Tuesday, June 29, 2010
Taxes And The Economy
I know I have harped on this in the past, many times, but I feel compelled to do it again. We continue to hear that the way to improve the economy and create job growth is to cut taxes. One of the latest is Senate candidate Mark Rubio (R-FL) in this ThinkProgress article. He argues for extending the Bush tax cuts because "...jobs in America are created by people that have money or access to money".
Makes sense, doesn't it. But it is bullshit!
Rdan over at Angry Bear has a great article about taxes and the private sector investment. In particular, he has a couple of great figures which I present below. These figures are based on data, really data, facts, real facts, not opinion.
Here's the first figure.
This figure compares the tax burden during the first two years of a presidential administration with the economic growth during the following 3 to 8 years. It covers the period from 1929 forward, the time period for which the data is available.
"In plain English – the more the tax burden was reduced during the first two years of an administration, the slower the economic growth in the following six years. Conversely, the more the tax burden was raised during the first two years of each administration, the faster economic growth was during the following six years." [Emphasis added]
Note where the Bush (GW) tax cuts are -- at the fucking end of the line!
OK! Well, maybe the economy grows a little better with higher taxes, but what we need now is private investment in the economy. We need the rich people and companies to invest and create jobs so we can put people back to work. We need to cut their taxes so they will have more money to invest. It is just common sense!
Let's look at private investment with the next figure.
This figure shows how private investment changes with changes in the tax burden. It shows that "administrations that cut the tax burden early saw mediocre increases in private investment later. On the other hand, administrations that started out by increasing the tax burden enjoyed big increases in private investment in the remainder of their term." [Emphasis added]
I do want to note here that these figures are using tax "burden", not tax "rate". They are using what the federal government actually took in as taxes rather than the rate people/companies were being charged. In other words, the economy does better when the government collects more in taxes regardless of the tax rate. Those taxes can come from higher tax rates and/or better enforcement of current tax laws.