More on Taxes and Economic Prosperity

We have posted many times (here, for instance) that, despite contrary political rhetoric about high taxes, taxes in the U.S. are at historic lows. Eduardo Porter has now published this essay explaining that the supposed connection between low taxes and economic growth — a basic premise of conservative U.S. thought for many years now — is unproved. Here's an excerpt:

The argument [that low taxes equals ecomomic growth] has proved extraordinarily successful [politically]. Under Republican
presidents, the top income tax rate fell as low as 28 percent, less than
half the 70 percent level it was in 1980. The top corporate income tax rate was 46 percent when President Reagan
took office. Today it is 35 percent. Taxes on investment income, which
primarily flows to the wealthy, are even lower. In laying out his plan
for a balanced budget by 2023, [Rep. Paul] Ryan has trotted out the same three
elements of [former congressman Jack] Kemp’s formula: drastic curbs on spending, paring
loopholes in unspecified ways and cutting tax rates even further, well
below the roughly 40 percent top rate on income that was reintroduced by
President Obama’s recent tax increase…. Problem is, there is little evidence that tax cutting has worked as advertised. Thomas L. Hungerford, an economist with the Congressional Research Service, got into trouble with Republicans last year when he published a study
suggesting that the sharp drop in top tax rates since 1945 did little
to lift economic growth but probably did contribute to soaring income inequality. And there’s no clear evidence that lower tax burdens have helped the
United States grow faster than other advanced industrial nations with higher tax rates and much heavier tax burdens.
Economic growth per person in the United States was a little faster
than in France or Australia over the last 40 years. But it was a little
slower than in Austria, Germany and the Netherlands, according to data
from the Organization for Economic Cooperation and Development, a
research organization for the world’s richest countries.

0 thoughts on “More on Taxes and Economic Prosperity

  1. aef says:

    I think as long as the government will use the collected taxes in a useful thing, even a low rate tax will help our economy to grow. A good governance will always result in a good economy.

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