Paul L. Caron

Wednesday, March 13, 2013

NY Times: Blessings of Low Taxes Remain Unproved

New York Times:  Blessings of Low Taxes Remain Unproved, by Eduardo Porter:

The proposition that low tax rates produce higher economic growth has been a central plank of the Republican platform since I was a teenager. ... But while the message has not changed, the track record of the last three decades does not bear out the core proposition of Republican economic doctrine. ...

Thomas L. Hungerford, an economist with the Congressional Research Service, got into trouble with Republicans last year when he published a study suggesting that the sharp drop in top tax rates since 1945 did little to lift economic growth but probably did contribute to soaring income inequality.

And there’s no clear evidence that lower tax burdens have helped the United States grow faster than other advanced industrial nations with higher tax rates and much heavier tax burdens. Economic growth per person in the United States was a little faster than in France or Australia over the last 40 years. But it was a little slower than in Austria, Germany and the Netherlands, according to data from the Organization for Economic Cooperation and Development, a research organization for the world’s richest countries.

While high taxes do have an effect on variables that affect growth, many other factors are much more significant and overshadow whatever taxes do....

Recent history may even suggest the economy thrives when taxes are higher. Despite President Bush’s tax cuts, the economy during his administration grew only about 17 percent, half as much as during that of his predecessor, Bill Clinton, who had raised them. ...

As in the early 1980s, the economy today remains well below its capacity. And Republicans are again calling for lower tax rates as a tonic for faster growth. But if lower taxes do not deliver higher growth, why should the nation pursue them?

“It’s hard to say for sure what our economic trajectory would have looked like with higher taxes,” said Alan Auerbach, an expert on the economics of taxation at the University of California, Berkeley. “Some of the disappointment that our low taxes haven’t had a more obvious impact comes from overblown claims of tax cut supporters.”

Prior TaxProf Blog coverage:

(Hat Tip: Mike Talbert.)

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A professor at Berkeley endorses a left-leaning view on taxes presented in an anti-Republican piece in the NY Times...simply shocking.

Posted by: jason | Mar 14, 2013 1:43:53 PM