelt Island, the Franklin Delano Roosevelt Drive over there. What happens under Roosevelt?

ALEX RASKOLNIKOV: Two big things happen under Roosevelt. One, the top marginal rates increase even more. They go up all the way to 94 percent, very high top marginal rates.

And, two, the income tax, our income tax, changes from a class tax to a mass tax. The percentage of potential taxpayers who are actually paying taxes goes from just 6 percent to 34 percent. So now it's around 50 percent.

PAUL SOLMAN: Why was there suddenly a need for so much revenue?

ALEX RASKOLNIKOV: Revenue was needed to fund The New Deal, to build public projects like the FDR Drive and highways and dams and public works.

PAUL SOLMAN: And the rich mainly paid for them.

ALEX RASKOLNIKOV: Not only the marginal rates were very high. Average rates for the top 1 percent of income earners went from 20 percent to 40 percent, one year to 60 percent. So this is a very high average rate.

FORMER PRESIDENT FRANKLIN DELANO ROOSEVELT: You may have heard that I was driving the nation into bankruptcy, and that I breakfasted every morning on a dish of grilled millionaire.

(LAUGHTER)

PAUL SOLMAN: Conceivably, high taxes on the rich prolonged the Great Depression, but, then, how to explain the postwar boom, right through the Republican administration of Dwight Eisenhower, when the top marginal rate remained in the 90s? And when President Kennedy cut the top rate, growth didn't exactly soar.

President Reagan? Cut rates drastically, as advisers like Arthur Laffer urged.

ALEX RASKOLNIKOV: Two big tax cuts, one in '81 and another one in '86. The top rate came down from 50 percent to 28 percent, and that's the lowest it's been since Andrew Mellon.

PAUL SOLMAN: What was the rationale for that?

ALEX RASKOLNIKOV: That if you cut taxes, you will stimulate growth and that growth will trickle down from the top all the way to the bottom of the income distribution.

PAUL SOLMAN: And what happened?

ALEX RASKOLNIKOV: Not a whole lot of trickling down.

PAUL SOLMAN: So does that refute the notion that, if you cut taxes, you stimulate growth?

ALEX RASKOLNIKOV: It's not exactly clear, but -- but there's no strong support for the proposition that trickle-down works....

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