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Killing us slowly

Every so often an economist will come forward with a statement opposing a popular notion that a higher tax rate on the well-to-do is harmful to the country’s economy. Here are two economists who say that the supposed harm just ain’t so:

According to our analysis of current tax rates and their elasticity, the revenue-maximizing top federal marginal income tax rate would be in or near the range of 50%-70% (taking into account that individuals face additional taxes from Medicare and state and local taxes). Thus we conclude that raising the top tax rate is very likely to result in revenue increases at least until we reach the 50% rate that held during the first Reagan administration, and possibly until the 70% rate of the 1970s. To reduce tax avoidance opportunities, tax rates on capital gains and dividends should increase along with the basic rate. Closing loopholes and stepping up enforcement would further limit tax avoidance and evasion.

But will raising top tax rates significantly lower economic growth? 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%.

And it’s one more reference to the good old Reagan days when the wealthy paid much more in taxes.

Posted in Econo.

1 comment

By Green April 25, 2012


One Response

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  1. spacer contrarian says

    I’ve seen this quote regarding post-war economic engine before. One commentator noted that the entire European industrial base was destroyed during the war and therefore there was little competition for American manufacturers at a time of enormous demand. It seems to me that the economic phenomena is more reflective of supply and demand than tax policy.

    April 25, 2012, 11:30 pm

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