MIT economist Arnold Kling writes:

Here’s what the data show: cuts in capital gains tax rates tend to coincide with DECREASES in the poverty rate for the time periods for which data are available. For instance, Ronald Reagan cut the capital gains tax rate as part of his tax reform act of 1986.

Bill Clinton cut the capital gains tax rates on long-term gains in 1997 and a strong decrease in poverty rates resulted. George Bush cut the capital gains and dividends taxes in 2003 and the resulting economic surge caused a decrease in the 2004/2005 poverty rate. Although comparable data are not available for the first of the supply-side tax cuts which were proposed by John Kennedy, his rationale for those cuts was the alleviation of poverty, claiming that in economic affairs ‘a rising tide lifts all boats.’

Critics on the left charge that lowering the tax rate on capital helps the rich, not the poor. This reveals the fundamental presupposition error of their thinking—that the rich and poor have an inherent economic conflict of interest. They do not. The tendency in modern dynamic economies is for the rich and poor both to get richer, but at different rates. Growth-oriented policies are beneficial to both. They have an inherent harmony of interests. This is demonstrated by current economic data. Lowering the cost of taxes on capital lowers the risk of capital investment. The tax cuts of 2003 triggered a very strong surge in capital spending. This means more buildings, more computers, and more machines, which means more people to occupy, sit at and operate them. That’s why the household survey shows a gain of 8 million jobs in the past 3 years.

The tax code doesn’t determine whether wealthy people invest their wealth or not. The tax code simply helps determine where they will invest it. They can invest their gains either on information technology and heavy equipment, or they can invest them in a small army of tax accountants, trust attorneys and other advisers to whom they turn for help in sheltering their gains from the IRS. I should know, I used that small army. In the late 1980s I was a tax accountant for the world’s largest accounting firm. I had some very wealthy clients, but not one of them gave in and sold all that they had and gave it to the poor. Instead they gave big chunks of it to us in exchange for us finding ways to structure their affairs so as to avoid giving even bigger chunks to the IRS. The higher the capital gains tax rate, the more they needed us.

The simple economic fact in the end seems to be a moral fact as well. There is an ‘envy-tether’ which, when tightened in an attempt to punish the wealthy, ends up hurting the poor.

The full article can be found here.