29 December 2009

Tax Cuts Are Bad For GDP Growth

In modern U.S. history, Presidents who increase taxes produce more economic growth than Presidents who decrease taxes. One can make an argument that other factors are more important than tax policy. But, the evidence simply does not support the argument that low taxes produce economic growth.

The evidence from international comparisons likewise shows that high taxes are good for a high standard of living, while low taxes are associated with a low standard of living. The low taxes lead to economic growth theory that is an article of faith for Republicans and many conservative Democrats simply doesn't hold water empirically.

This isn't to say that reforms to make taxes less onerous can't have beneficial economic impacts. But, those reforms need to focus on removing bad microeconomic incentives and dead weight compliance costs from the tax code, rather than on reducing tax revenues.

Hat Tip: Angry Bear.

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