Repeat After Me: Low Taxes (on Rich People) and Economic Growth Are Not Correlated

Jared Bernstein tells us yet again what the data has been telling us forever (my bold):

I agree with Chye-Ching Huang, who agrees with the Congressional Research Service, Len Burman, and me: over the long, historical record of special tax treatment for investment incomes and tax cuts to the top marginal tax rates, one simply doesn’t find significant correlations with greater investment, savings, productivity, or income growth.

Everything he cites here is about U.S. tax and growth rates — a single sample point though a long-term one — all of which is subject to the big secular thing: growth was faster pre-Reagan, and Dems were in power pre-Reagan, so the numbers just represent that secular decline (the great innovation stagnation?), not the effect of policies. It’s amazing that Republicans never make this argument, which is pretty tough to counter. But that’s mainly because they don’t even know, much less acknowledge, that growth has declined since Reagan took office. This argument ignores the boom and surplus under Clinton, of course (of course that boom was attributable to Newt Gingrich), but besides that it’s a tough argument to disprove.

The far more convincing demonstration, in my opinion, is this: comparing the U.S. to Europe over forty years.

Roughly the same population.

Roughly the same level of prosperity.

One taxing 40% of GDP, the other taxing <30%.

Difference in growth rates: nonexistent.

 Cross-posted at Angry Bear.







4 responses to “Repeat After Me: Low Taxes (on Rich People) and Economic Growth Are Not Correlated”

  1. paul Avatar

    In other news the Sun rises in the east.

    Anything increasing the accumulation of wealth at the top leads to diminishing wealth for everyone else. How could it be any other way?

  2. Asymptosis Avatar

    @paul “In other news the Sun rises in the east.”

    Yeah, I think I’ve commented on W’s (and other ‘pubs’) willingness to point to the sun rising in the east, and say, “See, I told you! The sun rises in the west.” And other ‘pubs predilection to nod enthusiastically in agreement. Go figger.

  3. Luke Avatar

    I am inclined to agree that higher taxes on very high labour income does not have an effect. Basically I do not believe that someone earning $10 million a year is really smarter and harder working than a neurosurgeon earning $300K a year. Once you get past the $300K level, you are relying more on economic quirks for the extra income and not your brilliance and extra hard work.

    But I disagree with your argument about higher taxes in general and your comparison with Europe. Western and Northern Europe have very high human and social capital, certainly ahead of the USA, yet they consistently lag the US on many statistics from hourly productivity to capital investment.

    And it must be noted that the USA’s lower spending as a percent of GDP is not a result of lower spending, it is a result of longer working hours, higher hourly productivity (and depending on which country you are comparing to) higher labor force participation. Becoming more like Europe would involve working less, not spending more. And shifting some defense spending to other areas.

  4. Miracute Avatar

    RhondaWelcome to Modern Day Nobelist When our for-fathers came to this country they was ruinnng from the lack of opportunity for people who was not born of royal blood. The opportunity and wealth was unattainable to those who was born to not to the wealthy noble class. In essence our for-fathers was ruinnng from the slavery and oppression that was forced upon them with no hope of change. Now we move forward to the United States of America where we too got caught up in power and created our own slave base. We brought African Americans to the newly founded country not to be our equals but to basically be slaves. Amazing that back then they forgot where they came from and why the country they was so proud of was founded. Amazing how history in man repeats itself. The slaves fought back under the constitution that was written to protect against exactly what was being done to human beings. We fought and won the war on oppression. The only people who wanted that way of life was in fact the rich who took the place of the kings of queens of the past.Now we look at 2011. Where modern day nobility has reared its ugly head again. We have a class war going on in which one class wants slaves to be the nobles of this country, at the expense of others who sacrificed blood, sweat and tears for the freedom that the united States is supposed to provide. So again just like in history past we are fighting nobility again. We are looking at history once again repeating itself. Is this what our country was truly founded on was only the successful and fortunate people get to survive? No its not and anyone who would tell you otherwise better go back and read history again. This country is founded on justice and liberty for all NOT SOME. We stand with each other under the flag for the people. ALL the people. Martin Luther King reminded us of that. And now its time we have an awakening again. Is this country truly only about success? Is this country really only for people who have inherited opportunity and money? If your born poor you will always be poor? This is not what made this country great but if we follow the new ideology of many who feel its okay to not worry about your neighbor they just didn’t work as hard as my father did for his money. Our country will just turn back history to become exactly what this country was not meant to be. How soon those people forget whose fathers fought for their freedom, died in those wars that is worth more than any company and amount of wealth you could have..Because if it wasn’t for them YOU WOULD not HAVE WEALTH you would have been a slave in England working for the Kings and Queens and begging for food. So before you decide that what marks a successful person as how much is in their bank account look back in history at how much those poor families gave up to give you and me and our future the freedom we enjoy. If we dont stop and look at our history and actually learn from it how will one truly LEARN from it. Its our turn to stand up like many heros did before us. Its time WE THE PEOPLE take our country back. Loyalty starts at home. WIth our neighbors, family and friends. Corporations are not people. Economic justice for all not just for some. That is what our forefathers wanted. That is what they didnt have in England and that is why they came to this land to begin with.I will close with this the definition of Nobility ..How much can you relate to?Nobility is a social class which possesses more acknowledged privileges or eminence than members of most other classes in a society, membership therein typically being hereditary. The privileges associated with nobility may constitute substantial advantages over or relative to non-nobles, or may be largely honorary (e.g. precedence), and vary from country to country and era to era. Traditionally membership in the nobility has been regulated or acknowledged by the government. There is often a variety of ranks within the noble class. Legal recognition of nobility is more common in monarchies, but nobility also existed in such republics as the Dutch Provinces, Genoa and Venice, and remains part of the legal social structure of some non-hereditary regimes, e.g. San Marino and Vatican City in Europe. Hereditary titles often distinguish nobles from non-nobles, although in many nations most of the nobility have been un-titled, and a hereditary title need not indicate nobility.Rhonda Taylor