Tax the Rich! And make us all richer?
Lane Kenworthy takes up the tax-rates-on-the-rich-versus-GDP-growth discussion (hat tip to Free Exchange for the pointer). His key point: more important than top marginal rate, is the effective rate that top earners pay. The post is also quite interesting in concentrating on the GDP-growth effect of taxes on the top 1% of earners.
Unfortunately this chart is rather useless, as it compares tax rates in given years to GDP growth in the same years. (And he didn’t include a trendline.) Obviously, it can take a long time for tax consequences to play out in the overall economy.
He does make the point that of late, periods of declining effective rates and rising effective rates on the top 1% resulted in the same GDP growth in ensuing years.* No real impact.
But again, the periods he considers are far too short to draw any effective conclusions. Hoping he’ll serve up longer-term analyses, such as this. And he only looks at the U.S.
Like FreeExchange, I think Kenworthy’s analysis of GDP-growth effect is what’s important here. (Not the obvious counter-voodoo, that lower taxes don’t pay for themselves.) I’ve ordered two of Kenworthy’s books and will report back.
* His actual words (hard to to grasp immediately without multiple readings; a graphical rep would have helped):
the effective tax rate on the top 1% fell sharply between 1979 and 1982. In the five-year period beginning in 1982 the growth rate of per capita GDP averaged 2.6%. By contrast, the effective rate on top incomes jumped appreciably between 1990 and 1995. Yet over the five-year period starting in 1995 the average rate of economic growth was virtually identical: 2.7%.
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