Super-duper chart of the day

Every political journalist should be forced to become familiar with this chart and bring it up every time a Republican candidate says that they will bring about economic growth through cutting tax rates on high earners (via Derek Thompson):

Screen Shot 2012-09-16 at 11.15.58 AM.png

And the explanation:

Does this story prove that raising taxeshelps 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 new column today 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.”

Short version: no evidence that cutting top marginal tax rates increases economic growth.  No matter how much Republicans want it to be true.

About Steve Greene
Professor of Political Science at NC State

One Response to Super-duper chart of the day

  1. The Scarecrow says:

    What about spending? All I see are taxes. The more corporate welfare you flood the system with, the more it exacerbates a downturn in the economy.

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