Do lower taxes on top 1% boost the economy?
Since the days of Reagan, many have held that the economy can be stimulated by cutting taxes on the incomes of people who have the most money to invest. An insightful analysis at LaneKenworthy.net offers evidence questioning that assumption. Consider some intriguing observations on the data graphed below.
Chart 1: Note that at the close of World War II, Americans in the top 1% of income paid a marginal tax rate of 90%. Now, it’s about 35%. I’m sure most Americans don’t realize how profoundly this rate has fallen.
Chart 2: As the rate dropped, government revenue from this group (as a proportion of GDP) plummeted. Find ‘the late ’90s through 2001; compare them with ’02-’05.
Chart 3: Finally, note the comparison of the top 1%’s marginal tax rate with the growth rate of the national GDP. Note that it’s pretty tough to find a link between the two.
Theoretically, if the rich get a break, they invest the extra, and we all gain from the stimulation of the economy. While it’s true that financial data can be read a number of ways, cutting taxes to the richest can’t be shown to boost economic growth.
And what happened to the USA in those years when revenue from the top 1% dropped so dramatically? The US government replaced the tax revenue with the sale of bonds. And as long as the highest 1%’s tax rate stays low, I wonder what income brackets will provide the revenue that pays off those bonds? Doesn’t it simply seem like a shift of the tax burden away from the richest onto those who earn less?
Read the whole narrative at LaneKenworthy.net. And please, let’s ask ourselves whether economic conservatism— however revered it may be— is really good for most Americans.
Tags: economy, taxes, tax+breaks, wealth, poverty, middle+class, Reagan, supply+side, trickle+down, Monte Asbury