A Raise In Top Tax Rate Won't Stunt Economic Growth Or Job Creation

The main two tenets of Republican economic policy these two days are that raising taxes on the rich (elevating the top tax rate) would be a disaster -- in that it would stunt job creation and harm the economy. As the chart above clearly shows, that is just not true. In fact, the highest percentage of new jobs being created were in times with the highest top tax rate. Note that during times when the top tax rate was between about 40% and 90%, job creation was 2% or higher. But when the rate was lower, the job creation fell to 1% or lower. Obviously, tax rates have nothing correlation to job creation.

And the same is true of economic growth. Two prize-winning economists have have written an article for the Wall Street Journal busting this Republican myth. Peter Diamond (Nobel Prize) and Emmanuel Saez (John Bates Clark award) had the following to say:

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.

The Republican excuses for trying to lower taxes for their rich buddies just don't hold up under scrutiny. It's time to raise taxes on the rich -- both to make the tax system fairer and to lower the deficit. It's not "class warfare". It's just good economic policy.