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The Republican party in the US has a position that that raising taxes on rich people leads to less growth. Is this true?

For one example of the claim, CNN reported in August 2012:

Republicans seeking to shrink the size of government oppose any higher taxes and argue the Democratic plan of allowing rates to increase on higher-income Americans will stunt economic growth.

(see also meta discussion regarding deleted answer )

Another example of the claim, from Forbes Magazine

Economic Growth Will Pay For Mitt Romney's Tax Cuts

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    Please provide some references to places where this claim is being made. There are almost certainly caveats made: let's see what the politicians actually say.
    – Oddthinking ♦
    Commented Oct 13, 2012 at 3:50
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    @Oddthinking: It's not necessary, you've heard the claim many times, including this most recent vice-presidential debate. It's the exact opposite of the truth, as I explain in my answer. If someone has some data which supports this, or any theoretical argument why correcting this market imbalance should decrease rather than increase growth, please provide another answer. Otherwise, I will just accept mine.
    – Ron Maimon
    Commented Oct 13, 2012 at 3:57
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    @Casebash: Not clear at all if even 90% tax (collected efficiently) will dissuade anyone from anything. It was 95% under Eisnehower, and there were plenty of startups. I want to know theory and experiment, not opinions based on personal what-ifs. I have joined a startup, and taxes were the last thing on my mind.
    – Ron Maimon
    Commented Oct 13, 2012 at 5:25
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    @RonMaimon: it looks to me like your question is politically motivated. If you are happy with your unreferenced answer then what is the point of asking a question on this specific site? Ask it on any of the millions of forums about politics, that are done to discuss politics, not on a Q&A site that requires notable claims for questions and reputable sources for answers.
    – nico
    Commented Oct 13, 2012 at 15:13
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    @nico: I am not happy with my answer. It is theoretical, and I want more experimental data. It comes up in politics, but I am asking because I want to see the data. I asked an economist a few weeks ago, and he told me that you can see a clear growth-suppression from high taxes in developing countries, and that people debate this endlessly. I wasn't sure about the data in other countries, developing or developed, my answer is based on the only thing I do understand--- free efficient market theory, and when it applies. I was hoping to get data and theory from the other side, if there is any.
    – Ron Maimon
    Commented Oct 13, 2012 at 15:42

1 Answer 1

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This article presents a number of charts and data from the Congressional Research Service and other sources that indicates the answer is tax increases do not slow down economic growth, nor do tax cuts increase economic growth.

The nonpartisan Congressional Research Service studied this issue and released a report in September 2012. The author examined individual income tax rates - both marginal and average rates - over the period from World War II to the present. The maximum marginal tax rates range from 70 to 90 % in the 1945 - 1980 period, to today's 35%. Capital gains tax rates were also evaluated, which are also substantially lower today than they have been historically. Pre WWII data were not examined because few Americans were required to file federal tax returns prior to that time.

The tax rates were then correlated with economic growth data from the US Bureau of Economic Analysis. Statistical analysis showed virtually no correlation between tax rates and economic growth. If anything, there is a very slight increase in growth during periods of higher tax rates, though the author notes that this could be a result of other changes in the economy during the time period.

The study concludes:

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth.

There is, however, a correlation to income distribution, with lower maximum tax rates leading to greater disparities in income, i.e. greater concentration of income at the very top of the economic scale.

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    Oh, ok, somebody else noticed. This data is unequivocal, it fits the theory I gave, it is bipartisan data, and I accept. I also note that in the model I presented, tax cuts on the wealthy hurt growth, because they prevent income redistribution. This is born out by the data. See meta for the text of the theory, which is censored here.
    – Ron Maimon
    Commented Oct 13, 2012 at 20:13
  • Can you find a better source than a newspaper article?
    – Sklivvz
    Commented Oct 14, 2012 at 0:16
  • Mark: I suggest you read through the original source and briefly describe their methodology and extract some of the conclusions to address @Sklivvz's concerns.
    – Oddthinking ♦
    Commented Oct 14, 2012 at 1:13
  • This is a more detailed analysis, and less impartial, but in my opinion more accurate: businessinsider.com/history-of-tax-rates-2012-5?op=1
    – Ron Maimon
    Commented Oct 14, 2012 at 17:42

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