chart above shows the growth of the American economy from 1987 to 2005. Note that after taxes were increased, by George H.W. Bush in 1990 and Bill Clinton in 1993, the nation's GDP continued to grow. But after tax cuts by George W. Bush, in 2001 and 2003, the economy's GDP growth took a serious nosedive. In both cases, the GOP economic theory was dead wrong.
In addition to the graph, we now also have a new report put out by the bipartisan Congressional Research Service. That reports also concludes that there is no relationship between the tax rate and the country's economic growth -- that GDP growth is neither stunted nor stimulated by the tax rate. Here is part of what they said:
Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.
That shouldn't come as any surprise to anyone who understands how the economy works. The fact is that economic growth (and job creation) are determined by the strength of the demand for goods and services. When that demand is high, the economy grows (and jobs are created), and when the demand is weak the economy slows or shrinks (and jobs are lost). This is not a hard concept to understand, and may cause some to wonder why the GOP clings to its failed tax cut theory. The truth is that the Republicans don't really care about GDP growth or job creation, but only about giving themselves and their rich friends more and massive tax cuts -- regardless of what it does to the economy or job creation.
But while the GOP economic policy will not spur economic growth (or create jobs), it does a couple of other things -- and both of them are bad for this country. First, and this is mentioned above in the Congressional Research Service's report, it increases the wealth and income of the richest people in this country -- and contributes to the creation of the vast (and still growing) gap between the rich and the rest of America. In fact, it has helped to create the largest wealth and income gap since before the Great Depression.
Second, it is destroying the middle class in America. The Republican policy has caused a huge shift in income from workers and the middle class to the richest people in the United States. According to Alan Krueger, chairman of the president's Council of Economic Advisors, the shift was the "equivalent of moving $1.1 trillion of income from the 99 percent to the top 1 percent every single year". And the chart below shows what that has done to the size of the middle class.