Cutting Taxes Does NOT Promote Growth

I have used this graphic (from Center for American Progress) before, but it bears repeating. That's because the Republicans keep repeating their mantra that reducing taxes will encourage economic growth. Just this last weekend on Meet The Press, Speaker John Boehner said:

We’ve got to find a way through our tax code to promote more economic growth in our country. We can do this by closing loopholes, bringing the rates down for all Americans, making the tax code fairer — it will promote more economic growth.

While that may sound reasonable to those who are ignorant of economic reality, it is just not true. There is no evidence that cutting taxes encourages or promotes economic growth. But there is proof that economic growth is not connected to the tax rate at all.

Note in the chart above that the largest economic growth, growth in Gross Domestic Product (GDP), has occurred during the times in this country's history when the top tax rate was the highest (between 75% and 90%). And the lowest growth in this country's GDP has come when the top tax rate was at the lowest (between 28% and 38.6%). Tax rates between 39.6% and 75% produced lower growth than the highest top tax rate periods,  and larger growth than the lowest top tax rate periods.

The chart clearly shows that a lower tax rate does not mean higher GDP growth. In fact, just the opposite argument can be made from looking at this chart -- that a higher top tax rate means more GDP growth and a lower top tax rate means less GDP growth. Personally, I don't think either case can be made. What the chart shows is that the top tax rate has nothing at all to do with economic growth. Note that while the highest growth was during the period when the top tax rate was 75% to 80%, there was also healthy and significant growth when the rate was 39.6%.

The Speaker (and his Republican comrades) are just being disingenuous. They have to know that economic growth is not linked to the tax rate, because they can access this information just as any American can. But if they admit this truth, then they will have no argument for reducing taxes for the rich and the corporations (which is their true goal).

Don't let the party of the rich fool you into thinking that lower taxes for the rich will boost the economy. It won't. Economic growth and job creation depend upon demand, not the tax structure.