In 1990, President George H. W. Bush raised taxes, and gross
domestic product growth increased over the next five years. In 1993,
President Clinton raised the top marginal tax rate, and GDP growth
increased over the next five years. In 2001 and 2003, President George
W. Bush cut taxes, and we faced a disappointing expansion followed by a
Great Recession.
Does this story prove that raising taxes helps GDP? No.
Does it prove that cutting taxes hurts GDP? No.
But it does suggest that there is a lot more to an economy than taxes and that slashing taxes is not a guaranteed way to accelerate economic growth.
That was the conclusion from David Leonhardt's recent column for The New York Times, and it was precisely the finding of a new study from the Congressional Research Service, "Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945."
Analysis of six decades of data found that top tax rates "have had little association with saving, investment, or productivity growth." However, the study found that reductions of capital gains taxes and top marginal rate taxes have led to greater income inequality. Past studies cited in the report have suggested that a broad-based tax-rate reduction can have "a small to modest, positive effect on economic growth" or "no effect on economic growth."
Well into the 1950s, the top marginal tax rate was above 90 percent. Today it's 35 percent. But both real GDP and real per capita GDP were growing more than twice as fast in the 1950s as in the 2000s. At the same time, the average tax rate paid by the top 10th of a percent of taxpayers fell from about 50 percent to 25 percent in the last 60 years, while their share of income increased from 4.2 percent in 1945 to 12.3 percent before the recession.
Here are two graphs of the top 0.1 percent and 0.01 percent. The first shows average tax rates since 1945 — down, down, down. The second shows share of total income since 1945 — up, up, up.
Read more: http://nationaljournal.com/domesticpolicy/analysis-tax-cuts-don-t-lead-to-economic-growth-a-new-65-year-study-finds-20120917
Does this story prove that raising taxes helps GDP? No.
Does it prove that cutting taxes hurts GDP? No.
But it does suggest that there is a lot more to an economy than taxes and that slashing taxes is not a guaranteed way to accelerate economic growth.
That was the conclusion from David Leonhardt's recent column for The New York Times, and it was precisely the finding of a new study from the Congressional Research Service, "Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945."
Analysis of six decades of data found that top tax rates "have had little association with saving, investment, or productivity growth." However, the study found that reductions of capital gains taxes and top marginal rate taxes have led to greater income inequality. Past studies cited in the report have suggested that a broad-based tax-rate reduction can have "a small to modest, positive effect on economic growth" or "no effect on economic growth."
Well into the 1950s, the top marginal tax rate was above 90 percent. Today it's 35 percent. But both real GDP and real per capita GDP were growing more than twice as fast in the 1950s as in the 2000s. At the same time, the average tax rate paid by the top 10th of a percent of taxpayers fell from about 50 percent to 25 percent in the last 60 years, while their share of income increased from 4.2 percent in 1945 to 12.3 percent before the recession.
Here are two graphs of the top 0.1 percent and 0.01 percent. The first shows average tax rates since 1945 — down, down, down. The second shows share of total income since 1945 — up, up, up.
Read more: http://nationaljournal.com/domesticpolicy/analysis-tax-cuts-don-t-lead-to-economic-growth-a-new-65-year-study-finds-20120917
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