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Economists: Higher Tax Rates On The Rich Won’t Hurt Growth

By Pat Garofalo on April 24, 2012 at 9:35 am

"Economists: Higher Tax Rates On The Rich Won’t Hurt Growth"

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According to the constant refrain from Republicans in Congress, the reason that tax rates can’t be raised on anyone, even the already super-wealthy, is because doing so will hurt economic growth. However, two prominent economists — Nobel Prize winner Peter Diamond and John Bates Clark award winner Emmanuel Saez — write in today’s Wall Street Journal that the conservative theory is basically bunk:

In the postwar U.S., higher top tax rates tend to go with higher economic growth — not lower. Indeed, according to the U.S. Department of Commerce’s Bureau of Economic Analysis, GDP annual growth per capita (to adjust for population growth) averaged 1.68% between 1980 and 2010 when top tax rates were relatively low, while growth averaged 2.23% between 1950 and 1980 when top tax rates were at or above 70%.

Neither does international evidence support a case for lower growth from higher top taxes. There is no clear correlation between economic growth since the 1970s and top tax-rate cuts across Organization for Economic Cooperation and Development countries.

Saez and Diamond also note that growth can be boosted if the revenue raised from higher taxes gets spend on infrastructure or other public investments. “The neglect of public investment over the last few decades suggests that the returns could be quite high,” they wrote.

As this chart shows, job growth has been weakest when the top tax rate was at its lowest:

In fact, job growth has been stronger when taxes are higher overall:

Of course, none of this should be construed as proving that higher taxes cause better job growth. But the Republican claim that higher taxes will blunt job growth is most certainly not true, as the data shows.

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