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Top Reagan Economic Advisor: Return To Clinton-Era Tax Rates Would Not Hurt Economic Growth

By Zaid Jilani on June 2, 2011 at 12:45 pm

"Top Reagan Economic Advisor: Return To Clinton-Era Tax Rates Would Not Hurt Economic Growth"

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One of the most prevalent conservative mantras is that higher taxes kill job growth. Leading right-wing lawmakers have repeatedly used this belief to justify tax cuts for upper-income earners and oppose tax increases. In defending the Bush tax cuts for the richest Americans last fall, House Speaker John Boehner (R-OH) said he opposed “job-killing tax hikes.”

Yet the idea that higher taxes impede or retard economic growth isn’t generally backed up by the facts. Bloomberg News interviewed Joel Slemrod, who was is an economist at the University of Michigian and is a former senior economic adviser to President Ronald Reagan, about the issue. Slemrod pointed out that high tax countries tend to perform well economically and said that returning to Clinton-era tax rates in 2013 would not harm the economy:

High GDP countries are high tax countries,” said Joel Slemrod, an economist at the University of Michigan’s Ross School of Business. “That doesn’t mean high taxes cause the high GDP.” [...] Slemrod, who served as senior staff economist for President Ronald Reagan’s Council of Economic Advisers, said raising taxes today would be risky because the economy remains fragile. But given the economy’s performance in the 1990s, returning marginal rates to their Clinton-era levels in 2013, as Obama proposes, wouldn’t be, he said. “It’s just hard to say that’s the kiss of death for economic growth,” Slemrod said.

In fact, Slemrod’s argument applies across the board. Historically, the United States has actually had some of its strongest periods of economic growth while taxes were high. As this graph from Slate shows, some of our strongest periods of growth in gross domestic product actually occured while taxes were very high:

In the 1950s, which had one of the sharpest periods of economic growth in all of American economic history, the top marginal tax rates for the richest Americans stretched above 90 percent. Likewise, economic growth in the relatively higher-taxed 1990s was much stronger than in the 2000s. This isn’t to say that higher taxes necessarily cause greater economic growth, but it does seem to show that higher taxes do not appear necessarily to be impeding job growth, nor are lower taxes especially helpful.

Update

Income inequality was also very low in the 1950s as taxes were high.

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