Tuesday, July 19, 2011

With Taxes This Low, Where's the Growth?

The above chart from Calculated Risk. Here are his conclusions which I agree with:

Both income (blue) and corporate taxes (red) are near record lows. Combined income and corporate taxes could rise almost 50% (as a percent of GDP) and receipts would still only be at the median for the 50 years from 1946 through 1996.

With taxes this low, where is the explosive supply side growth? The answer is tax rates are but one variable in a complex set of equations that create macro level economic growth. But tax cuts are not the be all and end all of economic policy making.

And no, this is not a call to return to the 90% marginal tax rates of the 1950s. It is an explanation of why I have no problem with the idea of raising taxes as part of the answer to solving the budget problem.