Paul L. Caron
Dean




Friday, July 9, 2010

Raising Taxes Leads to More Economic Growth, Part 2

Following up on my recent posts:

Presimetrics Blog, Tax Burdens and Economic Growth – Answering the Objections:

[L]ower tax burdens are not correlated with more rapid economic growth. In fact, from 1929 to the present (and in the book, we focus on the period from 1952 to the present) administrations that have cut the tax burden have performed worse than administrations that raised the tax burden.

GDP Chart

(Hat Tip: Marty McMahon.)

https://taxprof.typepad.com/taxprof_blog/2010/07/raising-taxes-.html

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Comments

The chart is interesting but per a comment by forest above: "correlation" is not "causation"; that's true, but what is the causation?

This is not the first article to point out that under Democratic presidents (in general)the economy (broadly speaking)performs better than under Republican presidents:
http://www.forbes.com/2004/07/20/cx_da_0720presidents.html


Here's a link for stock market returns:
http://www.forbes.com/2004/07/21/cx_da_0721presidents.html

Interestingly enough bonds perform better under Republican presidents than Democratic presidents.

Why then do Democratic administrations outperform Republican administrations? This conundrum has been researched much less than it probably warrants. It could simply be the luck of the draw. However, there certainly "appears" to be some underlying reason at work. One theory is that Democrats administer their policy for the very broad consituency they represent. Republicans by contrast administer for a narrower constituency.

My personal theory is something of reverse psychology. The public in general assumes and believes that the Republicans have better economic performance than Democrats. Therefore Republicans are under somewhat less pressure to deliver results than Democrats. Ergo, you have better economic performance from Democratic administrations than Republican administrations. I will however note that Republicans have been very succesful in delivering tax cuts that are demanded by their constituency.

Full disclosure: I was a "main street" Republican until about halfway thru the 2nd term of the Reagan administration; the above issue is primarily why I left the party and have since voted indepently and usually for Democrats.

Posted by: Allan Hughes | Jul 12, 2010 11:24:46 AM

I cannot believe that a person of your obvious intelligence is making these arguments. It is hard to beleive that you are confusing "correlation" with "causation".

Your argument is the same as someone who observes that obese people consume more diet soda and conclude that drinking diet soda makes one obese. There may in fact be no causal connector in any of the cases you cite.

Clearly, you are also cherry-picking facts. I thought JFK cut many taxes - you list him as a tax increaser. I also thought that Hoover increased taxes. And LBJ's tax and spending policies set off inflation which haunted much of the Nixon years.

The growth you list for FDR is clearly do in part to starting with a low '32 base. Also, because of FDR's actions, 1937, 1938 and 1939 were among the worst years of the depression. How do you account for the fact that the US reamined in a depression for MUCH longer than the rest of the world?

Listing Obama as a tax cutter is also a hoot. Very soon Obama will be allowing the Bush tax cuts to expire and how will the vastly increased deficits be paid for.

I do not have the time or energy or interest to fact check you further - there's enough wrong with your data to reveal the highly partisan nature of this exercise.

Posted by: Ed Dembitz | Jul 10, 2010 7:53:02 AM

Obama is not a tax cutter. Tax credits aren't tax cuts. Handing out "tax credits" to people who pay little of not income tax is more like welfare than a tax cut. Secondly, in addition to consumption taxes that have already been hiked, everyone knows he will let the bush tax cuts expire. And then there are whatever other hikes the "deficit commission" comes up with. So it's the anticipation of inevitable tax increases are impacting behavior now. He's already not a tax cutter, and in the end will be a big tax hiker.

Posted by: forest | Jul 10, 2010 6:48:30 AM

This bozo chart is like others that progressives leap onto in arguments with rational people to "prove" their beliefs in opposition to tax cuts. You can tear it apart, but they'll ignore you and keep it in their archives, along with their proofs of global warming, and keep bringing it up until you get sick of arguing with them.

Posted by: Woody | Jul 9, 2010 9:07:37 PM

Could this chart be more simplistic. How does this incorporate the economic issues currently going on at the time of the tax hike or cut. Hoover cut taxes - maybe because of the great depression - and FDR didn't exactly have to do anything given how completely collapsed the economy was to get any type of GDP growth. Further, how is the separation even made Bush, Sr raised taxes, Clinton and Reagan both lowered and raised taxes. So beside not really delving into any point what is the point of this chart.

Posted by: Burger | Jul 9, 2010 1:46:53 PM

This could just as easily prove that more economic growth led to higher taxes

Posted by: Guy | Jul 9, 2010 12:16:33 PM