8 ms·

Tax Cuts Don't Lead to Economic Growth, a New 65-Year Study Finds

66 points by aarghh 14y ago

lutusp 14y ago
This is absurd. The tax increases may well have been in response to favorable economic conditions, in other words, an effect, not a cause. I'm certainly not saying that's the only explanation, only that we don't know. But the article argues that the cause -- tax increases -- produced the effect -- economic growth. It is equally likely that the relationship is reversed. This is what prevents economics from being a science, and why widespread science illiteracy makes us all fools.
- aqme28 14y ago
  Did you read the article? Thompson argues exactly what you're saying. "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."
  - lutusp 14y ago
    > Did you read the article? Yes, and I also read the title and first few lines, which suggest a different conclusion than the article itself. This is a very common practice in science journalism -- the title and first few sentences lead the reader to one conclusion, and the body of the article is full of perfectly appropriate qualifiers that most readers never see or appreciate.
    - Aloisius 14y ago
      The actual study concludes with this: The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. Seems to match the title pretty well.
      - lutusp 14y ago
        > The actual study concludes with this [...] Seems to match the title pretty well. Except for an uneducated or insufficiently skeptical reader -- and the title ought to be "Tax Cuts Don't Necessarily Lead to Economic Growth". To say that tax cuts don't lead to economic growth is to make an unsupported, absolute claim and tell a half-truth. My problem is with the superficial impression created by the first few lines and the graph. Remember that most readers don't read beyond the abstract. This is a fact that, instead of being accommodated by science writers, is exploited. Not to broaden the topic unduly, but I often see articles that say some cause A is "linked" to some effect B. "Linked" is a tricky word because, strictly speaking, it doesn't mean A and B are really linked in the cause-effect sense, but many people understand it that way. A recent article said, in effect, "Marijuana use linked to IQ decrease". It's obvious what typical parents will make of that. But the actual study didn't "link" the two in the way the title and introduction did.
- Roboprog 14y ago
  Let's try this then: Assertion: "high" (greater than 50%?) marginal tax rates make economic growth impossible. Evidence: Top tax rates between 1940 and 1980 were between 70 and 90%. Growth was higher than it was after 1980. Conclusion: the assertion about the harmful effects of a high top/marginal tax rate is false. (I think this process is called "induction"). Note that this does not prove that high tax rates are beneficial, only that they are not harmful. It's certainly possible that the general slowdown since 1980 is due to other factors, such as growing scarcity of cheap energy and other materials. But investigating alternatives will screw with the livelihood of somebody in the top 0.01% income earners, so one might argue it's harmful to your health to push too hard for such :-)
  - Roboprog 14y ago
    Note that I am NOT arguing for a linear relationship in any way, shape or form. Clearly, a tax rate that approaches 100% prevents any activity from taking place in the open. Also, one could argue that a property tax would be better than an income tax as a way to enforce maintenance of the commons and to provide infrastructure and an educated work-force. (I tend to favor use of taxes as "investment", rather than "money for nothing")
    - nirvana 14y ago
      You're knocking down a strawman. The position is that higher tax rates reduce economic growth. Your evidence does not contradict that assertion. Doesn't even touch it. Further, you're dealing with claims and a study that are ideologically driven... so more precision is required, not less.
  - tolmasky 14y ago
    You began with the question of whether higher marginal tax rates made economic growth "impossible". After finding that there was growth between 1940 and 1980, you should have concluded "no, it does not make it impossible as we have a counter example". This follows and is called induction. But you for some reason chose to then alter the premise and say you proved that high marginal tax rates are not harmful. You have in no way proved this. For all you know without those high marginal tax rates, growth would have been even HIGHER between 1940 and 1980. I am sure you do not believe this to be the case, and that is a very reasonable belief, but understand that it is not proven by this evidence (nor is it disproven mind you). True evidence-based proofs, the way its done with science, requires that you test one variable. In the example above you'd have to have a parallel economy where all else was the same except the tax rate. Unfortunately this is impossible, but this does not mean we get to change what "proof" means. Economics would work much better if everyone came to terms with the fact that it is untestable and was honest with themselves that all opinions regarding it are just beliefs, regardless which side you fall on.
- yardie 14y ago
  > tax increases -- produced the effect -- economic growth. I don't see that in the title, in the summary, nor in the body of the article. How did you get to this conclusion?
Aloisius 14y ago
I am shocked, absolutely shocked that the vast majority of economists have been right for decades. Next thing you'll tell me is that limited quantitative easing or government spending increases employment!
- deleted 14y ago
  [deleted]
- nirvana 14y ago
  I'm not at all surprised that people brought up on political propaganda think that this propaganda represents the opinion of the "vast majority of economists". The reality is, anyone who knows anything about economics knows that taxes inhibit economic growth. The idea that this is wrong, is so absurd that it should be laughed at.... only the problem is, most americans are absolutely ignorant of economics and thus can be tricked into believing it. Or in your case, assuming that "the vast majority of economists" think this, and have done so "for decades". Frankly, it is astounding how much you have rejected economic as a science while thinking the partisan ideology you're pitching is "economics".
  - EricDeb 14y ago
    It does seem trivial that taxes stifle economic growth, however, isn't this under the assumption that people will spend the money they garner on tax breaks rather than sit on it? Although the government is laughably inefficient, wouldn't it be more productive to increase taxes and then have the government spend because the government is guaranteed to spend all of it?
  - seanmcdirmid 14y ago
    Any economist worth their salt knows that taxes may or may not inhibit economic growth. Taxes invested in infrastructure, security, and education may actually increase growth long term. Taxes wasted on corruption will most definitely hurt growth. Property taxes also encourage people to put properties to work, inheritance taxes encourage more dynamism between the generations (discourage old money aristocracy), and so on. Overly harsh taxes on the rich will also encourage avoidance (honest or dishonesty) and migration (negotiate your own rate with a swiss canton), while regressive taxes on the poor will lead to riots and revolts. Societies are complex systems and managing them efficiently is actually (gasp) quite difficult.
mhartl 14y ago
Happy to hear it. I think it's time to try a 100% tax rate and see how that goes.
- ekianjo 14y ago
  Agree. Let's ban profits altogether, punish companies daring to fire people by putting their CEOs in jail and then nationalize their assets, redistribute all money around all classes of societies to remove once and for all the inequalities of life, providing government jobs for everyone and we will be closer to a real paradise on Earth. Oh wait. Russia tried that. For more than 65 years. It did not work too well for them.
  - Roboprog 14y ago
    Of course, one could look at some of the Northern European countries that are neither purely communist nor purely private property capitalist, and consider the possibility of a happy middle between a communist dictatorship and a banana republic style oligarchy. How do you expect to create a fabulously wealthy startup if you are the child of an "untouchable" caste with 0 initial resources???
  - rayiner 14y ago
    > Oh wait. Russia tried that. For more than 65 years. It did not work too well for them. You might want to learn a little bit of history before spouting off the conventional wisdom you learned in 8th grade. Russia for hundreds of years was a total backwater. At the turn of the 20th century it was incredibly far behind the rest of Europe. Under communism Russia became an industrialized superpower that rivaled the US. Ultimately the communist system collapsed, but partially because of its own success. The impoverished denizens of pre-Communist Russia had never been able to force democratic reform, but with the economic growth under communism arose a commercial class that was able to force some level of democratic reform.
    - ekianjo 14y ago
      It is conventional wisdom because it goes against all human instincts that the fruit of your work should your own property. That is why all communist systems ultimately fail, because they kill all incentive to work hard and to innovate since no single individual can get the benefits of their own work. Let me laugh at your "superpower" claim regarding Russia. For dozens of year that "superpower" had to rely on importing wheat from the US to keep feeding its own population. Being able to launch rockets while your people are literally starving (and I am not talking about being "hungry" as we see often nowadays) is not an achievement, it is an utter failure. There was no economic growth under communist Russia: it was simply spoliation of people's property to feed certain sectors of the industry (the ones that were "successful". Like Bastiat said, there are "things that you see and things that you do not see". Focusing only on the achievements of Russia makes it easy to forget the massive failure of its system in all other endeavours.
joshuaheard 14y ago
I've been looking for reasons to retire, and if the tax rate were 90%, I'd be out.
- yen223 14y ago
  Luckily no one is proposing 90% taxes then.
- Gustomaximus 14y ago
  Do you understand marginal tax rates? Hypothetically if tax rates did move to 90% on personal income this would most likely be triggered on such a high tier of income you would already be working because you want to, and not for financial need. Also once you average out the tiers leading to 90% you will pay a lot less than this 90% you're throwing out there. Edit: spelling
ArmstrongRSBC 14y ago
We are running a massive balance. We have a tremendous national debt. Our economic growth hasn't been paid for yet.
- EricDeb 14y ago
  Agreed. Lets cut defense and military spending substantially.
  - mpyne 14y ago
    Yes, because summarily removing all of that spending would certainly have no drastic follow-on effects to the national economy.
mcenedella 14y ago
This article well illuminates the dictum to beware analysts picking their own time horizons. Calculating impact from five-year growth rates is problematic for business cycle, responsiveness, and exogenous factors. Cato's reply is here: http://www.cato-at-liberty.org/tax-rates-impact-economic-performance-but-other-policies-also-matter/ http://www.cato-at-liberty.org/tax-rates-impact-economic-per...
curt 14y ago
Please know that in periods of "high personal tax rates" business owners declared their income through their companies thereby lowering their tax rates. You would have a company car, company vacation, company dinners, you can even make it company policy to pay for the employees children college education, etc... This is the same reason any comparison of income equality over time is meaningless. Since income was declared through different avenues. To understand the tax implications of economic growth you have to look at the tax payments as a percentage of GDP as well as compliance costs. In the US tax payments have held steady at about 18% of GDP since WWII until recently. People hunt for loopholes no matter what. But when rates are low you don't have to look for loopholes, so you can deploy your capital more efficiently. Thus generating economic growth. This is why tax cuts often stimulate large economic booms. Capital that was sitting in say tax-protected muni bonds will move into the market and be deployed for business expansion and thereby hiring. There's so much evidence to the contrary of this article, even Obama's own counsel of economic advisories share the view that tax cuts stimulate economic growth. Christina Romer, his former advisor wrote a paper on the subject. What they do is look at country around the world to collect more data points for a better regression analysis. Also note that when you say "tax cuts", not all tax cuts are made equal. For a tax cut to be effective it needs to change long-term behavior. So credits and such have a near zero or negative effect while rate cuts have a positive effect. The most beneficial being capital gain rate cuts (ie every time they have been cut, revenues from the tax have increased), corporate, and then final income tax rate cuts. -Really going to down vote me without refuting any of what I said.
- btilly 14y ago
  That is a strong set of claims, and as long as you hold it, you are utterly to any set of facts that might dispute it. According to IRS figures, the top 400 tax payers today pay income taxes below 16%. According to the best available figures, the top theoretical tax rate during the 1950s was over 90%, but the average tax rate paid by the top approximately 400 people was 51.2%. Obviously they used a lot of tax loopholes. Obviously they still wound up paying, in real taxes, a lot more than the very rich to today. Of course if you refuse to believe that the real figures were reported to the IRS, you can believe any figures that you want. But it is pretty hard to reasonably come to the conclusion that the rich today are paying similar tax rates to the rich 55 years ago. As for taxes and economic growth, it is a trivial piece of economics to conclude that collecting more in taxes immediately takes money away from the economy. However it is only slightly less trivial to conclude that the amount of damage it does is proportional to how likely that money was to get spent. Given that the poor are likely to spent more than the rich, that means that we should prefer to tax the rich more. Therefore if you're going to levy taxes (and there is no reasonable way to avoid the need to), it is more efficient for all of us to tax the rich more heavily. Instead of taxing them less, which is what they keep telling us we need to do. (I, along with many of the people on this site, pay a greater fraction of my income in taxes than Mitt Romney does. But is this really good public policy?)
jacques_chester 14y ago
The headline is needlessly inflammatory. A better headline might be "tax rates and growth only poorly correlated in one particular country in a limited period with the highest rate of technological change in recorded history".
- deleted 14y ago
  [deleted]
zeroonetwothree 14y ago
The number of significantly different tax policies over those 65 years is very small--less than a dozen. So concluding anything from such a small number of samples is impossible. Thus it's not surprising they find "no correlation" between taxes and economic growth.
udpheaders 14y ago
Next week: Economic Growth Doesn't Lead to ________, a New 65-Year Study Finds Fill in the blank. Do people want "economic growth" or whatever that might be assumed to lead to, or do they just not want to donate money to their country through their government? One is kind of indirect and speculative, the other is direct and immediate.
seagreen 14y ago
Just a reminder that since there's actual power at stake here (votes) it takes extra work to write a quality comment on this kind of article. The difficulty is equivalent to trying to have a discussion where some unknown but real amount of money will go to the political party whose policies are closest to those advocated in the top rated comments. This makes it genuinely hard to think clearly on this kind of topic. Because of this it's extra important to be non-partisan, which is hard. Try it though, it's a fun exercise! My comments: I strongly agree with one of the conclusions of the article, that we should be "humble about taxes as a tool for growing the economy." However, I'm suspicious about their reasoning. I'm not a statistician, but doesn't a sample size of one seem a little . . . low to anyone else? It seems fairly likely to me that if you examined more situations, you would find that taxes are generally not a tool for growing the economy, are sometimes beneficial, and are sometimes strongly detrimental. For instance, say you're running a city-state in East Asia. Given that you're competing against Hong Kong and Singapore, I'd guess that low taxes would be essential to economic growth. On the other hand, say you find yourself in charge of Somalia now, or Poland in 1938. I don't know about you, but personally I'd really be digging the infrastructure/tanks respectively. This makes me pessimistic that accurate conclusions can be drawn from a study like this. For instance, say you're rich in 1960s America but you don't like the high taxes. Where else would you go? Now there are lots more options.
nnnnni 14y ago
It took a 65-year study to prove something that should be obvious to anyone with a little bit of common sense?
onetwothreefour 14y ago
LOL. No shit. No one actually thinks this. It's called pandering to the base.

66 points by aarghh 14y ago

This is absurd. The tax increases may well have been in response to favorable economic conditions, in other words, an effect, not a cause. I'm certainly not saying that's the only explanation, only that we don't know. But the article argues that the cause -- tax increases -- produced the effect -- economic growth. It is equally likely that the relationship is reversed. This is what prevents economics from being a science, and why widespread science illiteracy makes us all fools.

aqme28 14y ago
Did you read the article? Thompson argues exactly what you're saying. "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."
- lutusp 14y ago
  > Did you read the article? Yes, and I also read the title and first few lines, which suggest a different conclusion than the article itself. This is a very common practice in science journalism -- the title and first few sentences lead the reader to one conclusion, and the body of the article is full of perfectly appropriate qualifiers that most readers never see or appreciate.
  - Aloisius 14y ago
    The actual study concludes with this: The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. Seems to match the title pretty well.
    - lutusp 14y ago
      > The actual study concludes with this [...] Seems to match the title pretty well. Except for an uneducated or insufficiently skeptical reader -- and the title ought to be "Tax Cuts Don't Necessarily Lead to Economic Growth". To say that tax cuts don't lead to economic growth is to make an unsupported, absolute claim and tell a half-truth. My problem is with the superficial impression created by the first few lines and the graph. Remember that most readers don't read beyond the abstract. This is a fact that, instead of being accommodated by science writers, is exploited. Not to broaden the topic unduly, but I often see articles that say some cause A is "linked" to some effect B. "Linked" is a tricky word because, strictly speaking, it doesn't mean A and B are really linked in the cause-effect sense, but many people understand it that way. A recent article said, in effect, "Marijuana use linked to IQ decrease". It's obvious what typical parents will make of that. But the actual study didn't "link" the two in the way the title and introduction did.
Roboprog 14y ago
Let's try this then: Assertion: "high" (greater than 50%?) marginal tax rates make economic growth impossible. Evidence: Top tax rates between 1940 and 1980 were between 70 and 90%. Growth was higher than it was after 1980. Conclusion: the assertion about the harmful effects of a high top/marginal tax rate is false. (I think this process is called "induction"). Note that this does not prove that high tax rates are beneficial, only that they are not harmful. It's certainly possible that the general slowdown since 1980 is due to other factors, such as growing scarcity of cheap energy and other materials. But investigating alternatives will screw with the livelihood of somebody in the top 0.01% income earners, so one might argue it's harmful to your health to push too hard for such :-)
- Roboprog 14y ago
  Note that I am NOT arguing for a linear relationship in any way, shape or form. Clearly, a tax rate that approaches 100% prevents any activity from taking place in the open. Also, one could argue that a property tax would be better than an income tax as a way to enforce maintenance of the commons and to provide infrastructure and an educated work-force. (I tend to favor use of taxes as "investment", rather than "money for nothing")
  - nirvana 14y ago
    You're knocking down a strawman. The position is that higher tax rates reduce economic growth. Your evidence does not contradict that assertion. Doesn't even touch it. Further, you're dealing with claims and a study that are ideologically driven... so more precision is required, not less.
- tolmasky 14y ago
  You began with the question of whether higher marginal tax rates made economic growth "impossible". After finding that there was growth between 1940 and 1980, you should have concluded "no, it does not make it impossible as we have a counter example". This follows and is called induction. But you for some reason chose to then alter the premise and say you proved that high marginal tax rates are not harmful. You have in no way proved this. For all you know without those high marginal tax rates, growth would have been even HIGHER between 1940 and 1980. I am sure you do not believe this to be the case, and that is a very reasonable belief, but understand that it is not proven by this evidence (nor is it disproven mind you). True evidence-based proofs, the way its done with science, requires that you test one variable. In the example above you'd have to have a parallel economy where all else was the same except the tax rate. Unfortunately this is impossible, but this does not mean we get to change what "proof" means. Economics would work much better if everyone came to terms with the fact that it is untestable and was honest with themselves that all opinions regarding it are just beliefs, regardless which side you fall on.
yardie 14y ago
> tax increases -- produced the effect -- economic growth. I don't see that in the title, in the summary, nor in the body of the article. How did you get to this conclusion?

Aloisius 14y ago

I am shocked, absolutely shocked that the vast majority of economists have been right for decades. Next thing you'll tell me is that limited quantitative easing or government spending increases employment!

deleted 14y ago
[deleted]
nirvana 14y ago
I'm not at all surprised that people brought up on political propaganda think that this propaganda represents the opinion of the "vast majority of economists". The reality is, anyone who knows anything about economics knows that taxes inhibit economic growth. The idea that this is wrong, is so absurd that it should be laughed at.... only the problem is, most americans are absolutely ignorant of economics and thus can be tricked into believing it. Or in your case, assuming that "the vast majority of economists" think this, and have done so "for decades". Frankly, it is astounding how much you have rejected economic as a science while thinking the partisan ideology you're pitching is "economics".
- EricDeb 14y ago
  It does seem trivial that taxes stifle economic growth, however, isn't this under the assumption that people will spend the money they garner on tax breaks rather than sit on it? Although the government is laughably inefficient, wouldn't it be more productive to increase taxes and then have the government spend because the government is guaranteed to spend all of it?
- seanmcdirmid 14y ago
  Any economist worth their salt knows that taxes may or may not inhibit economic growth. Taxes invested in infrastructure, security, and education may actually increase growth long term. Taxes wasted on corruption will most definitely hurt growth. Property taxes also encourage people to put properties to work, inheritance taxes encourage more dynamism between the generations (discourage old money aristocracy), and so on. Overly harsh taxes on the rich will also encourage avoidance (honest or dishonesty) and migration (negotiate your own rate with a swiss canton), while regressive taxes on the poor will lead to riots and revolts. Societies are complex systems and managing them efficiently is actually (gasp) quite difficult.

mhartl 14y ago

Happy to hear it. I think it's time to try a 100% tax rate and see how that goes.

ekianjo 14y ago
Agree. Let's ban profits altogether, punish companies daring to fire people by putting their CEOs in jail and then nationalize their assets, redistribute all money around all classes of societies to remove once and for all the inequalities of life, providing government jobs for everyone and we will be closer to a real paradise on Earth. Oh wait. Russia tried that. For more than 65 years. It did not work too well for them.
- Roboprog 14y ago
  Of course, one could look at some of the Northern European countries that are neither purely communist nor purely private property capitalist, and consider the possibility of a happy middle between a communist dictatorship and a banana republic style oligarchy. How do you expect to create a fabulously wealthy startup if you are the child of an "untouchable" caste with 0 initial resources???
- rayiner 14y ago
  > Oh wait. Russia tried that. For more than 65 years. It did not work too well for them. You might want to learn a little bit of history before spouting off the conventional wisdom you learned in 8th grade. Russia for hundreds of years was a total backwater. At the turn of the 20th century it was incredibly far behind the rest of Europe. Under communism Russia became an industrialized superpower that rivaled the US. Ultimately the communist system collapsed, but partially because of its own success. The impoverished denizens of pre-Communist Russia had never been able to force democratic reform, but with the economic growth under communism arose a commercial class that was able to force some level of democratic reform.
  - ekianjo 14y ago
    It is conventional wisdom because it goes against all human instincts that the fruit of your work should your own property. That is why all communist systems ultimately fail, because they kill all incentive to work hard and to innovate since no single individual can get the benefits of their own work. Let me laugh at your "superpower" claim regarding Russia. For dozens of year that "superpower" had to rely on importing wheat from the US to keep feeding its own population. Being able to launch rockets while your people are literally starving (and I am not talking about being "hungry" as we see often nowadays) is not an achievement, it is an utter failure. There was no economic growth under communist Russia: it was simply spoliation of people's property to feed certain sectors of the industry (the ones that were "successful". Like Bastiat said, there are "things that you see and things that you do not see". Focusing only on the achievements of Russia makes it easy to forget the massive failure of its system in all other endeavours.

joshuaheard 14y ago

I've been looking for reasons to retire, and if the tax rate were 90%, I'd be out.

yen223 14y ago
Luckily no one is proposing 90% taxes then.
Gustomaximus 14y ago
Do you understand marginal tax rates? Hypothetically if tax rates did move to 90% on personal income this would most likely be triggered on such a high tier of income you would already be working because you want to, and not for financial need. Also once you average out the tiers leading to 90% you will pay a lot less than this 90% you're throwing out there. Edit: spelling

ArmstrongRSBC 14y ago

We are running a massive balance. We have a tremendous national debt. Our economic growth hasn't been paid for yet.

EricDeb 14y ago
Agreed. Lets cut defense and military spending substantially.
- mpyne 14y ago
  Yes, because summarily removing all of that spending would certainly have no drastic follow-on effects to the national economy.

mcenedella 14y ago

This article well illuminates the dictum to beware analysts picking their own time horizons. Calculating impact from five-year growth rates is problematic for business cycle, responsiveness, and exogenous factors. Cato's reply is here: http://www.cato-at-liberty.org/tax-rates-impact-economic-performance-but-other-policies-also-matter/ http://www.cato-at-liberty.org/tax-rates-impact-economic-per...

curt 14y ago

Please know that in periods of "high personal tax rates" business owners declared their income through their companies thereby lowering their tax rates. You would have a company car, company vacation, company dinners, you can even make it company policy to pay for the employees children college education, etc... This is the same reason any comparison of income equality over time is meaningless. Since income was declared through different avenues. To understand the tax implications of economic growth you have to look at the tax payments as a percentage of GDP as well as compliance costs. In the US tax payments have held steady at about 18% of GDP since WWII until recently. People hunt for loopholes no matter what. But when rates are low you don't have to look for loopholes, so you can deploy your capital more efficiently. Thus generating economic growth. This is why tax cuts often stimulate large economic booms. Capital that was sitting in say tax-protected muni bonds will move into the market and be deployed for business expansion and thereby hiring. There's so much evidence to the contrary of this article, even Obama's own counsel of economic advisories share the view that tax cuts stimulate economic growth. Christina Romer, his former advisor wrote a paper on the subject. What they do is look at country around the world to collect more data points for a better regression analysis. Also note that when you say "tax cuts", not all tax cuts are made equal. For a tax cut to be effective it needs to change long-term behavior. So credits and such have a near zero or negative effect while rate cuts have a positive effect. The most beneficial being capital gain rate cuts (ie every time they have been cut, revenues from the tax have increased), corporate, and then final income tax rate cuts. -Really going to down vote me without refuting any of what I said.

btilly 14y ago
That is a strong set of claims, and as long as you hold it, you are utterly to any set of facts that might dispute it. According to IRS figures, the top 400 tax payers today pay income taxes below 16%. According to the best available figures, the top theoretical tax rate during the 1950s was over 90%, but the average tax rate paid by the top approximately 400 people was 51.2%. Obviously they used a lot of tax loopholes. Obviously they still wound up paying, in real taxes, a lot more than the very rich to today. Of course if you refuse to believe that the real figures were reported to the IRS, you can believe any figures that you want. But it is pretty hard to reasonably come to the conclusion that the rich today are paying similar tax rates to the rich 55 years ago. As for taxes and economic growth, it is a trivial piece of economics to conclude that collecting more in taxes immediately takes money away from the economy. However it is only slightly less trivial to conclude that the amount of damage it does is proportional to how likely that money was to get spent. Given that the poor are likely to spent more than the rich, that means that we should prefer to tax the rich more. Therefore if you're going to levy taxes (and there is no reasonable way to avoid the need to), it is more efficient for all of us to tax the rich more heavily. Instead of taxing them less, which is what they keep telling us we need to do. (I, along with many of the people on this site, pay a greater fraction of my income in taxes than Mitt Romney does. But is this really good public policy?)

jacques_chester 14y ago

The headline is needlessly inflammatory. A better headline might be "tax rates and growth only poorly correlated in one particular country in a limited period with the highest rate of technological change in recorded history".

deleted 14y ago
[deleted]

zeroonetwothree 14y ago

The number of significantly different tax policies over those 65 years is very small--less than a dozen. So concluding anything from such a small number of samples is impossible. Thus it's not surprising they find "no correlation" between taxes and economic growth.

udpheaders 14y ago

Next week: Economic Growth Doesn't Lead to ________, a New 65-Year Study Finds Fill in the blank. Do people want "economic growth" or whatever that might be assumed to lead to, or do they just not want to donate money to their country through their government? One is kind of indirect and speculative, the other is direct and immediate.

seagreen 14y ago

Just a reminder that since there's actual power at stake here (votes) it takes extra work to write a quality comment on this kind of article. The difficulty is equivalent to trying to have a discussion where some unknown but real amount of money will go to the political party whose policies are closest to those advocated in the top rated comments. This makes it genuinely hard to think clearly on this kind of topic. Because of this it's extra important to be non-partisan, which is hard. Try it though, it's a fun exercise! My comments: I strongly agree with one of the conclusions of the article, that we should be "humble about taxes as a tool for growing the economy." However, I'm suspicious about their reasoning. I'm not a statistician, but doesn't a sample size of one seem a little . . . low to anyone else? It seems fairly likely to me that if you examined more situations, you would find that taxes are generally not a tool for growing the economy, are sometimes beneficial, and are sometimes strongly detrimental. For instance, say you're running a city-state in East Asia. Given that you're competing against Hong Kong and Singapore, I'd guess that low taxes would be essential to economic growth. On the other hand, say you find yourself in charge of Somalia now, or Poland in 1938. I don't know about you, but personally I'd really be digging the infrastructure/tanks respectively. This makes me pessimistic that accurate conclusions can be drawn from a study like this. For instance, say you're rich in 1960s America but you don't like the high taxes. Where else would you go? Now there are lots more options.

nnnnni 14y ago

It took a 65-year study to prove something that should be obvious to anyone with a little bit of common sense?

onetwothreefour 14y ago

LOL. No shit. No one actually thinks this. It's called pandering to the base.